2828 South 87th Street, Suite 104 PO Box 241297 Omaha, NE 68124
Phone: (402) 391-6356 Fax: (402) 391-3772 www.ricomaha.com
RIC Number: 311-AP0001
Wednesday, June 16, 2004
Sample, John W. IRREV INSURANCE TRUST
Account Number: 02-SAMPLE-33
Trust Officer: Sample Turst Officer
Sample Trust Company
Insurance Carrier Sample Life Insurance Company
Insureds Sample Insured
Policy Number 270-SAMPLE
Sample Trust Company Summary of Findings:
4 Carrier Criteria Acceptable
4 Coverage Continues to Life Expectancy (Current Assumptions) Yes
4 Comparative Analysis Competitive
4 Risk Assessment Category Medium
4 Trustee Attention Recommended Yes
4 Asset Rank Criteria Unacceptable
Resource Insurance Consultants cannot guarantee the accuracy and completeness of any of the
information provided in this Annual Performance Review as the information used in preparing this review
was obtained from third parties. Illustrations and projections of policy values are hypothetical in nature
and are designed to illustrate life insurance policy concepts. Actual policy performance will vary due to
changes in the assumptions used in preparing the illustrations. Resource Insurance Consultants does not
provide financial planning, investment, legal, or tax advice. No part of this report is intended to be
construed as providing such advice.
Sample Trust Company ("STC") serves as Trustee of an irrevocable life insurance trust (“ILIT”) created by
Sample Trust Grantor. The ILIT acquired a Universal Life Insurance policy issued on May 12, 1985
by Sample Life Insurance Company (“Sample Life Co”). An authorized representative of Sample Life Co
was asked to provide an illustration of the existing policy based on certain assumptions as set forth
therein. STC has requested an evaluation of the carrier and of the existing policy as part of its annual
trust review process.
Life insurance may be considered a “special asset,” the ownership of which (especially in an ILIT)
necessitates special monitoring. Therefore, this type of trust asset requires an initial and then
ongoing carrier and product performance review.
Neither STC, nor RIC have any bias regarding any particular life insurance carrier.
Resource Insurance Consultants (“RIC”) provides advisory services only and does not engage in the
sale of life insurance or endorse any particular life insurance carrier.
ANNUAL PERFORMANCE REVIEW
The Annual Performance Review process includes the following steps:
1. Requesting a completed verification of coverage or policy data and current illustration from the
2. Reviewing the policy to the extent of the information provided by both the trustee and the carrier.
3. Estimating the Rate of Return 3 since inception and comparing the performance to date with that
projected in the “as sold” illustration, if available.
4. Determining whether the selection criteria established by STC has been met.
5. Conducting a comparative analysis of the existing life insurance policy, utilizing a Section
1035 Exchange, when applicable, with a similar product available from another carrier
meeting the selection criteria established by STC.
6. Providing life insurance company rating information for the insurance carrier of the existing policy.
7. Identifying any policy management observations for the trustee’s consideration.
In maintaining a trust-owned life insurance policy, STC requires that certain selection criteria be met.
1. Carrier Ratings: The life insurance company must have either an AM Best rating of "A" or better or a
Moody's rating of "A2" or better or a Standard & Poor's rating of A or better. If no rating is
available from any of the aforementioned ratings services, the issuer of the contract must have
either a Fitch rating of A or better or a Weiss rating of B- or better.
2. Carrier Admitted Asset Rank: The life insurance company must be ranked within the top 100
insurance companies in terms of its admitted assets.
3. Comparative Analysis: An illustration for a like policy is obtained from a carrier meeting the above
rating and asset rank criteria. The comparative policy illustrated utilizes the current cash surrender
value of the existing policy, when applicable, as a 1035 Exchange. A policy’s degree of
competitiveness is determined according to the following ranges of the competitive ratio4 (CR) of the
policy to the comparative policy shown below.
• Non-Competitive .00 ≤ CR < .80
• Competitive with Reservations .80 ≤ CR < .90
• Competitive .90 ≤ CR
Proprietary Information. Not to be shared without the written consent of Resource Insurance Consultants. Page 2 of 6
EXISTING POLICY REVIEW
Client Provided Carrier Provided Variance
Policy Owner(s) SAMPLE W IRREV INS Sample Bank & Trust Company *
of Anytown, USA
Policy Number 20070-SAMP 270-SAMPLE *
Insured(s) SAMPLE INSURED Sample Insured
SAMPLE 2ND INSURED *
Primary Beneficiary(s) SAMPLE BENEFICIARY Sample Bank & Trust Company
Contingent Beneficiary(s) Not Provided
Assignees(s) Not Provided
Subject to Split Dollar Agreement No
Issue Age Current Age Life Expectancy5
First Insured 30 49 31.64
Plan of Insurance Universal Life Policy Past Contestable Period Yes
Issue/Effective Date 5/12/1985 Policy Past Suicide Period Yes
State of Issue OH Underwriting Risk Class 6 Standard Non-smoker
Maturity7 Age 98 Death Benefit Option Level
Premiums-shown as of 6/14/2004
As-sold Current Year Variance
Premium Mode Annual
Base Plan Modal Premium $1,000
Total Modal Premium $1,000
Total Premiums Paid to Date $19,000 $19,000
Date of Last Premium 4/22/2003
Policy Paid to Date Not Applicable
Planned Premium Suspension No
Modified Endowment Contract No
Dividends9 and Riders
Name Face Amount Cash Value Premium Expiry Date
Disability Benefit Option
Initial 11.12 %
Current 4.14 %
Guaranteed 4.00 %
Proprietary Information. Not to be shared without the written consent of Resource Insurance Consultants. Page 3 of 6
Policy Values-shown as of 6/14/2004
As-Sold Current Year Variance
Base Face Amount $200,000
Additional Amount $0
Net Death Benefit 10 $200,000 $200,000
Base Cash Value-Excluding Div/Rider $19,233
Additional Value $0
Policy Loan & $0
Accrued Interest $0
Surrender Charges $0
Net Cash Surrender Value $33,708 $19,233 ($14,475)
Available Loan Value $18,194
Current Loan Interest Rate 6.20%
Current Cost (Tax) Basis $19,000
Experience to date and Projected Values Based on Current In-Force Assumptions
Experience to date Current Policy Comparative11
Initial Death Benefit $200,000
End Date 5/12/2004
Death Benefit $200,000
Cash Outlay $19,000
Cash Surrender Value $19,233
Rate of Return to Date 2.21%
5 Year Projections Survival
Death Benefit $200,000 $200,000 Probability
Future Outlay $0 $0 98.49%
Cash Surrender Value $17,843 $12,106
Rate of Return 1.42% 12 -5.56% 13
10 Year Projections Survival
Death Benefit $200,000 $200,000 Probability
Future Outlay $0 $0 95.93%
Cash Surrender Value $13,523 $11,783
Rate of Return 1.03% 0.07%
Gross Cash Value "a" $13,523 $15,983
Cash Accumulation 14 "b" $31,329 $31,329
Mortality Accumulation15 "c" $9,384 $9,556
Benefit to Cash Ratio16 "(a+c)/b" 0.73 0.82
CR (Existing/Comparative) 0.90
Benchmark Fund 17 "b-c" $21,945 $21,773
Policy Maturity 5/12/2053 Survival
Cash Value at Maturity Lapsed Probability
Lapse Occurs in Policy Year Beginning In:
Current Assumptions 2036 Policy Endows No
Guaranteed Assumptions 2015
Proprietary Information. Not to be shared without the written consent of Resource Insurance Consultants. Page 4 of 6
The following chart illustrates the projected values based on the current in-force illustration as shown
above. Actual performance will vary due to changes in the current assumptions.
Illustrated Policy Values Cash Outlay
$250,000 Cash Value
$200,000 Death Benefit
Current 5 Yrs 10 Yrs Life Exp - 32 Mat-LAPSED
An integral part of this report is the communication between RIC and the carrier. The carrier’s timeliness and
responsiveness are critical to the effectiveness of this report. Lack of information on the Verification of Coverage and
illustration limit RIC’s ability to provide comprehensive policy information.
Carrier Sample Insurance Company Carrier Contact Kerri Sayre
Contact's Telephone Number 800-888-8888 As-sold Illustration Received? Yes
Verification of Coverage Form (RIC or Carrier's) RIC Current In-force Illustration Received Yes
Insurance Company Profiles
Client Carrier Criteria Current Carrier Ratings
A.M. Best B+ A++
Standard Poor's A AAA
Moody's A2 Aa1
Fitch A AAA
Admitted Asset Ranking19 100 106
Admitted Asset Rank Criteria Unacceptable
Net Yield on Mean Invested Assets (5 Year Average) Second-worst Quartile 6.75%
3 Year Average Lapse Ratio Second-best Quartile 6.00%
This Annual Performance Review is not designed to provide a needs-based analysis or to determine the
suitability of specific insurance plans, coverage, or coverage levels for the trust. There are many factors
that must be considered by the trustee in assessing the suitability of a particular policy for a trust. These
include, but are not limited to, the competitiveness of the existing policy, the insured’s health, the grantor’s
risk tolerance level, financial condition, ability to maintain the trust as originally established and/or revised,
as well as the intended purpose of the trust. If the original reasons for owning the policy still exist and all
other factors have been considered, then this insurance policy remains a suitable asset for the trust.
POLICY MANAGEMENT OBSERVATIONS
• Inforce illustration was prepared based on the current interest rate of 4.15%, which is not guaranteed and
is subject to change throughout the life of the policy.
• The policy is projected to lapse in the 31st contract year on guaranteed assumptions, and in the 52nd
contract year on current assumptions.
• Inforce illustration was prepared based on a suspension of premium from the current year through the 36th
Proprietary Information. Not to be shared without the written consent of Resource Insurance Consultants. Page 5 of 6
policy year. Premiums resume beginning in the 37th policy year as the fund value is no longer adequate to
continue the policy inforce. Cumulative premium required from the 37th year though the 52nd year totals
• As Sold illustration was not prepared with the anticipation of a suspension of premium. The illustrated rate
was 10.60% not the 11.14 as referenced on the Verification of Coverage form. Nevertheless, it has declined
considerably since the policy was issued, accounting for the variance between the fund value originally
projected and the current value.
• Note the multiple variances found in the Relationship Section of this report.
• Sample Life Insurance Company ranks 106th in total assets and falls short of Sample Trust's 100 guideline.
It is a Large Sample Insurance Company affiliate.
• Trustee attention is recommended due to the current suspension of premium resulting in substantial cash
outlay in subsequent years to maintain coverage inforce to life expectancy.
1. Determines the frequency of recurring reviews based upon RIC’s criteria, and may not reflect the performance of this
2. This means RIC recommends the trustee give this contract a higher degree of oversight.
3. Rate of Return during a period is the interest rate at which the beginning cash value and annual cash flows
accumulate to the cash value at the end of the period. Annual cash flow is the difference between the cash outlay and
the 2001 CSO-based mortality cost for a given year.
4. Competitive Ratio (CR) is the Benefit to Cost Ratio (defined below) of the policy divided by the Benefit to Cost Ratio of
the comparative policy. For term policies, the CR is the ratio of the comparative policy's premium to the policy's premium
during the 10-year comparative period or the remaining years of a level premium guarantee, if shorter. The alternate CR
for term policies is the same as the CR for cash accumulation policies.
5. 2001 CSO Select and Ultimate mortality is the basis for life expectancy and survival probability calculations.
6. Underwriting risk classification definitions vary between companies and are subject to change within a company.
7. Maturity of a policy varies between companies and is defined within the policy. It is the maximum age at which
the insured may be covered under a policy. For survivorship policies, maturity is the date at which the younger
insured reaches the maximum age. Some companies allow for the continuation of coverage past the maturity age
either at the specified face value or at modified levels.
8. The annualized premium equals the premium times the number of modes in a calendar year (Example: A
premium paid quarterly would be multiplied by 4 to calculate the annualized premium).
9. Dividends are not guaranteed and are subject to significant fluctuations. Changes in dividends will affect the policy’s
performance and projected values.
10. The net death benefit is equal to the base policy face amount plus any benefits due under any supplementary
benefits or riders for the primary insured and the cash value (if applicable) less any outstanding loans, accrued
interest, and other policy indebtedness. It does not take into consideration any death benefits provided through riders
insuring other individuals under the policy or through accidental death riders.
11. Carrier of comparative policy illustrated is Comparative Sample Life Insurance Co. Resource Insurance Consultants
does not endorse any particular company or product. Policy comparisons are based on actual products currently being
issued by the comparative carrier. The comparative information is illustrative only, and does not imply a contract for
insurance is available at the terms presented.
12. The existing policy’s future outlay is combined with the current CSV in determining the rate of return.
13. Comparative plan’s future outlay is combined with the hypothetical 1035 amount equivalent to the
existing policy’s CSV in determining rate of return.
14. The Cash Accumulation is the accumulation at 5% to the end of the comparative period, of the initial cash value (or
equivalent lump sum) and cash outlays during the period.
15. The Mortality Accumulation is the accumulation at 5% to the end of the comparative period, of annual mortality
charges during the period. Mortality charges are the applicable mortality rate times the net amount at risk as measured
by the excess of the average death benefit over the average cash value.
16. The Benefit to Cash Ratio at the end of a period is the sum of the ending gross cash value and Mortality
Accumulation divided by the Cash Accumulation.
17. The Benchmark Fund at 10 years is the Cash Accumulation less the Mortality Accumulation and represents a
hypothetical Account Value at the end of 10 years developed from a policy’s initial cash value, cash outlays and amounts
at risk when crediting is at 5% and 2001 CSO-based mortality charges apply.
Endnotes eighteen through twenty one have been deleted due to space constraints.
Proprietary Information. Not to be shared without the written consent of Resource Insurance Consultants. Page 6 of 6