A brief article posted on abcactionnews.com highlights a problem that I see quite regularly as a life insurance attorney who represents policyholders and beneficiaries — the phenomenon of universal life insurance policies that prematurely run out of cash value and lapse.
People invest thousands of dollars in these policies, believing they will serve as both an investment vehicle with the accumulation of a cash value, and provide protection for their loved ones after they die.
Then all that money goes right down the drain, or, more accurately, into the accounts of the life insurance company. And, you guessed it, life insurance companies don’t mind this one bit. In fact, I have had life insurance company attorneys explain to me that their clients expect to, and depend on, generating revenue from policyholders who make substantial premium payments and then, for one reason or another, whether it is a late payment, illness, or lack of affordability, have their policies lapse without any value.
This occurs in the context of universal life policies because, unlike term and whole life policies, universal life policies’ performance fluctuates based on insurance rates and the cost of insurance, two variables that can change over the course of the policy’s life. This means that policyholders who purchased universal policies back when interest rates were high have suffered over recent years.
The policy’s fine print may (or may not) warn of this course of events, but the disclosure, even if made, is seldom actually read and understood by consumers, and is also usually not a complete disclosure — that is, it does not fully and adequately inform the consumer in plain English of what exactly might happen in the future.
Frequently, I interview prospective clients who are shocked and dumbfounded that their policy has lapsed, or is about to lapse. What they were told by their agent or broker when purchasing the policy was quite different than what actually transpired.
Those considering purchasing universal life policies should ask questions to their agent or broker to determine if it is the right policy for them. Two questions that immediately come to mind are: (1) Why is a universal life policy a better option for me than a term or whole life policy? and (2) What is the worst performance that this policy could have in the future, in which case, what payments would be required to keep it in force until the end of my life?