Is Your Universal Life Insurance Policy Keeping You Awake?
Several months ago I began writing about a few life insurance companies that are increasing the insurance rates within certain policies. The highly unusual practice is contractually permissible but RARELY done. Some have started arguing, and suing carriers, suggesting it is not legal. I helped the Wall Street Journal and several other very well respected journalists with their coverage. It is an important topic for those impacted by these increases.
If you own a Universal Life policy and you are concerned about it, contact me and I will be glad to offer what I can to give you guidance. You can reach me at 561-869-4500 or email me at: EMAIL TED
Most policies are not in immediate danger of lapsing or needing higher premiums. IS YOURS?
Something interesting is happening that is worth mentioning. Some Whole Life salespeople are universal life bashing.
The problem here is NOT universal life. The problem is how insurance companies failed and fail to communicate with their policyholders about how to manage a universal life policy. The proper way to manage a Universal Life policy is easy to convey and communicate to every policyholder but the companies have left this very important issue up to their agents. Some agents do, too many don’t. What happens if your agent leaves the business? What happens if your agent forgets? Each and every year, the insurance company can mail you, email you and use all sorts of other tools to inform you that the policy may be underperforming. If you monitor the policy and make tweaks along the way, you won’t find yourself going over a cliff.
The issue:
Whole life costs more for the same coverage, it is not flexible, and will not be competitive when rates are moving up quickly. Its higher annual premiums prevent many people from ever getting permanent insurance. It simply costs too much for the majority of life insurance buyers.
If you put the same Whole Life premium into a Universal Life policy and a Whole Life policy for the same person, run at the same interest rate or dividend scale, and then compare them, they will perform almost identically. The guarantees in Whole Life are usually stronger for a difference that I do not consider to be very meaningful. Nearly every inforce Universal Life insurance policy in the U.S. (tens of millions or more) is not at the minimum interest rate and is not charging the guaranteed cost of insurance. The Whole Life companies are also nowhere near their guaranteed dividend scale, typically Zero percent.
Yet, every Whole Life policyholder is paying premiums as if the dividend scale was Zero percent. This means that Whole Life policyholders are OVERPAYING for insurance coverage to never have a premium increase to maintain their coverage. There is nothing wrong with that structure. Once people understand that they are paying for or will have to pay for guarantees that no insurance company is presently experiencing, most want a better option.
The BETTER option:
The better option is a flexible premium, adjustable life insurance policy that gives you the flexibility to add premiums if you need to, when you decide it makes sense. You make those coverage decisions with the guidance from a professional, at least once a year. By doing so, you will never be caught off guard and any changes can be met with a measured reaction. The result is that you will pay less for your coverage each year but retain the right to raise the premiums.
Who should own Whole Life insurance?
A simple question with a simple answer, finally. For my clients who know at the outset that meeting annually to discuss their coverage is less likely than not and those clients who don’t voluntarily save well, Whole Life is a good option. They will pay more to make sure any changes don’t negatively affect them and the Whole Life premium cannot be missed which helps some people create a forced savings.
So, why then should a person buy Universal Life over Whole Life? The answer is to pay lesser premium and have more flexibility. The difference in flexibility is not close. The higher premiums put into a Universal Life policy will essentially create identical values in the UL policy. By doing this, you will be overfunding the Universal Life policy which is exactly what the Whole Life policy does. The Whole Life company gives you a dividend to compensate for the increased premium they charged you.
It is this difference in flexibility that opens the door for Universal Life to be mismanaged and underfunded. It is not a matter of product superiority or inferiority.
My comments are not based on any type of inability to offer Whole Life. I am able to offer my clients nearly every whole life contract available in the market. I am not against Whole Life. I am for it when the client profile, goals and objectives warrant its use.
All life insurance should be monitored annually for numerous reasons. There once was a time when you could put a life insurance policy in a vault, pay the premiums and never think about it. That ship has sailed and for good reason. Even if we could go back to that time, is it in our best interest to do so? Absolutely not. From here we need to learn this valuable lesson about a product’s evolution and the NEED to monitor the policy with a professional, once a year. Once you get the hang of it and understand how the internal and external factors are impacting policy performance, the monitoring process is 15 minutes per policy with most of the work done by your insurance professional.
MY OFFER: I am offering you a 15 minute, no obligation phone call, to discuss any concerns you may have about your inforce coverage. I normally charge to do policy audits and I have been providing this service for 30+ years to individuals, attorneys, C.P.A.’s and trust companies. The Wall Street Journal has done a good job covering this Universal Life topic and I would be happy to email the articles to you, upon request. It is an honor to be quoted by such an esteemed business publication about a topic that I am very passionate about.
Ted Bernstein
Retirement Planning
561-869-4500 – Direct
