Universal Life Insurnace

Posted: Tue Apr 28, 2009 07:48 pm Post Subject:

Either way, the client needs a new policy with a no lapse guarantee.
Back in '87, the projected values were up there a bit, so it obviously was presented by the values. Of course, as we know, the projected values never work out. It's usually somewhere between the guaranteed values and the projected values. And of course, we all know of that little thing called "Target Premium" which was probably there and never explained correctly. Should they get a new agent....I say it's up to them, as always.

Posted: Tue Apr 28, 2009 09:08 pm Post Subject:

How can you be so sure that it did not go from age 95 to age 68 in a year or two? Maybe it went from age 95 two years ago to 85-90 last year to 68 this year. Without seeing the policy, that's not really something you can assume. If the carrier maxed out the cost of insurance and minimized the interest crediting, it very easily could have a massive drop in a single year. Going out and trying to find another agent may lead to a case of the grass not always being greener on the other side of the fence. It's not like the agent is coming to them when he is 67 and telling them the policy will end at 68 - if my math is correct, he's letting them know about 13 years ahead of time that something needs to be done.

Posted: Tue Apr 28, 2009 09:11 pm Post Subject:

Either way, the client needs a new policy with a no lapse guarantee.
Back in '87, the projected values were up there a bit, so it obviously was presented by the values. Of course, as we know, the projected values never work out. It's usually somewhere between the guaranteed values and the projected values. And of course, we all know of that little thing called "Target Premium" which was probably there and never explained correctly. Should they get a new agent....I say it's up to them, as always.

Posted: Sat May 02, 2009 04:37 pm Post Subject:

Yes, you're right, I was assuming. However, I was assuming that because they are mad about it not going to age 95 like they were lead to believe. I just can't see them continuing to pay on a policy that they know is going to lapse in 12-13 years!
The other thing...if they do need a new UL policy in what situation would they not want a guaranteed NL policy? Are you saying they might need another policy to put them right back in the same situation later when they don't have the time/money to fix the problem?
I know very well that in order to steer them in the right direction there would be more information needed.

Posted: Sat May 02, 2009 08:52 pm Post Subject:

It's only going to lapse in 12-13 years if they keep paying the same premium. A higher premium can keep it alive longer and if his health has changed, this higher premium may be a lower premium than what would need to be paid for a new policy.

There are plenty of situations where someone wouldn't want a guaranteed NL policy. If one doesn't care about their insurance staying in force past retirement, term would be better. If one wants their insurance to stay in force forever, and isn't old when it is being purchased, a participating whole life policy should be better.

Posted: Thu Jun 04, 2009 04:40 am Post Subject: failing UL

I have been servicing a block of policies from another agency for the past 4 years. Most of the UL policies are failing since none of them had the no lapse guarantee. I am constantly ordering re proposals to see what premium is needed to extend the policy to a reasonable life expectancy of 85, 90, 95 or 100. Due to the IRS guideline rules, many policies will not run to the requested age. But I can say that I cannot remember a case where keeping the existing policy was cheaper than getting a new guaranteed UL to age 121. This is due to the fact that current policies are priced cheaper, per thousand, than the older plans. This is sometimes a hard concept to get across to someone in their late 60's +. People think that "older is better", but I tell them it is like a new car getting better gas mileage than a 20 year old car or a new refrigerator being more economical to operate than an old one, people now live longer and so the prices on the new plans reflect that fact.

Regardless, an existing policy will never be guaranteed even with more premium, it will still be a projection with a much lower age guarantee. In today's financial environment I do not trust that any insurance company won't raise their cost of insurance, heck most are already paying the guaranteed minimum on the interest rate.

Now, there are plenty of cases where the client's health has changed and a new policy is not in the cards. This is where we work with what we have and get the existing policy to perform as best as possible. Sometimes this means decreasing the death benefit, but mostly it means adding a larger premium to the policy.

If a new policy is a possibility, sometimes a term plan is the way to go if the UL is behaving like a very expensive term plan anyway and the client doesn't really want insurance for when he/she dies. This way the client gets the cash from the policy and the term plan is guaranteed for a set number of years not to change in price.

The other thing that people don't seem to understand is the cash value on the policy. When the cash is taken from the policy and not paid back, the policy will suffer greatly. Not only is the death benefit immediately reduced by the amount of the loan, but interest is charged at a rate of about 8% on many policies and within a very short period of time, a small loan becomes a sizeable amount. Here is another analogy to a car. If you drain all the oil from the car's engine, but continue to put gas in, eventually the car will blow up. Same with insurance. If you drain all the cash and continue to pay the premiums, eventually the policy will explode, fail, terminate....whatever makes more sense!

You can probably tell I am passionate about this topic, but it is also very frustrating dealing with UL owners. They seem to believe their policies are fine and they do not need anyone telling them any different. After all they reason that they are paying their premiums so their insurance will be in force forever.

Somehow UL owners have the most incredible memories for conversations they had 15 or 20 years ago with their insurance agent who told them, "nothing about the plan will ever change and no matter how long you live you will have this plan". They do not count the fact that yearly they are receiving a statement from the insurance company which, most often, clearly states the termination date of the plan if they continue paying premiums and the termination date if they stop paying the premium and let the policy pay for itself.

More than once I have had people tell me they thought termination of the plan meant that at that date they would get all their money back!

All in all I believe this type of plan is one of the most misunderstood. I wish more agents were looking out for their client's best interest, but the truth is that most of the agents who sold those plans are not even in the business or don't understand what they sold in the first place.

Here's to helping people who sometimes don't think they need help or even worse think you are trying to SELL them something!

Posted: Thu Jun 04, 2009 07:46 am Post Subject:

Hi Stacey,

Excellent post :D

This is due to the fact that current policies are priced cheaper, per thousand, than the older plans.