Ed Hinerman On Life Insurance

When Your Universal Life Policy Falls Apart!

It’s certainly not breaking news. But it has been important and timely and will remain important and timely for many years. A very high percentage of the universal life policies in force today are in trouble due to the abhorrent sales pitches of those life insurance agents who were more worried about their bottom line than their client’s family and future.

Those pitches centered around two things. Agents sold the idea that universal life would build tremendous cash value and that it was a policy that would be there for life. What a package! What they didn’t tell potential clients was that there was no guarantee of cash value accrual and also no guarantee that if the policy started bleeding cash due to lower interest rates, that the policy would stay in force at all let alone for life. By the way the majority of estate preservation policies sold in the last 20 years used these types of universal life policies

Now keep in mind that sold correctly with enough premium dollars going in, a universal life policy could be guaranteed to remain in force forever and even be guaranteed to build cash value to some degree.
But also keep in mind that most life insurance is sold in competitive situations and that universal life policies have guaranteed and non guaranteed values. Logically the price is higher to guarantee values like cash and the longevity of the policy.

So, a dirtball agent who wanted to win the day for himself would show a client a non guaranteed policy illustration and talk a lot about how “the company has historically done well and there’s no reason to believe that will change”, and “things would really have to go down the tubes before the guaranteed values will come into play”. Some would simply not show the guaranteed values. It just muddied the waters.

Probably 90% of universal life policies sold in the 80’s were sold like this and the majority since then have gone the same route. It was more prevalent during the 80’s just because assumed interest rates were so high that agents were selling universal life as an early retirement vehicle. You could put in squat and be a millionaire in 20 years according to them.

So these “Bad UL’s looked great on the non guaranteed side and fell to pieces (death benefit went away)in short order on the guaranteed side. On the flip side a “Good UL stays together (death benefit remains intact) on the guaranteed side.

Bottom line. I’ve made a lot of this issue over the years and probably will until I die or retire. What people need to know is that 1. you can’t hang on to it long enough for it to get better and 2. you can replace it with an appropriate product and get back on solid ground right now. There are far too many people out there thinking they can keep dumping cash into a failing universal life policy and someday, somehow, things are just going to be OK. Unfortunately…..NOT!

Add comment July 2nd, 2009

So, Let’s Think This Life Insurance Thing To Death!

No one loves a good value better than me. I don’t take lightly buying almost anything and I really don’t take lightly committing myself to making payments for something like life insurance.

Having said that, there is a problem when people want to suck the marrow out of the shopping experience, making sure that every stone is turned and every possibility is researched.

I was talking with someone today who was taken for a ride on a universal life policy he bought 15 or so years ago. Promised that it would last forever and it is imploding before his eyes, price going up and guarantee non existent at this point. I offered several fully guaranteed options to him and he was having a hard time, even though he called the agent a crook, wrapping his mind around changing. Wanted to think about it a while longer. So I shared a story with him from last year. He is now considering the merits of making that change while he knows what his health is.

It never seems very far between stories gone bad because of shopping to long or dragging a person’s feet just a little too long. I worked with a man near retirement age last year, and the year before. He wanted an insurance policy that would allow him to maximize his retirement options. He kept putting it off because he wanted to make sure he purchased just the right amount. He was debating between $500,000 and $600,000. We worked this over for almost a year and a half. I kept explaining that he could put $500,000 in force and if, in the end, he wanted $600,000, we could add $100,000 or replace the first policy with a new one for the full amount. He didn’t have any life insurance in force and I made it clear that the suggestion above was a prudent approach.

He called one day and I had a hard time understanding him. His speech was slurred. He had a massive stroke and wanted to know if those rates I had quoted him were still good. Of course with the health change they weren’t and the options that he had kicked around for over a year went out the window.

Bottom line. I’m not against people shopping and spending their life in pursuit of the perfect policy at the perfect rate. But prudence dictates doing that from a position of power. Have insurance in force and then take your time researching the world. You can always replace a policy with a better one.

Add comment July 2nd, 2009