I was reviewing an annual report for one of my life insurance clients this morning. Agents are cc’d a copy, and I make it a point on the policy anniversary to contact my clients. This policy is guaranteed universal life (G-UL) policy, also called a no-lapse guaranteed UL. As long as the premium is paid on time, the policy’s benefit is guaranteed. This one is guaranteed out to age 120 and is on bank draft, so it’s on auto pilot and in that sense the annual report is not that important.
But there is one key element worth considering: the policy’s cash value. This policy has a $25,000 level benefit. The cash value is building up towards $2,000. Since it’s a level benefit, when the policyholder passes away the beneficiaries only get the $25,000 face amount. Any cash value remaining in the policy disappears.
So what good is the cash value? There are several ways it may come into play:
- If the policyholder no longer needs the policy, they are entitled to receive the cash surrender value.
- If the policy holder wishes to obtain another policy, they may transfer the cash value, called a 1035 exchange, into a the new policy. The cash value can significantly lower your premiums.
- Most importantly: the cash value can pay your policy’s premiums.
Your life insurance annual statement, if it’s any good, will give you a specific date guaranteed that the policy will continue without premiums. It will read something like this.
Guaranteed Basis: Your life insurance will continue to if no premiums are paid until October 2015.
That’s over 4 years away. If an individual is in failing health with a level benefit policy, it’s best to reduce or eliminate premiums and let the cash value maintain the policy. No use paying premiums right up to the end of your life and waste thousands of dollars of cash value. All you have to target is that the policy has some cash value in order to stay in force.
It’s like gaging how much gas you need in your car to reach your destination.
Annual statements are generally poor in quality. Many don’t provide the most useful information or bury it in fine print. What you really need is an in force illustration, and most carriers provide one free one a year, if requested by the policyholder or the agent. Call customer service and request one. Have your agent help you review your annual statement or in force illustration. If you no longer have an active agent, you may assign another agent like myself to be your agent of record.