Crossing the JUMBO Line – Underwriting Large Face Amounts
Let’s face it – large face amount life insurance cases ($10 million and up) can make the life insurance business more exciting and possibly result in a case that makes the difference between a “good” year and a “great” year for an Advisor. However, the underwriting landscape for JUMBO cases is very challenging and requires a high level of care, knowledge and expertise to ensure the case is evaluated and executed properly. JUMBO underwriting a case demands thorough preparation to avoid common mistakes and the difficult task of correcting these mistakes after they have been made.
What is JUMBO?
Yes, the word JUMBO translates to a large amount of life insurance coverage but in the contract language of Reinsurance Treaties or Agreements, it has very specific reinsurance stipulations that MUST be adhered to according to law. JUMBO is defined as a carrier’s maximum total amount that can be underwritten without being “looked at” by their reinsurance partners. The treaties that exist between the carriers and their reinsurance partners define the JUMBO limit as the sum of all coverage: in force, applied for and being replaced.
- IN FORCE: the total amount of life insurance coverage that is in place on an individual. This number will include corporate protection that does not directly benefit the client AND any life settled contracts that remain in force with a third-party owner/beneficiary.
- APPLIED FOR: all formal applications count toward the JUMBO limit and are treated the same as in force coverage. Multiple formal applications for the same case sent to different carriers can be problematic and cause a client’s case to exceed a carrier’s JUMBO limit – typically $65,000,000.
- BEING REPLACED: carriers may have specific requirements to ensure that any coverage being “replaced” is NOT viable for reinstatement after-the fact (similar to an Absolute Assignment required with 1035 exchanges).
The Jumbo limit may be different from carrier to carrier. If that combined coverage exceeds the carrier’s JUMBO definition or limit, then the case MUST involve “facultative” underwriting. This means that the case goes to the reinsurers to fully underwrite the medical and financial justification for the risk and the direct insurer loses their ability to automatically bind (autobind) this case to their reinsurance pool for a specific risk.
Reinsurers
When the case is “sent to the reinsurers”, we often see MULTIPLE underwriting offers from a single direct writing carrier. Multiple reinsurers will often produce different underwriting opinions for the same case. When a case goes to the reinsurers, AgencyONE’s direct carrier underwriter acts as our advocate in the reinsurance negotiations. AgencyONE’s professional relationships with both carriers and their reinsurance partners are strong and very beneficial to your clients’ cases.
Carriers have varying guidelines that define JUMBO for their specific underwriting authority. AgencyONE’s carrier partners have some of the highest JUMBO limits in the industry. Carriers with smaller RETENTION (what the carriers retain themselves on any risk) will consequently have a lower “JUMBO” line defined for them. Conversely, the LARGE retention players like Lincoln, John Hancock and Prudential will have underwriting authorities much higher in their autobind AUTHORITY. But even these large retention carriers have a “JUMBO” line in the “proverbial sand” which is triggered at $65 million – combined total of IN FORCE, APPLIED FOR and BEING REPLACED.
The importance of preparation and planning when looking to place a JUMBO case cannot be underestimated. Consider carriers that have the right amount of retention and the appropriate underwriting to fit your client’s case. Common mistakes must be avoided such as “formally” shopping a case by applying for a $10 million face amount with 3 carriers. This scenario creates a $30 million LINE as defined by the JUMBO definitions and can often trigger a crossing of the JUMBO line. Multiple applications to different carriers are problematic unless properly handled by all parties involved in the case.
