Universal Life insurance And Low Interest Rates
Many people bought universal life policies when interest rates were much higher than they are now. Most people were given a computer printout at the point of sale which showed that based on the current interest rates, the policies would last to age 100 or longer.
The problem is that many of those policies have not been reviewed and based on low interest rates in effect for years, the polices will not last the way they were projected.
Anyone who has a universal life policy should ask their agent or company for an in force ledger statement. This report will show how long the insurance will last based on current interest rates.
Many people will be surprised to find out that based on the premiums they are paying, the policies will fall short from the original projections.
These policies will require a higher premium to make them last.
When someone asks the company for the in force statement, they should ask for a printout which shows how much the premium should be to project the death benefit to last to age 100 or whatever age they want to see.
There is also a new type of universal life called guaranteed universal life. Sometimes an old universal life policy can have substantial cash in the policy and if this money was rolled into one of these new polices, the premium required to guarantee the policy will stay in force for as long as you want and can even be lower than the non guaranteed premium.
The downside of these policies is that the cash will be used up. However, when a policy pays a death benefit, the cash is kept by the insurance company. Usually you get the insurance or the cash, but not both.
Trustees that have older universal life policies in trusts they run should be very careful to make sure the policies are running properly and raise the premium when necessary. In force statements should be requested every year to make sure the policies will stay in force when they are needed.
We would be happy to help anyone look at their current policies and help them determine if the policies are running well. Of course any changes on companies depends on being in good health.
The good news for the old policies is that they will stay in force as long as the term cost is paid for.