How many blog posts and articles have I written about the catastrophic meltdown of traditional universal life insurance policies? I have sought industry assistance in nailing down approximately what percentage of the total number of UL’s are in danger of imploding.
I was dumbfounded, sort of! None of the companies I spoke with said they had any idea, not even a wild guess, at the industry percentage of policies that were based on assumptions rather than guarantees. In fact they indicated that they didn’t believe that they could even come up with those kind of figures for the business on their own company books. That was their disclaimer anyway….right before they acknowledged that it was likely a huge problem.
Furthermore, not one company had a plan or program in place to try to determine the extent of the problem in order to give policy owners more of a heads up. The normal practice is to send annual reviews that mean nothing to the average policy owner. Then when things really go sour they send them a premium notice saying that it will take a lot more money than they’ve been paying in order to keep the policy in force. Most companies said it was the job of the agent who should be doing annual reviews and keeping the client abreast of the health of their policy.
Well, that’s a real problem since a very small percentage of agents ever last more than a year in the business. And for those that last long enough to actually stay around and service their clients, do you really think they, the agents that sold under funded, doomed to fail, UL’s are really going to call their clients and tell them that “you’ve just blown tens of thousands of dollars on my last idea, but I have a new plan you should try?”
That is about as likely to happen as having a company write a letter to all of its’ UL customers saying that there is an inherent problem with the majority of their UL policies and they highly recommend that you get your policy evaluated soon. Morally and ethically that is exactly what should happen.
Bottom line. It’s an industry wide problem. It’s an insidious problem in that policies, because of low mortality charges in the first years, can hang together for a long time before the disintegration begins. It’s enormously harmful to those that lose everything they’ve put into a policy, but even more so if they lose the policy at a point where they are no longer insurable.
If you have a cash value policy, whether universal life, variable universal life or whole life. have a reputable independent agent review that policy with you soon.