I had to change the top of my drum today. I’ve worn it out over the past two years beat it about all of the absolute crap (forgive me) that insurance companies are trying to pass off to consumers in the form of non guaranteed universal life and whole life products.
Now several companies are doing away with their guaranteed level term products and are replacing it with what they call a term/UL policy. There are actually some up sides to this product, but later in this post I will discuss those upsides along with a serious downside.
But for now the same old drum. I have been able to get companies, off the record, to confirm the fact that the majority of the in force universal life business they have is not guaranteed for life or even to age 100. Even the old out dated warhorse whole life policy is often sold underfunded to keep the price down, but the cost of the discount is a shortened guarantee. So you are sold on cash value and lifetime coverage only to find out 10 or 15 years later that neither is going to be there for you because the assumptions they used were based on a solidly growing economy.
It’s the same old story. An agent thinks they need to present the lowest price to win the business of a client and the only way they can lower the price and keep the same face amount is by putting all of the weight of the policy on assumptions about interest, mortality experience and company performance as opposed to putting the health of the policy all in the guaranteed column. Here’s where I pull out my old friend the Good ULto show you that even if there is no guaranteed cash, a universal life polcy death benefit can still be guaranteed forever.
Where the great disservice happens. Oh, let’s call it what it really is. Where the great misrepresentation happens is when an agent gets you to focus on the right side of a UL illustrations which is called the current side or the assumed side. If they can get you to believe that historically the company and the product have been bombproof they can get you to buy into a Bad ULby just ignoring the chaos and collapse that are obvious on the guaranteed side of the illustration.
With easily 60% or more of the in force universal life policies out there headed for a meltdown, the owners of these policies need to pull their heads out of the sand and find another agent who can help them put their protection back on a solid foundation. And just a word of advice, don’t go back to the same agent. He will either claim there isn’t a problem to cover his rear or he’ll replace your old policy with a new one and the guy will get paid twice, once for selling you junk and again for fixing the junk he shouldn’t have sold to start with.
And the new term/UL products that are starting to filter into the system. I said there are some upsides to the product. The price is competitive and like term the rates are guaranteed level for a certain period, say 20 years. That’s the upside. The downside is that you can’t convert it when you want to because it’s a UL and doesn’t convert. So, if 5 years into the policy you decide you want to make it permanent, you can’t. At year 21 the policy will continue at what would be close to a term conversion rate then, guaranteed level for a long period of 30 years or more, but if you wanted to convert in the 5th year you are force to wait and pay for the UL at what the conversion would have cost you 15 years later. Years are not your friend when it comes to life insurance rates.
The other downside is that you cannot lower the face amount, for instance during the first 14 years of a 20 year term/UL without paying a surrender charge. The surrender charge is hefty and looks like it will only leave you a choice of keeping what you have or dropping the insurance and buying a new policy for the amount you now need. This accomplishes exactly what life insurance companies love. All the costs of a policy are paid and it is pure profit and then someone is either forced to keep it like it is or drop it, so they either continue to make a profit or they bank the profit they’ve made with paying a death benefit, exactly the same reason the companies allow and actually encourage agents to sell non guaranteed UL’s.
Bottom line. I encourage you to get an in force illustration on your universal life policy. The company should do that for you once a year at no cost. Have it reviewed by someone other than the person that sold it to you and ask if the price is going to go up or the whole policy collapse if you just keep paying your current premiums. Agents, I encourage you to join the battle to get this type of policy out of circulation and get your clients the type of guarantee their family deserves.