can insurance co take cash value without consent to pay prem

Submitted by Shirley.Scott on Tue, 05/26/2009 - 06:39

can insusarance company take mone form cash value or universal life insurance policy to pay premeium without consent from insured?

Posted: 26 May 2009 10:34 Post Subject:

can insusarance company take mone form cash value or universal life insurance policy to pay premeium without consent from insured?



I think that's the way the policy document would read.

The universal plans would have the feature that allows the policy to continue even when the insured stops paying the premium.

Most universal plans would require the policy holder to pay premium for certain period of time at least. After that the policy would run on the cash value accumulated on it even if the insured stop paying regular premium.

You may wish to tell us more about your situation so that we can have better comprehension and guide you properly.

Posted: 26 May 2009 12:14 Post Subject: insurance

how does THAT happen? With different Insurance plans ( ie: Medical, Dental) if you stop making payments on them, then you aren't covered for that particular time the payments were NOT made. Or..with a Life Insurance policy,...my 'personal' Insurance company can 'drop' the policy if you don't make payments. How can your Universal policy continue if you stop the payments? I don't know much about Universal policies.

Posted: 26 May 2009 12:28 Post Subject:

With different Insurance plans ( ie: Medical, Dental) if you stop making payments on them, then you aren't covered for that particular time the payments were NOT made. Or..with a Life Insurance policy,...my 'personal' Insurance company can 'drop' the policy if you don't make payments. How can your Universal policy continue if you stop the payments?



None of the above policies (Term Life, Health, Dental, etc.) build any cash value. You are paying a premium to continue coverage. However, a universal plan builds cash value. Here's an example:

Insured pays $35 a month for universal policy and pays for 3 years. After 3 years she is laid off and is unable to make her payments. Her policy has built up $175 in cash value (just an example). In most policies, the wording is there to allow the company to use the cash value to pay the premium. So for the next 5 months her $35 a month premium would be paid. After the 5 months she will receive a cancellation notice that will allow her to either continue payments or let the policy cancel itself.

Some universal policies do not have this feature built in automatically. I have seen notices generated after the first month of non-payment that have several options on them. The insured can either cancel the policy (surrender it) and cash out the value...or they can start paying again...or they can ask that the cash value can be used to pay the premium.

Another choice that many insurance companies will offer a client will be a loan based on the cash value. This will actually allow them to pay the premium and the cash value is not diminished (simply places a lien on a portion of the insurance). How each company does it varies a little bit...but it's all the same idea.

Posted: 26 May 2009 01:44 Post Subject: insurance

THAT'S a good clarification!! thanks. Is Universal a 'Whole' or 'term' thing ( or is there any such thing with Universal)?

Posted: 26 May 2009 11:49 Post Subject:

THAT'S a good clarification!! thanks. Is Universal a 'Whole' or 'term' thing ( or is there any such thing with Universal)?



The way that Universal Life typically gets described makes it sound very much like Whole Life insurance. The reality is that it's much closer to term insurance. In fact, it is annually renewable term insurance combined with a side fund.

Posted: 27 May 2009 12:42 Post Subject: insurance

A "side fund?" What is that? Is it the same premium ( or close to it) as Whole Life?

Posted: 27 May 2009 04:19 Post Subject:

A "side fund?" What is that?



Sd, term life plans don't build cash value, whereas the insurance company would generate a fund from the premium paid on the universal plan that would keep the policy active even after premiums stops coming. I think IE referred to that as 'side fund'.

Posted: 27 May 2009 09:36 Post Subject: insurance

Ok...I get it. Well.........thanks for the clarification. I've been reading up on 'Whole', 'Term', Universal, etc. Sometimes ALL of it can get confusing.

Posted: 27 May 2009 10:03 Post Subject:

Term insurance is temporary insurance. It lasts for a specific period of time.

Whole life insurance lasts for your whole life.

Term insurance is similar to paying rent. It is an expense.
Whole life insurance is like buying a house. It is an asset.

Posted: 27 May 2009 10:16 Post Subject:

Universal Life (UL) is fancy annually renewable term insurance (ART). ART is nothing more than term insurance that increases in price as one gets older.

Ex. Joe is 30. He is buying a $100,000 UL policy. For this example, we'll ignore any costs other than the Cost of Insurance (COI). Joe is paying $500/year. As he gets older, the COI per $1,000 gets more expensive.

Age 30 COI: $100 ($400 goes into the "side" fund)
Age 31 CIO: $110 ($390 goes into the "side" fund)
Age 32 COI: $125 ($375 goes into the "side" fund)
.
.
.
Age 40 COI: $500 (Nothing goes into the side fund)
Age 41 COI: $550 ($50 comes out of the side fund)

The "premium" is flexible because all that matters is enough money goes into the policy to pay for the COI and other expenses.

They type of UL policy will determine what is done with the side fund.

The major problem with UL policies are the fact that they are ART policies, but are sold as a permanent insurance solutions. ART policies are designed for temporary insurance needs and not permanent ones. The increasing cost of insurance combined with human nature (the desire to pay less instead of more premiums) cause these policies to fall apart for people who live past life expectancy.

Posted: 28 May 2009 12:36 Post Subject: insurance

cause these policies to fall apart for people who live past life expectancy.

Yep,..I can see how THAT would happen. Sounds like a person would not have any kind of 'back-up' plan when they got older.

Posted: 28 May 2009 11:24 Post Subject:

Hi Shirley,

Welcome to the forums!

can insusarance company take mone form cash value or universal life insurance policy to pay premeium without consent from insured?


I think everything is properly mentioned in your policy clauses. Did you go through your paper works?

Steven

Posted: 29 May 2009 11:07 Post Subject: insurance

I've been talking to my local Insurarance Agent ( a place where I have my Auto Insurance, too) and talking to him about Universal Life and 'regular' Life......'Whole' Life. He sure explained it pretty well. I think, with the 'coverage' of what I want, etc. I think 'Whole' Life would benefit me more than having Universal.

Posted: 29 May 2009 12:09 Post Subject:

Whole life also costs 2-3x more than than UL...

Posted: 29 May 2009 06:29 Post Subject: insurance

I was talking to my Insurance Agent. He gave me a quote. It would cost me $40.00 per month for a $25,000 Whole Life Insurance policy. Wasn't too bad of a quote, I thought.

Posted: 29 May 2009 08:53 Post Subject:

Whole life also costs 2-3x more than than UL...



How about further explanation? It sounds fairly nonsensical to me. I say this because a UL policy initially is going to cost almost anything that you want it to cost. The more that you pay in the beginning, the less that you will have pay into it in the future.

With a participating WL policy, if one wants a level death benefit, the out of pocket premium will decrease every year and ultimately, the cost will be negative.

Posted: 29 May 2009 08:56 Post Subject:

I was talking to my Insurance Agent. He gave me a quote. It would cost me $40.00 per month for a $25,000 Whole Life Insurance policy. Wasn't too bad of a quote, I thought.



I'd be more concerned with the company than the quote. I'd strongly recommend that a whole life purchase be done with a highly rated mutual insurance company.

Posted: 29 May 2009 11:37 Post Subject:

How about further explanation? It sounds fairly nonsensical to me. I say this because a UL policy initially is going to cost almost anything that you want it to cost. The more that you pay in the beginning, the less that you will have pay into it in the future.

With a participating WL policy, if one wants a level death benefit, the out of pocket premium will decrease every year and ultimately, the cost will be negative.



It is very easy to solve for annual premium it will take to keep the no-lapse guarantee in place on a UL, and it will usually be 2-3x the cost for the same death benefit in a whole life policy. The OOP cost on the whole life might decrease due to the dividends, but what does it cost to get there in the first place? $5k/year instead of $2k/year for the same death benefit? What if the company cuts the dividends? You can write all you want about the past dividends of carriers, but past performance has no effect on future performance, and I'd be very concerned about the future of dividends, interest rates, and COI charges from any carrier, whether it's New York Life, John Hancock, Prudential, MetLife, Mutual of Omaha, or anyone else.


SD - $480/year for $25k may or may not be a reasonable cost - what is your age and relative health? You may find out that you could get $100k of universal life or $250k of term for the same price.

Posted: 30 May 2009 12:41 Post Subject:

It is very easy to solve for annual premium it will take to keep the no-lapse guarantee in place on a UL, and it will usually be 2-3x the cost for the same death benefit in a whole life policy. The OOP cost on the whole life might decrease due to the dividends, but what does it cost to get there in the first place? $5k/year instead of $2k/year for the same death benefit? What if the company cuts the dividends? You can write all you want about the past dividends of carriers, but past performance has no effect on future performance, and I'd be very concerned about the future of dividends, interest rates, and COI charges from any carrier, whether it's New York Life, John Hancock, Prudential, MetLife, Mutual of Omaha, or anyone else.



Excellent. Now, this is something that makes sense. You are 100% correct that the premium for a no lapse UL will often be 1/3 to 1/2 the premium of a participating WL policy.

Saying that "past performance has no effect of future performance" is not the same as saying "past performance is meaningless".

I would guarantee that dividends will be cut at some point. I would also guarantee that dividends will increase at some point. That's the nature of dividends.

The choice between WL and a no-lapse UL policy is a false choice. Let's say that somebody wants permanent coverage. They need a $500,000 death benefit. WL costs $5,000. NL UL costs $2500. They are only comfortable spending $2500. Unless they are old, they are better off with a combo WL/Term for $2500 than the NL UL.

UL needs to be priced so that if everything goes wrong, the insurance company will still be ok. The same is true with WL. The difference is that everything doesn't go wrong all of the time. That is why the big WL carriers have all gone 100+ years without missing a dividend payment. The only question is how big will the dividend be. Long term a WL policy is much more flexible than any UL policy.

Posted: 30 May 2009 12:59 Post Subject:

The choice between WL and a no-lapse UL policy is a false choice. Let's say that somebody wants permanent coverage. They need a $500,000 death benefit. WL costs $5,000. NL UL costs $2500. They are only comfortable spending $2500. Unless they are old, they are better off with a combo WL/Term for $2500 than the NL UL.

UL needs to be priced so that if everything goes wrong, the insurance company will still be ok. The same is true with WL. The difference is that everything doesn't go wrong all of the time. That is why the big WL carriers have all gone 100+ years without missing a dividend payment. The only question is how big will the dividend be. Long term a WL policy is much more flexible than any UL policy.



I will have to disagree.....UL needs to be priced so the carrier will be ok if something goes wrong, but that is already happening and the carriers are trying to respond to those actions. Carriers are reducing guarantees (ex: guaranteed to age 90 instead of age 120), increasing premiums, increasing COI charges, decreasing interest rates credited on current policies, decreasing current and guaranteed interest rates on new policies, etc.

Can you cite an example of why someone would be better off with a whole life/term combination for $500k instead of a straight $500k no-lapse UL if they want the full $500k guaranteed forever and only have the $2500 to spend?

Posted: 30 May 2009 01:23 Post Subject: insurance

Nationwide is my Insurance company...been dealing with them for a LONG time. I gave the agent my info ( 45 years old, smoke, etc.) and the quote he gave me was about $40.00 pr month, for 'Whole' Life.

Posted: 30 May 2009 01:31 Post Subject:

You could get $50k no-lapse UL for about the same price....or $100k UL if you stop smoking.

Posted: 30 May 2009 02:38 Post Subject: insurance

...and the UL bulids Cash Value, as well?

Posted: 30 May 2009 03:03 Post Subject:

Yes, but not as much cash value as the whole life. Do you want life insurance or a second bank account with more limitations? If you want the higher death benefit, buy the UL. If you want the second, more limited bank account with a smaller death benefit, buy the whole life.

Posted: 30 May 2009 01:09 Post Subject: insurance

I appriciate the advice...thanks. And...that's the only difference..really? Of course, I would want the higher death benefit in my policy.

Posted: 30 May 2009 03:09 Post Subject:

Can you cite an example of why someone would be better off with a whole life/term combination for $500k instead of a straight $500k no-lapse UL if they want the full $500k guaranteed forever and only have the $2500 to spend?



If you are looking solely at guarantees, they wouldn't want the whole life. By the same token, if we are only looking at guarantees, nobody should ever make an investment. (I'm not calling whole life an investment. It isn't.)

My point is that if a company has paid a dividend for every year for the last 100+ years, it doesn't make sense to make a decision and assume that the insurance company will instantly stop paying a dividend and never pay one again. That is exactly what is being done when one looks at the guarantees.

When making realistic assumptions, a participating whole life policy combined with term insurance does much better for a client than a guaranteed UL policy. This assumes that a client is not old. Older clients do much better with guaranteed UL policies.

Posted: 30 May 2009 03:11 Post Subject:

Nationwide is my Insurance company...been dealing with them for a LONG time. I gave the agent my info ( 45 years old, smoke, etc.) and the quote he gave me was about $40.00 pr month, for 'Whole' Life.



Find a new agent. That isn't meant to be critical of your agent. A Nationwide agent can't do what is best for you. He can only sell Nationwide. The odds that Nationwide is the very best policy for you is slim to none. Property and casualty companies don't do a good job with life insurance.

Posted: 30 May 2009 03:13 Post Subject:

Yes, but not as much cash value as the whole life. Do you want life insurance or a second bank account with more limitations? If you want the higher death benefit, buy the UL. If you want the second, more limited bank account with a smaller death benefit, buy the whole life.



There's a heck of a lot more to it than this.

Posted: 30 May 2009 03:16 Post Subject:

I appriciate the advice...thanks. And...that's the only difference..really? Of course, I would want the higher death benefit in my policy.



There's lots of differences. For instance when you get older and if your finances get tight, with a guaranteed Universal Life policy, it will probably lapse if you can't make out of pocket premium payments. With a good participating whole life policy, you should be able to still keep your policy in force.

Posted: 30 May 2009 05:29 Post Subject: insurance

I thought someone posted if you DO have to skip payments, on a UL policy, that they ( the Insurance Co.) can make the payment up with whatever the 'cash value' is of the policy.

Posted: 30 May 2009 05:32 Post Subject:



There's a heck of a lot more to it than this.



Sure there's more, but this is essentially what it boils down to. If you're worried about lapsing a policy as you get older, put in more money up front....and if you don't think you can afford the policy, don't buy it. If someone buys a no-lapse UL at age 45 and can afford the premiums, you think they won't be able to afford the same exact premium 25 years away when the "real" cost of that premium is significantly less due to inflation?

Posted: 30 May 2009 10:49 Post Subject:

you think they won't be able to afford the same exact premium 25 years away when the "real" cost of that premium is significantly less due to inflation?



I think that is precisely the case in many circumstances. Plenty of people who are 40 can afford lots of things and expect their retirement to be a certain way. The best laid plans of mice and men....

Posted: 01 Jun 2009 03:32 Post Subject:

With the recent economical concerns, a lot of people are worrying about their retirement. I would be very nervous if I was in a position where I had been with the same company for 30 years and was just 5 years away from a nice pension, benefits, and comfy retirement.

Here in South Carolina, textile mills and plants are closing left and right...and unfortunately a lot of employees and retirees are losing their benefits. Then you have all the other things to worry about...company stock is great, but what if the company you worked for was Enron?

Posted: 04 Jun 2009 11:00 Post Subject: CASH VALUES

If the applicant has selected "Automatic Premium Loan Request" the company has authority to do so. If not, you need to call the company and find out why the applicant's cash values were used.

Hope this helps.

Posted: 05 Jun 2009 06:18 Post Subject:

Hi Todayinsurance,

If the applicant has selected "Automatic Premium Loan Request" the company has authority to do so



Never heard of "automatic premium loan request' before. Is it available only with UL policies? Has the insured have to elect for it separately?

Hope you would clarify it for me.

Posted: 05 Jun 2009 10:51 Post Subject:

An Automatic Premium Loan is when the insured gives permission to the insurance company to pay for the insurance by loaning the money for the premium. This can only be done in a policy that has a cash surrender value.

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