Tens of thousands of universal life insurance policyholders are in danger of having their policies terminated early. AXA, Trans-america and Voya are among the insurance companies that are beginning to drain accounts of these policies to make up for a shortfall in their investment returns, and other insurers are expected to follow.
Insurers say it is necessary because in recent years, market interest rates have been much lower than anticipated and are expected to continue to be fairly low. Policies issued as far back as the 1980s and up to 2007 are at greatest risk.
Universal life insurance policies include a tax-advantaged savings component in addition to a death benefit. Insurers typically do not raise the premiums throughout the life of the policy, and the cash value of the account typically increases. But because investment returns for the insurers have been falling short, the fine print allows them to increase fees, which reduces the cash value—in effect draining the account. That could mean that policies—which typically are written to expire when the policyholder reaches an age somewhere between 87 and 121—will terminate 10 or more years early if policyholders do not pay more in premiums.
The insurers are not necessarily informing policyholders that this is happening or may do so in language that is hard to interpret.
Steps you can take…
• Ask your insurer for an “in-force illustration” of higher premiums you could pay to avoid having your policy terminate early.
• Alternatively, consider accepting a lower death benefit.
For a free guide on how to get details from the insurer and a form letter to send to your insurer asking for the information, you can go to the website InsuranceLiteracy.org/insurance-annual-review-guides.