Life Expectancy Audits
Accurate life expectancy reports enable the portfolio owner to better determine the proper timing and pricing for policy acquisition. Discrepancies among life expectancies are common but must be understood if the pricing is to be correct. Identifying which LE report most clearly matches the insured’s history reduces risk of overpayment, since relying on an LE that is too short, for example, will only erode the value of the policy in the future as the insured outlives the projected expectancy.
- One of the most extreme variations NorthStar witnessed was between three companies issuing LE reports of 161, 53 and 17 months, respectively. Upon examination, it became clear that the first company had not received the full set of medical records and therefore, was too long. Upon NorthStar’s correct submission of the records, the LE dropped to 90. The second company had relied heavily on an expectation of a likely recurrence of a cancer and shortened the LE accordingly. Since the client was still technically cancer-free, this LE was most likely too short. The third company had erroneously adopted mortality statistics for a stage four cancer when the cancer was in fact stage one. This LE was therefore too short. We then notified our client that the next six months would be critical for determining whether the cancer would indeed recur and all three companies could, at that point, provide a much more accurate picture. Believing that the insured’s LE was too unpredictable at that time, the client decided to forego its purchase of the policy and revisit it in upcoming months, if the policy was still available for purchase.
- A case was submitted for NorthStar’s pricing that involved three LE reports; the first was 90 months at 290%; the second was 73 months at 666% and the last projected 96 months at 250%. NorthStar’s in-depth review of the medical records observed documentation of a recent heart attack with stents placed, and two subsequent visits to the emergency room for chest pain and dizziness. The cardiac tests performed in the ER consistently documented probable ischemia. When the question was raised whether the insured had followed up with his cardiologist, we were provided with previously unseen records from a well-known cardiologist indicating his review of a test and conclusion that no further treatment steps needed to be taken. Using the cardiologist’s expertise instead of the ER records, we were able to determine that the previous LE reports given to us were probably inaccurate and should be adjusted to a slightly lower multiplier. Not knowing if the more positive cardiology records were simply overlooked or deliberately withheld to impact the pricing, we informed our client of the situation, allowing them to make an informed life settlement decision.