Policies Are in Trouble - Need Help.

[Moondoggy]

I have 2 universal life policies with 2 different companies. These policies were taken out in the early 80's and the expectation was that the interest rate would remain high and as I got older the cash value in the savings component of the policy would have built up enough to offset a portion of the cost of insurance and that I would either die and my heirs would receive the death benefit or the policy would age out at 100 and I'd be paid the remaining cash value.

Two weeks ago I received a frantic call from my new agent (I moved) and he said that my policy with his firm is in trouble. The policy is currently paying 4.5% on the cash value and they guarantee that they will always pay 4.0% minimum. The problem, as I understand it, is that my $100 quarterly premium is no longer covering the cost of insurance and the policy is eating up the cash value to pay the difference in cost. What the agent was telling me was that if the company increases their expenses on the policy to the max they are allowed to and also reduce the interest rate paid on the cash value to the 4% minimum, my policy will be out of cash value by age 74 and if that happens my policy will no longer pay the death benefit. His suggestions were to:

1. Increase my premium from $100 to no less than $250 per quarter.
2. Reduce the cost of insurance by reducing the death benefit and continue to pay my $100 quarterly premium.
3. Converting my current policy into a substantially reduced paid up whole life policy using my existing cash values to buy the policy.
4 Convert the existing policy to a different type of Universal life policy where the existing cash value would be invested in mutual funds managed by the insurance company. There would be no guaranteed minimum amount that this policy would earn but the hope is that the policy would earn an average of 8% return per year over any 10 year period of time.

Since my other policy was very similar to the one noted above, I checked it out and found that it too was now eating my cash values to pay the premium and this policy will also be dead by age 77.

At this point, I'm almost 64 years old and retired. My wife and I have pensions, IRA's, stock and in another 3 years I'll take Social Security. Before we retired we had everything analyzed and we will never need the cash value in either policy. The thought was that my $60,000 policy would go to my wife and a portion of that benefit would pay off any car loans and my final expense. The other policy would be paid to my daughter to pay the education expenses of my grandchildren. My concern now is that if I don't do something there won't be any death benefit and I'm also concerned that the agent may only be giving me the options that are in his best interest as opposed to my best interest. Does anyone have any suggestions on how to get out of this mess? Are there other alternatives to this problem that don't involve the agents, the companies or the existing policies? Please let me know.

 

[WinoBlues]

I have 2 universal life policies with 2 different companies. These policies were taken out in the early 80's and the expectation was that the interest rate would remain high and as I got older the cash value in the savings component of the policy would have built up enough to offset a portion of the cost of insurance and that I would either die and my heirs would receive the death benefit or the policy would age out at 100 and I'd be paid the remaining cash value.

Two weeks ago I received a frantic call from my new agent (I moved) and he said that my policy with his firm is in trouble. The policy is currently paying 4.5% on the cash value and they guarantee that they will always pay 4.0% minimum. The problem, as I understand it, is that my $100 quarterly premium is no longer covering the cost of insurance and the policy is eating up the cash value to pay the difference in cost. What the agent was telling me was that if the company increases their expenses on the policy to the max they are allowed to and also reduce the interest rate paid on the cash value to the 4% minimum, my policy will be out of cash value by age 74 and if that happens my policy will no longer pay the death benefit. His suggestions were to:

1. Increase my premium from $100 to no less than $250 per quarter.
2. Reduce the cost of insurance by reducing the death benefit and continue to pay my $100 quarterly premium.
3. Converting my current policy into a substantially reduced paid up whole life policy using my existing cash values to buy the policy.
4 Convert the existing policy to a different type of Universal life policy where the existing cash value would be invested in mutual funds managed by the insurance company. There would be no guaranteed minimum amount that this policy would earn but the hope is that the policy would earn an average of 8% return per year over any 10 year period of time.

Since my other policy was very similar to the one noted above, I checked it out and found that it too was now eating my cash values to pay the premium and this policy will also be dead by age 77.

At this point, I'm almost 64 years old and retired. My wife and I have pensions, IRA's, stock and in another 3 years I'll take Social Security. Before we retired we had everything analyzed and we will never need the cash value in either policy. The thought was that my $60,000 policy would go to my wife and a portion of that benefit would pay off any car loans and my final expense. The other policy would be paid to my daughter to pay the education expenses of my grandchildren. My concern now is that if I don't do something there won't be any death benefit and I'm also concerned that the agent may only be giving me the options that are in his best interest as opposed to my best interest. Does anyone have any suggestions on how to get out of this mess? Are there other alternatives to this problem that don't involve the agents, the companies or the existing policies? Please let me know.

There are a few of us here that wrote some of those policies and know your situation all to well.

Edit: the agent very may be giving you good advice. That is going to be hard to know with out a conversation. There other factors to consider such as health and how long you want to pay for a policy. What state are you in?

 

[Newby]

I have 2 universal life policies with 2 different companies. These policies were taken out in the early 80's and the expectation was that the interest rate would remain high and as I got older the cash value in the savings component of the policy would have built up enough to offset a portion of the cost of insurance and that I would either die and my heirs would receive the death benefit or the policy would age out at 100 and I'd be paid the remaining cash value. Two weeks ago I received a frantic call from my new agent (I moved) and he said that my policy with his firm is in trouble. The policy is currently paying 4.5% on the cash value and they guarantee that they will always pay 4.0% minimum. The problem, as I understand it, is that my $100 quarterly premium is no longer covering the cost of insurance and the policy is eating up the cash value to pay the difference in cost. What the agent was telling me was that if the company increases their expenses on the policy to the max they are allowed to and also reduce the interest rate paid on the cash value to the 4% minimum, my policy will be out of cash value by age 74 and if that happens my policy will no longer pay the death benefit. His suggestions were to: 1. Increase my premium from $100 to no less than $250 per quarter. 2. Reduce the cost of insurance by reducing the death benefit and continue to pay my $100 quarterly premium. 3. Converting my current policy into a substantially reduced paid up whole life policy using my existing cash values to buy the policy. 4 Convert the existing policy to a different type of Universal life policy where the existing cash value would be invested in mutual funds managed by the insurance company. There would be no guaranteed minimum amount that this policy would earn but the hope is that the policy would earn an average of 8% return per year over any 10 year period of time. Since my other policy was very similar to the one noted above, I checked it out and found that it too was now eating my cash values to pay the premium and this policy will also be dead by age 77. At this point, I'm almost 64 years old and retired. My wife and I have pensions, IRA's, stock and in another 3 years I'll take Social Security. Before we retired we had everything analyzed and we will never need the cash value in either policy. The thought was that my $60,000 policy would go to my wife and a portion of that benefit would pay off any car loans and my final expense. The other policy would be paid to my daughter to pay the education expenses of my grandchildren. My concern now is that if I don't do something there won't be any death benefit and I'm also concerned that the agent may only be giving me the options that are in his best interest as opposed to my best interest. Does anyone have any suggestions on how to get out of this mess? Are there other alternatives to this problem that don't involve the agents, the companies or the existing policies? Please let me know.

That's a very common problem with Universal Life policies that were bought during the 1980's and 90's. My first thought is always that you don't want an agent with the company that sold that to you to be the only agent you speak with. After you get their solution in writing, seek out a good broker and review your options with other companies.

 

[Jerard]

You didn't say how your health is now. My responses below assume you are in good health and are still insurable.

On a personal note, I never sell ULs for the reason you have discovered about your own policies. There are many agents that sell them but very few do so responsibly. The agent that originally sold these to you most likely showed you the projected column that looked great and not really touched upon the guaranteed column. If he had you would have known that if the policy were to be reduced to only the guaranteed interest rate it would implode like it is now.

1. Increase my premium from $100 to no less than $250 per quarter.

Since the insurance portion of all ULs is annual renewable term and that term cost goes up every year, it will continue to go up each year on your birthday for the rest of your life. If you are in good health then this option may only kick the can down the road and you'll have this same problem again 20 years from now. I would not go with this option.

2. Reduce the cost of insurance by reducing the death benefit and continue to pay my $100 quarterly premium.

Same as above. However, if you are not in good health and are uninsurable than options 1, 2, or 4 may be your only options.

3. Converting my current policy into a substantially reduced paid up whole life policy using my existing cash values to buy the policy.

I think this is your best option. Cut your losses here. Convert this non-guaranteed policy to one that will be guaranteed for the rest of your life. Then take that money you save and buy a new whole life policy for as much death benefit as you can afford. Bear in mind you probably won't have as high of death benefit as you had but at least everything will be guaranteed to the day you die no matter how old you are when that day comes. I think you'll be happy that your plans for after your passing will be unconditionally guaranteed.

4 Convert the existing policy to a different type of Universal life policy where the existing cash value would be invested in mutual funds managed by the insurance company. There would be no guaranteed minimum amount that this policy would earn but the hope is that the policy would earn an average of 8% return per year over any 10 year period of time.

Here you are just swapping one type of non-guaranteed product for another.



If an agent shows you what is called a "GUL" (Guaranteed Universal Life) and say that it is guaranteed then that is not entirely true. There are requirements that have to be made for that "guarantee" to be maintained. Any product with "UL" in the name is not guaranteed (without limitations) for the life of the insured now matter how old he or she is at death. Some here will disagree with me and in the past I have challenged them to show me any UL contract they think is unconditionally guaranteed and noone will produce one.

Even if a responsible agent sells a UL and makes the client aware of the limitations and dangers then most people a few years down the road will forget everything the agent said. All most people remember is they have a policy and how much they're paying for it. There are aware clients that know everything necessary about their policy but these are rare. For these and other reasons I don't recommend any kind of UL for a client to buy or for an agent to sell.

 

[Moondoggy]

My health is generally good. I had a case of pericarditis back in 2011 that resulted in me having 7 AFIB events before things settled down but I'm on two drugs for AFIB and have not had an event in 3 year. I'm also have sleep apnea and wear a CPAP at night. Other than the above I think I'm pretty health as I work out on an elliptical for an hour almost every day at my local gym. Unfortunately, the two meds I'm taking for AFIB have caused me to gain an additional 20 pounds so I'm considered to be overweight in most circles. These are the only things, in my opinion would be factors in underwriting a new policy if that was an option I wish to take.

 

[Jerard]

My health is generally good. I had a case of pericarditis back in 2011 that resulted in me having 7 AFIB events before things settled down but I'm on two drugs for AFIB and have not had an event in 3 year. I'm also have sleep apnea and wear a CPAP at night. Other than the above I think I'm pretty health as I work out on an elliptical for an hour almost every day at my local gym. Unfortunately, the two meds I'm taking for AFIB have caused me to gain an additional 20 pounds so I'm considered to be overweight in most circles. These are the only things, in my opinion would be factors in underwriting a new policy if that was an option I wish to take.

You have to ask yourself "how long should I live?". If you feel you'll still be around at 85 or 90 or longer then remember that one year term (the insurance portion of all ULs) goes up every year. If you stay with a UL then you will most likely have this same problem again in 20 to 25 years. My advice is to get rid of the ULs and go with a guaranteed whole life plan. But don't drop anything until after a new policy is approved.

 

[Moondoggy]

Originally, the two policies were written in Illinois but I now live in Florida. What impact does the state I live in have on my current situation?

 

[Jerard]

Originally, the two policies were written in Illinois but I now live in Florida. What impact does the state I live in have on my current situation?

None. Plans are good nationwide and as you stated you have a local agent with that same company so they are also set up in Florida, too.

 

[VolAgent]

One question I have...

Earlier you mentioned the new agent said IF charges go to maximum and interest goes to minimum the policy lapses at age 74. Did he actually say that or is that what you understood him to say?

I would get an inforce illustration showing current assumptions and guarantees before doing anything else. It may be that just a slight increase in premium is all that is needed. You can also request an illustration showing what the slight increase will do at current assumptions.

While interests do change frequently, an increase in charges is more rare.

 

[WinoBlues]

Originally, the two policies were written in Illinois but I now live in Florida. What impact does the state I live in have on my current situation?

There may be an agent on the board that works in your state that would be willing to review your policies and options.

I agree with Jerard on number 4. I disagree on GUL as not being a potential option.

The part that concerns me about the current agent is the "frantic" call. Unless these policies are blowing up next month it is not a have to do something this week deal.

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One question I have...

Earlier you mentioned the new agent said IF charges go to maximum and interest goes to minimum the policy lapses at age 74. Did he actually say that or is that what you understood him to say?

I would get an inforce illustration showing current assumptions and guarantees before doing anything else. It may be that just a slight increase in premium is all that is needed. You can also request an illustration showing what the slight increase will do at current assumptions.

While interests do change frequently, an increase in charges is more rare.

That.
.................

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You didn't say how your health is now. My responses below assume you are in good health and are still insurable.

On a personal note, I never sell ULs for the reason you have discovered about your own policies. There are many agents that sell them but very few do so responsibly. The agent that originally sold these to you most likely showed you the projected column that looked great and not really touched upon the guaranteed column. If he had you would have known that if the policy were to be reduced to only the guaranteed interest rate it would implode like it is now.




Since the insurance portion of all ULs is annual renewable term and that term cost goes up every year, it will continue to go up each year on your birthday for the rest of your life. If you are in good health then this option may only kick the can down the road and you'll have this same problem again 20 years from now. I would not go with this option.





Same as above. However, if you are not in good health and are uninsurable than options 1, 2, or 4 may be your only options.




I think this is your best option. Cut your losses here. Convert this non-guaranteed policy to one that will be guaranteed for the rest of your life. Then take that money you save and buy a new whole life policy for as much death benefit as you can afford. Bear in mind you probably won't have as high of death benefit as you had but at least everything will be guaranteed to the day you die no matter how old you are when that day comes. I think you'll be happy that your plans for after your passing will be unconditionally guaranteed.



Here are are just swapping one type of non-guaranteed product for another.



If an agent shows you what is called a "GUL" (Guaranteed Universal Life) and say that it is guaranteed then that is not entirely true. There are requirements that have to be made for that "guarantee" to be maintained. Any product with "UL" in the name is not guaranteed (without limitations) for the life of the insured now matter how old he or she is at death. Some here will disagree with me and in the past I have challenged them to show me any UL contract they think is unconditionally guaranteed and noone will produce one.

Even if a responsible agent sells a UL and makes the client aware of the limitations and dangers then most people a few years down the road will forget everything the agent said. All most people remember is they have a policy and how much they're paying for it. There are aware clients that know everything necessary about their policy but these are rare. For these and other reasons I don't recommend any kind of UL for a client to buy or for an agent to sell.

Not to derail this guy's thread but can you lay out the GUL limitations you are telling him about?