So far in this series of articles we’ve discussed Universal Life – how it works, how interest rates might affect its performance, and what cost of insurance is. In this final installment, we’ll look at what you can do today if you find yourself in the position of owning a failing UL policy.
In the big picture, there really are only three actions you can take to remedy a failing Universal Life policy; you can pay more, you can reduce your coverage, or you can die before it runs out. Before you can decide what actions to take, you need to look at a few basic financial questions.
First and foremost, the most important question to ask is whether or not you still need the death benefit. It’s easy to get caught up in the years of premiums you may have paid into the policy in the past and become determined to get some value out of the policy “no matter what.” However, it rarely makes sense to pay for insurance you don’t need. If the policy has served its purpose, and there’s no need to continue to carry the death benefit, it’s perfectly acceptable to surrender it for its remaining value and cut your future expenses.
If you do still need benefit, you’ll want to consider how much benefit is needed, and how long you’ll need it. If the policy will remain in force until you complete your retirement plan, and then will lapse, it’s probably still a good bet for you. On the other hand, maybe you feel you need permanent coverage still, but you don’t need the full face amount of this policy. You may be able to reduce your coverage under your existing policy, thereby reducing the premium you’ll need to pay to keep it in force.
A third consideration is how healthy you are. If you’re in ill health, it may be that your life expectancy is shorter than the remaining life of the policy, and you may be able to get away with doing nothing. Or, if you’re healthy and still need coverage, it may make sense to replace the policy with a different carrier. Sometimes this makes sense, especially since the older policies are mostly using life expectancies from 1980 to calculate their cost of insurance figures. Today’s policies use the longer life expectancies from the 2017 Commissioners Standard Ordinary table. Of course, if you do choose to replace a policy, always make sure you’ve compared all features, costs and benefits of both policies, and never cancel one policy before the other is in force.
In the end, choosing how to react to a failing UL policy can be simple decision, or a complex one. It may make sense to discuss your options with a qualified life insurance agent. As always, feel free to leave questions in the comments section, or contact us for personalized help in finding a qualified agent in your area.