Do You Have A "Universal Life Policy? What You Don"T Know Could Hurt You And Your Family
By Raul Ramirez
What kind of life insurance policy do you have? Is it a "term policy? Is it a "whole life policy or "universal life policy? If you don't know what kind of policy you have, you could be in big trouble. Everyone needs to know what kind of policy they have, how much it is and the most important factor, how long it will last. But too many times in my career I have met with people that don't know what kind of policy they have or I have heard this "My husband or wife takes care of that." What are you going to do when you need to know this vital information? This information could be the difference between being able to pay estate taxes or landing in the poor house. The point is you need to know.
This article focuses on the "universal life policy which came really into bloom during the eighties and was touted as a new way to fund life insurance right in between whole life and term life. The "universal life or "flexible premium life allowed you to do what it says, "be flexible with your premiums, you could pay this much or that much and keep the face amount but the "cash bearing aspect of the policy would be different depending on how much you paid into it. This kind of policy can be a powerful tool in insurance planning if done correctly but can lead to disaster as well and I have seen this one too many times.
I sat one time across from a gentleman just about to turn 70 and was reviewing his policy which was in fact a universal life policy. We were looking at it when we came to the part in the policy called the schedule of premiums and the contract outlay and low and behold, his policy was in default due to lack of premiums and cash value. Needless to say this man's insurance policy was not any good and he was 70 years old. This can and will happen to you if you don't look at your policy and know what you have and where your money is going. Age 70 is not a good time to start shopping for life insurance.
This is what happens in situations like this and it can and could have already happened to you. The agent has sold you an under-funded policy. By this I mean that you are not paying enough premiums to sustain the life of the policy. If you had an agent sell you a universal life policy without an illustration to age 100 showing the policy lasting through to this age, you might have made a mistake and more than likely you have an under-funded policy. This could have happened by either the agent looking for a quick sale or the premium was too much for you budget so you decided on the lesser amount. Either way this should have never happened.
Part of the monthly payment goes towards insurance and the remainder goes towards the cash account. What is usually not discussed is that the cost of insurance goes up every year. The earlier years it is not noticeable but as you get older those costs increase. Now as the years go by you are still making that $50 a month payment but the cost of the policy is actually $75, where is the difference being made up from? If you answered the cash account you are right. Every month, $25 dollars is being pulled from the cash account and every year that will increase as well. You will not get a call from the agent telling you that you need to increase your monthly premium. This is why it is called under-funded and you and your family will pay dearly for it with the cost of having no insurance when it counts.
The solution is easy. Most states now require an illustration because of this deception so make sure you get an illustration and the agent shows you where the policy last through age 100. More than likely when this happens a good agent will be able to show you that your policy face amount has increased as a result of good funding. Never the less you will then have the peace of mind knowing your life insurance will be in force and you won't be one of the unlucky people shopping for life insurance at the age of 70. Actually the goal I have for each and every one of my clients is to have a universal life policy that when they retire they will never have to pay another premium again. Retirement is the time to stop paying bills, not increase them.
About The Author
Raul Ramirez is a licensed agent in the state of Florida. He owns and operates Gulf Breeze Insurance Inc. http://www.gulfbreezeinsurance.com an independent Florida health insurance, Florida Dental Insurance and Life insurance agency. Please feel free to use this article on your website or newsletter so as you include the bylines.