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I feel a little like the boy that cried wolf and pretty soon no one is listening, but if you have a universal life, variable universal life, indexed universal life or whole life policy, the wolf is real and if you ignore it long enough it’s going to mess up your financial future and very likely your family’s future.

I know it seems a simple and safe assumption that anything called universal or whole life would be a policy designed, unlike term insurance, to last forever. Agents present it as a safe and guaranteed way to build cash for your retirement and have life insurance all in one neat little package. When you are over 50 life insurance is something you depend on. They tout the company and its’ reputation. They point to the investment returns for the last 30 years (which helps soften the reality of the last 3). They make you believe it is bombproof and while it is just a little outrageously expensive now, you’ll look back from retirement and be thanking them. Your children will be sending them Christmas cards.

Or, if you are one of the more than 6 in 10 permanent life insurance owners who don’t know that your policy is not guaranteed and have no idea that one day it will just collapse beyond repair, you will finally understand why the agent never called you after the sale. It will make sense why the agent never did an annual review of your coverage even though the home office sent you a letter each year recommending it. It will become all too clear that you have been sold a policy that will shortly become worthless after costing you tens or possibly hundreds of thousands of dollars, none of which will be recovered.

So, what happens when the poop hits the fan? How do you know your policy is in trouble and what can you do about it? Let’s say you’ve been rolling along for 10 years paying $300 a month for your $250,000 universal life policy. It was starting to build cash value but after 2008-2009, that value had dropped well below the surrender charge. You get an annual report from the company that states that if you continue to pay $300 per month your policy will lapse in 2 years, but if you increase your monthly premium to $540 per month your policy is guaranteed not to lapse for 7 years. The report won’t even mention the amount it would take to keep it in force for life because they really hope you will take the $540 offer and they can continue to suck your blood for another seven years.

What can you do about it? If you health is good enough, take any available cash out of the policy and go buy a guaranteed UL or better yet a term insurance policy that will free up enough money monthly that you can put your extra money into a real investment. If your health is not as good as it was when you took the policy out, make sure you shop for term insurance and lock in the best possible rate before you take the cash out of the UL.

I would tell you that if you can find the agent that sold you the policy, you ought to sue him or her for misrepresentation, but the chances are they are no longer in business. If they are in business it’s very hard to prove 10 years later that they willfully misrepresented the policy as opposed to just being stupid. Better to put your time and energy into putting something in force that is fully guaranteed and tell you kids to forget about sending those Christmas cards.

Bottom line. Having been around universal life products and agents who sell them since the early 80’s my personal feeling is that the agents aren’t stupid and they knew the product was doomed to fail when they sold it. But the most important thing to them was they made the sale and a nice paycheck. If you have any kind of a cash value policy and your agent is missing in action, find a reputable independent agent and get an in force illustration from the company right away. If you wait until the balloon pops, well, you’re probably going to feel, if not look just like a 7 year old when their balloon pops.