When Was the Last Time You Reviewed Your Policy?
Everyone that currently has a Universal Life Insurance contract on themselves could be affected by the ever-changing financial world. Regardless of the quality of the agent who sold the policy to you, Universal Life Insurance policies have been subjected to a fluctuating economy that may have greatly altered the growth of your policy. According to Kenneth Himmler of Integrated Asset Management, as much as 70% of the client policies he reviews are not generating sufficient interest to cover costs. Low interest rates coupled with false guarantees about the structure of Universal Life Insurance policies can lead to policies not having enough funding to last the test of time. The policyholder then may be required to pay an absorbent amount more in premiums to cover the underperforming policy, rising costs of mortality, or high administration fees of the contract in order to keep the life insurance in force.
For many, the ease of a Universal Life Insurance policy, simply paying the premium and having guaranteed death benefit coverage was ideal and very popular to many in the 1980’s and 1990’s. The false guaranty of Universal Life Insurance policies promising continuous coverage by only paying the premium has resulted in a misinformed group of policyholders who feel there is no point to reviewing their contracts. The opposite is an unfortunate reality to many policyholders, according to The WSJ.com article, Draining Away, “If interest rates stay low, many policyholders will face the unhappy choice of kicking in more money, accepting a lower death benefit or walking away, possibly sacrificing years of premiums they already paid.”
When Insurance Companies Lose, So Do You
While it was not predicted at the time for interest rates to drop as dramatically as they have for life insurance, the fact is that no matter how sturdy your policy was, interest rates were playing a role. Insurance companies are in danger of losing money on the basis that the premium you’re paying may have been based on projected future interest rates. Essentially, what you have been paying is only covering the premiums themselves, not actually continuing to grow cash value as was projected at the time the policy was issued.
What To Do
Like other life insurance products, Universal Life Insurance is not risk-free and requires to be frequently monitored. While the outcome may not be what many policyholders initially expected, there are options:
- Ask for an in-force illustration of the policy to better understand the future projections of the policy.
- Some policyholders may find that reducing the death benefit will allow them to continue paying the same premiums.
- Is this policy still the best life insurance coverage for you? Some find that their needs have changed since they have purchase their contract. As a result, there may be a more suitable policy out there now other than your current policy.
- Some may find it beneficial to increase their premium in order to achieve the same outcome they originally had in mind.
What To Remember
- Education is key: an informed policyholder can make informed decisions on their policy better than one who is not.
- Life insurance has changed and so have you, there may be different insurance policies out there that can better suit your needs.
- Annual reviews of the policy are essential to informed decision making and financial planning – no matter how redundant it may seem.
- It is not your fault the market for Universal Life Insurance has changed, but it is up to you to educate yourself in order to protect your financial investments.