Term Life Insurance Tips & News

Universal Life Insurance – Problems Ahead?

by Scott on January 26th, 2010

Let me give you a heads up if you have purchased a Universal Life policy at ANY TIME in the past. These policies were most likely sold as the type of policy that has a fixed (level) premium that you expect will not ever increase. Universal Life policies are also often sold as a quasi investment plan that will accumulate cash value that can be used in later years. These policies are often touted as a sound plans that will be there forever….until the end of time.

This may all be true, but how do you know??? Have you ever attempted to read the actual policy? Well, good luck. It is one of the most confusing contracts you will ever read.

What you will find, is the policies are so complicated and packed with loads, maximum charges and interest rate jargon, it makes it basically impossible to understand. As a policy holder, each year you will receive an annual statement from the life insurance company. This annual statement will breakdown your policy’s performance over the past 12 months. Although, this information is extremely important, it only breaks down how your policy has performed in the past. What I am concerned with (and you should be, too) is how your policy will perform in the future.

Your future performance can only be projected with an in-force ledger. An in-force ledger is a projection that you can request directly from “your company’s” home office. These projections are vital in your understanding how the policy will perform in the future. They will give you a look into the future and help project your policy’s expected performance.

Most policy holders will just assume that the policy is running just fine, but that is where the problem lies. Unbeknownst to you, the policy may slowly be running out of gas (i.e. cash values). This is caused by an increase in internal costs and reductions in interest rates. The new ledger can show any potential problem that could be on the horizon before it is too late.

Let’s assume that your policy has these same problems. What can be done about it? Well, the first thing is you need to find your original sales illustration which should be located with your policy. Then compare the two projections (the sales illustration -vs.- your annual statement) to see if you a loosing any money. Remember, the main problem is that your coverage will likely be ending sooner than you are told because the policy is eating up the cash value faster than anticipated.

If you recognize these problems with your policy, Step One is to order a new in-force ledger from your home office. This can be done by calling their policy service department. Assuming that you need a boost to push the coverage out to at least your age of 100. This can only be accomplished by increasing your premium.

Step Two is to compare your policy to a new “no lapse” universal life policy. These are new policies designed to prevent the early lapse problem that is described above. The companies all know that this early lapse problem exists, but very few companies are alerting their policy holders. My experience is that the home office will say that it is the agent’s responsibility to inform the client, but that is just nonsense.

The insurance contract is between the policyholder (you) and the company. So, the fact that the companies are not taking steps to alert the clients is extremely irresponsible, in my opinion. They are well aware that there are problem just around the corner and should be advising their clients.

If you own one of these Universal Life contracts, please take the time to get informed. This early lapse problem may not affect you, but there is only one way to find out….request your in-force ledger NOW!

Scott Harper, CLU, CFP

Insurance 360

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