A traditional universal life insurance policy is designed to combine the best benefits of whole life and term life insurance. On other words, level premiums that are affordable and flexible with the opportunity to build cash value. Older policies, that were funded properly, worked extremely well when interest rates were high. However, the interest rate environment has been artificially low for many years now and many of the older universal life policies are showing significant flaws to say it kindly.
Why Older Universal Life Policies Are Failing
If you have a universal life (UL) contract that was purchased prior to the mid 1990’s, you need to pay special attention to this post. All life insurance policies should be reviewed on an annual basis but if you haven’t had your UL policy reviewed by a professional lately it is imperative that you do so now. The reason why you should review you pre-1990’s UL is that these policies were not guaranteed to remain in effect unless certain conditions are met. That’s right, there are no inherent policy guarantees regarding policy performance and even policy survival.
While older universal life contracts do have minimum interest rate guarantees and maximum cost of insurance tables, neither of these protections will assure that the policy will remain in effect until you die! There reason is that these policies are heavily dependent upon cash value growth, which is a result of interest credits as well as adequate premiums to fund the policy properly. Unfortunately, in most cases, neither of these conditions have been met.
When you first purchased your UL policy, the agent came out with this brilliant looking “sales illustration” showing large amouonts of cash growing within the contract that if accessed properly could be taken out “tax free”. It was a really good deal and made a lot of sense right?
Unfortunately, the projections and assupmtions used in that original “marketing piece” have not come close to reality. Regardless of who is at fault, something likely needs to be done quicky. The reason is that if your cash value is not increasing to offset increasing insurance charges (that will eventually exceed your premiums and drain your cash value), your policy is ultimately going to require significantly higher premium payments or will fail completely.
What You Need to Do NOW!
If you own a universal life policy you need to call you life insurance company now and get a current picture of your policy and it’s past performance. DO NOT CALL YOUR AGENT! CALL THE INSURANCE COMPANY! If your agent was concerned he/she would have brought this to your attention already.
What you need to ask your life insurance company for is an inforce illustration. This is a current illustration based on the actual past performance of your policy with the current (much lower) assumptions moving forward. This is not a marketing piece but a tool to evaluate the strength of your policy. once you have this in hand, you can determine your best options.
Next Steps If Your Policy Is Not Delivering
In the likely event that your policy is not performing or is in danger, don’t panic as you likely have options. The important thing is to get with a competent independent life insurance professional that can help you understand how your policy works, if it can be fixed or if other arrangements need made. For more information or for a complete no obligation review of your current policy, please call MEG Financial today at (877) 583-3955.