Estate preservation, as I’ve stated in several posts since the first of the year, is becoming more unstable due to a couple of factors. First, Congress has not shown their cards yet on how they expect to handle the estate tax exemption issue in 2010 and second, older universal life policies that carry most of the existing estate preservation coverage are collapsing left and right due to lower than assumed interest rates.
In a Wall Street Journal Article dated May 26 of this year by Arden Dale, he goes into quite a bit of detail about what’s happening to estate protection policies. To paraphrase, he says that people are going along assuming they have a paid up policy with nothing to worry about ever and suddenly they get a lapse notice or get a bill for a huge “catch up” amount to keep the policy in force.
I’ve been blowing this horn for years and I would just go a step further and say that it isn’t just those with survivorship life insurance policies that need to be concerned, but anyone who has a permanent policy in force, whether universal or whole life, unless it happens to have an external guarantee that doesn’t rely on assumed values.
Mr Dale suggests having your estate protection policy checked out by an attorney whom he admits will likely refer it to an independent life insurance agent for review. Let me be very clear. If you have a universal life, variable universal life or whole life policy that is dependent on cash value to keep it in force, you need to get off your duff and have a thorough policy review. Ignoring this whole thing and hoping it won’t impact you is an almost sure way to wake up some day soon having blown thousands or even hundreds of thousands of dollars for insurance you no longer have. And you won’t have any recourse other than to go out and hope you qualify for a new policy.
I’ve been beating this drum hard for years now. It is simply not a drill. Because of the sales tactics that have been used for years with cash value policies, the tendency to sell assumptions versus guarantees, without being overly dramatic, most of these policies will collapse, and given the last year’s economic adversity, sooner rather than later.
People are dependent on these policies for estate preservation, income protection, and family legacies and it could all go down the tubes with their next premium notice.
Bottom line. Ours is an industry that has its’ fair share of honorable, professional and honest agents who have set their customers up to be covered correctly, but it is also an industry that far too many people have jumped into as a way to make a quick buck. The second group far outnumbers the first and those dependent on the insurance are the unwitting victims.