It’s one thing when a lack of customer service results in you not getting your empty coffee cup refreshed, but when a life insurance agent goes south on service and the life insurance company they represent joins them on the beach it can end in disaster. When a life insurance agent doesn’t explain with a cash value policy that for every action there is a reaction, whether good or bad, they have failed their customer.

I have a client who has an Allstate universal life policy that is sort of in force. I’ve made more than a little noise about the implosion of, especially, traditional universal life policies. They are sold as and have the wording “flexible premium adjustable universal life policy” all over the document but very few agents and even fewer policy owners have any idea just how fragile a product it is and how little it takes to make it disintegrate into mush that won’t do anything for your family if you die.

Such is the case with this client’s Allstate flexible premium adjustable ul. He purchased it in 1991 and there is no doubt that during the sale he was smothered with customer service. We don’t have the original illustration so we’ll never know if the policy was actually universal, that’s to say that it was designed to go on forever as long as a level premium was paid. For the sake of this product evaluation, let’s give the agent and Allstate the high ground and say it was designed to go on forever although statistics with traditional universal life products would say I’m being very generous. Very few were sold based on guarantees and based on guarantees very few would have met the forever test.

But we’re about to start a new year and I’m feeling generous. So my client has this perfect universal life product and it begins building cash value and the premium stays level and life is good….until he has some health issues and runs a little short of cash. The agent is still around because so far nothing has gone to crap with the policy and he is of course hoping he can sell more. The client calls him remembering that this is a flexible premium and adjustable product. His cash flow is shot and pulls out those magic universal life bullets and tells him that if he just needs to cut back on premiums, that’s no problem because it can be paid out of cash value. If that isn’t a big enough fix he can borrow money from the cash value to pay medical bills. The client opts for the loan after being assured that he still has the same amount of life insurance, there’s just a loan against the cash value.

It is at this point that the agent, or in his absence of true customer service, the company, should have spelled out to him exactly what happens when money is borrowed from the policy. They should have run illustrations showing what happens if he doesn’t pay the loan back, only partially pays it back or pays it in full. They should have fully explained that as soon as you take advantage of flexible or adjustable you need to know what that means down the road.

He sent me an in force illustration today. It was unfortunately an illustration I’ve seen a lot of times with people over 50 owning universal life insurance. One of the shorter in force illustrations I’ve ever had to review because as it turns out, at age 65 this man has a policy that he has poured tons of money into and if Allstate’s goose starts laying golden eggs right now, even though his premium will triple, the best case is it will lapse with no value or death benefit in 3 years. Worst case is, and I had to laugh a little about this, if he pays this year’s premium it will lapse anyway. I was laughing at how stupid Allstate is to show a customer that if they pay the premium they might not have insurance anyway.

Is this the client’s fault for not paying back the loan? I think I would lay this one squarely at the door of the agent, or in his absence, the company. Someone should have been talking to the client before he took the loan and at least once a year afterward. But it’s at this point that most agents disappear and what you get from the company annually isn’t meant for laymen to understand. He got no customer service and now he no longer has a universal (as in forever) policy.

Bottom line. People that were sold traditional universal life policies in the 80’s and 90’s had about a 50/50 chance of being lied to about what they were buying. Again I’m probably being generous. I was taught in the 80’s to sell universal life based on assumptions, not guarantees by one of the leading universal life agents in Wyoming. Make them believe in the assumptions he would say. Tell them if they’re paying 15% on their mortgage why would this policy ever pay any less than that he would say. Tell them the guarantees are only there in case of a nuclear war he taught me. He was a liar and he made a lot of money selling policies that fell apart for one reason or another. I didn’t follow his lead.  If you have questions about the health of your UL, or if you can’t find someone to tell you what your annual statement is really saying, call or email me directly. My name is Ed Hinerman. Let’s talk.

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