It’s certainly not breaking news. But it has been important and timely and will remain important and timely for many years. A very high percentage of the universal life policies in force today are in trouble due to the abhorrent sales pitches of those life insurance agents who were more worried about their bottom line than their client’s family and future.

Those pitches centered around two things. Agents sold the idea that universal life would build tremendous cash value and that it was a policy that would be there for life. What a package! What they didn’t tell potential clients was that there was no guarantee of cash value accrual and also no guarantee that if the policy started bleeding cash due to lower interest rates, that the policy would stay in force at all let alone for life. By the way the majority of estate preservation policies sold in the last 20 years used these types of universal life policies

Now keep in mind that sold correctly with enough premium dollars going in, a universal life policy could be guaranteed to remain in force forever and even be guaranteed to build cash value to some degree.
But also keep in mind that most life insurance is sold in competitive situations and that universal life policies have guaranteed and non guaranteed values. Logically the price is higher to guarantee values like cash and the longevity of the policy.

So, a dirtball agent who wanted to win the day for himself would show a client a non guaranteed policy illustration and talk a lot about how “the company has historically done well and there’s no reason to believe that will change”, and “things would really have to go down the tubes before the guaranteed values will come into play”. Some would simply not show the guaranteed values. It just muddied the waters.

Probably 90% of universal life policies sold in the 80’s were sold like this and the majority since then have gone the same route. It was more prevalent during the 80’s just because assumed interest rates were so high that agents were selling universal life as an early retirement vehicle. You could put in squat and be a millionaire in 20 years according to them.

So these “Bad UL’s looked great on the non guaranteed side and fell to pieces (death benefit went away)in short order on the guaranteed side. On the flip side a “Good UL stays together (death benefit remains intact) on the guaranteed side.

Bottom line. I’ve made a lot of this issue over the years and probably will until I die or retire. What people need to know is that 1. you can’t hang on to it long enough for it to get better and 2. you can replace it with an appropriate product and get back on solid ground right now. There are far too many people out there thinking they can keep dumping cash into a failing universal life policy and someday, somehow, things are just going to be OK. Unfortunately…..NOT!

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