Do you received an annual statement from you life insurance company every year? It’s time to review, really review, these policies with particular attention to policies written in the 80’s, 90’s and the early 2000’s. Do not assume your policy is permanent coverage, lasting until you’re over 100, and that you can file and forget your annual statements.
If you brought a cash value policy in this time period, you most likely have universal life (UL). Do not not assume it’s whole life. Do not assume it’s a lifetime guaranteed universal life. Skip the cash value for a moment because cash value is a diverting side show. Look for the crediting interest rate. Look for the guaranteed interest rate.
Bottom Line: crediting interest rates have come down and may cause your policy to lapse way before you pass away.
Crucial Questions:
- What was the non-guaranteed interest rate when you applied for the policy?
- What was the guaranteed interest rate and how long was coverage guaranteed at those rates?
The tricky part is that crucial information will not be included on your annual statement. You have to go back to the illustration you signed when you applied for the policy.
For example: Policy written in 2002 with a 4.00% guaranteed interest and a 5.50% non guaranteed interest. Policy at guaranteed lapses in 20 years. Policy at non guaranteed projects to be in force to age 120. Current crediting interest rate 4.00%, last year was 4.25%, year before, 4.50%. Client obtained the policy when he was 50 years old. Question: How long with this policy last? Hard to say. But if the crediting interest rate consistently is in the 4.00% range, there is a chance the policy will lapse in the policyholder’s 70’s.
What to do? Request from your life insurance carrier an in force illustration, also called and in-force ledger illustration. Your entitled to one free one a year. Get with a qualified agent or broker for a policy review. First step is to make sure you know where you stand with your policy. Glancing at the cash value is not enough.
Note: The year 2003 is an arbitrary cut off. After the early’s 2000’s more guaranteed no lapse UL’s were sold. If you have a UL, the key is to know whether it’s a regular UL or a guaranteed no-lapse UL. Look on the guaranteed side of the illustration you signed which should be included in your policy. If the guarantee runs out to age 120, you have a true lifetime no lapse UL. Some show age 100, or other ages, which are not as airtight.