TOLI risk management is at litigation crossroads. Surveys estimate that 25% of non-guaranteed TOLI policies will lapse during the insured’s lifetime, few trustees have guidelines or procedures for handling TOLI, and even fewer trustees have formalized TOLI Investment Policy Statements (TIPS).

The basic duty of a fiduciary is to demonstrate a reasoned investment strategy that maximizes the probability of a favorable outcome to the trust estate. Antiquated custodial care practices must be abandoned. Defensible TOLI product suitability determinations require annual verification of four criteria:

• Does the policy remain suitable for the trust’s purpose as set out in the TOLI Investment Policy Statement?
• Are scheduled premiums adequate to sustain the policy for the insured’s lifetime?
• Have third-party carrier ratings deteriorated?
• Are trust administration and policy costs reasonable and appropriate?
  

The need for a prudent TOLI risk management process is known and contemporary risk management tools are available – they just need to be implemented. TAC offers TOLI-specific risk management consulting and policy evaluation expertise to all insurance trust parties to guard against lapse and corresponding liability.