I have previously written about the necessity to review universal and variable life policies, and the adverse consequences that can arise from failing to do so. Two referrals I was recently introduced to drive home this point.
The first was a 69 year old male who is planning to retire next year and wanted me to review his policy to see if he could keep it without paying the premium. That makes sense, right? The fewer bills we have during retirement, the less stress on the income streams.
This particular policy was a universal life policy procured in 1986, when he was 41 years old. It had a face amount of $60,000 and a monthly premium of $50. Now I’m reasonably certain that the crediting interest rate at the policy’s inception was double digits, and at that continued rate, he could have indeed stopped making premium payments at some point while continuing the policy.
Well as you all know, interest rates did not stay in the double digits and indeed have sunk to historic lows. At the current crediting rate, which is the policy’s guaranteed rate of 4%, the policy would lapse with no value next year. Doubling the monthly to $100/month would only take it out another six months. To keep the policy in-force until his age 95 would require a monthly outlay of $323, not exactly what he had in mind.
Because he is healthy, he has options with regard to purchasing a new policy to accomplish his goals, albeit at a much higher outlay than he had planned (but lower than $323).
The second situation is very similar to the first, with the huge distinction being that the second gentleman, although only 61, is uninsurable. That leaves him with very few options to accomplish his goals. If he can’t afford the increased premium, he will have to reduce his death benefit, neither of which fit nicely with his retirement plans.
So I am sounding the alarm. If you or someone so love (or a client) has a universal or variable policy, it absolutely must be reviewed. This entails writing to the insurance company and requesting various hypothetical projections, and based on those projections, determining a corrective course of action.
Detecting problems early while they are relatively small makes the solution much more palatable. It’s analogous to the old Fram oil filter commercial: you can pay now, or you can pay later, where the early payment was for the filter and the later payment was for a rebuilt engine.
Failure to review an old UL or VUL policy could result in you paying premiums for the better part of your life, only to have the policy lapse when it is most likely to pay a claim.