Irrevocable Life Insurance Trusts (ILITs) are popular and trustees must decide what type of policy to purchase; read our techniques for comparing policies.

Recent adoption of the Uniform Prudent Investor Rule by many states creates new standards of procedural prudence with regard to acquisition of trust-owned life insurance policies. As one segment of the life insurance industry begins to market “no-load” products, a variety of claims regarding their merits and liabilities are emerging. This essay evaluates typical vendor assertions through objective application of capital market theory and research. The standards and duties imposed upon a trustee in the areas of risk evaluation, cost consciousness, and delegation of responsibility to agents, make it important not only to examine critically vendor claims but also to develop a framework for a sound, defensible decision making process. Traditional insurance due diligence standards appear inadequate to provide trustees and legal counsel with meaningful data for good decisions. New standards must be based on modern portfolio theory, the insights of which provide the theoretical underpinnings for the modern restatement of trust law.

Download Load or No Load Insurance? Duties of the Trustee Under the Prudent Investor Rule.

This article originally appeared in the September 1999 issue of The Journal of Financial Services Professionals.