I threw out a question to some colleagues the other day concerning the state of in force universal life policies. The question was, what percentage of all universal life policies will lapse before the insured was led to believe it would, even though they have made all the required premium payments? Keep in mind that almost every policyowner believes their universal life policy is good forever at the premium level they are currently paying.
The real cruxt of what I was trying to get to is an idea of how many people are really aware that their universal life policy is failing, as opposed to how many either have a no lapse guarantee or are adequately funded, therefore making them safe from a surprise price increase or lapse.
In previous posts I have stated that I believe more than 50% of all universal life policies in force today will fail because they were sold as underfunded, non guaranteed policies.
My colleagues agreed with that assessment, with the caveat that 50% was probably on the low end of the spectrum of the problem. One suggested that if you separate out the newer no lapse guarantee policies, the percentage of the other polcies that are in trouble would probably be something more like 75%.
The problem is huge. Most people who are depending on their universal life policies are in for a shock. It may not happen this year or next year, but left alone, the policy will implode and either lapse or require far more money to keep it in force.
The good news is that a large percentage of the policies that will ultimately die before you die have cash value that can be transferred into a new universal life policy with a no lapse guarantee. This is a 1035 tax free exchange. Your new policy will be guaranteed to last until you need it and, in many cases, it will cost you less than you are currently paying. If there isn’t any cash value, you are better off in most cases, simply replacing the old policy with a new no lapse policy anyway.
Bottom line. Do yourself a favor and have your universal life policy analyzed for you by an agent other than the one that sold it to you. Why another agent? Well, if someone sold you something that is messed up, do you think they are a good person to address how messed up it is?