Cash Value Vs. Cost of Insurance in Your Life Insurance Policy

I have helped dozens of clients address problems with their permanent (Universal Life Insurance Policies) over the years. Typically, what happens is your insurance agent would sell you a universal life insurance policy, and you would get your policy and put it in a file cabinet to let it collect dust. You're thinking, "I did my job. We have all the life insurance coverage we need." So you move on with your life assuming that policy will be there for you and your family when you need it, since it's a permanent policy.

But what many agents do not tell their clients is that there is a real danger of the policy lapsing 20 or 30 years later if you do not have sufficient cash value to cover the mounting cost of insurance that increases as you age. It begs the question, why doesn't the agent tell the client about this danger? The answer is simple. It's either one of these two possibilities...

  • The agent doesn't understand this potential outcome or

  • The agent wants to protect his/her sale and not tell the client how much more money it would cost to properly fund the policy

Minimally funding a universal life insurance policy is an unethical practice. The consequences of this could be devastating to a family.

I remember running some in-force projections and having some very uncomfortable conversations with clients. I was not the original agent on those policies. That agent was long gone from the company and could not be held accountable for the mess that was created.

Some clients were able to make additional payments to get their policies back in good order, but some others had no way to make the extra payments and there was no way to save those policies. So for those clients, all the years of payments they made amounted to nothing in the end and no life insurance policy to show for it.

They could have just purchased a term life insurance policy instead of a permanent policy had they known that there would be no cash value and the policy would lapse.

Contact your insurance agent or broker to request an in-force projection on your policy or contact a financial planner who can help you with this.

Another way to avoid this situation is to purchase a guaranteed universal life insurance policy, which avoids the potential lapsing of the policy. Meet with your financial planner to discuss the best ways to manage your financial risk.

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