When it comes to universal life insurance policies that question could be asked both of the people who own the policies and the companies that sold them. We are currently collaborating on an article that will hopefully bring the picture into focus, that picture I’ve yelled about so many times, the underfunded UL. The non guaranteed stepchild of a policy that so many people have their family protection riding on.
What is becoming clearer and clearer is that, at least to me, is that all of these precariously balanced, yet doomed to fall policies may in fact be part of the plan. Think about it.
Let’s say I’m the insurance company and you have a $500,000 universal life policy with me that has an annual premium of $6000. You’ve done the math and know that you’ll never live long enough to pay more in than your family will be paid upon your death. And if you happen to die prematurely, they will receive real dollars for your pennies spent. But wait!
What if that $6000 doesn’t really guarantee that policy forever? What if the agent you bought it from sold you a song about how good the company is and how you could depend on their non guaranteed projections because the company has always come through? What if that $6000 assumption really never anticipated bad economic times? What if in the 15th year after, pouring $90,000 into your universal life policy, you get a payment notice telling you that it is now going to take a premium this year of $11,000 to keep the policy in force?
What if when that price starts going up, it keeps going up every year and eventually you can’t afford it and it lapses? What if that is exactly what the insurance company wants to happen? All profit and no death benefit payout is a pretty good deal if you’re the insurance company.
I don’t have a shred of evidence that there is some kind of grand scheme like that, but when I see the number of policies hitting this same brick wall it all seems too much the same not to be planned.
I had a customer once that felt bad when I was able to find a lower price term insurance policy with a different company. He was concerned about how the original company would feel about him bailing on them. Heck guys, they plan on it. The reason term is so cheap is that companies almost never pay claims. People replace their term policy with a better deal or just get tired of paying insurance or space it out and lapse it or just get to the end of a term and forget to die. In the case of term insurance it’s not a disreputable thing that there is an assumption of lapsing. At least they offset that downside with a cheap upside.
It would be quite another thing if there is a built in mechanism on a very expensive product to make it unaffordable at some point, or if the product was just so fragile that the chances of its’ cost ballooning out of control at some point was very good.
Bottom line. I have based this blog on the very same thing that most universal life insurance policies are based on, assumptions. Universal life can be a good and completely guaranteed product, but companies still offer universal life products that aren’t guaranteed at all. If it walks like a duck, ……….