In the 1980s and 1990s, insurance companies came up with a hybrid life insurance policy called a Universal Policy. These policies offered the benefits of both term and whole life policies with one primary difference. They were not guaranteed to payout. When these policies were written, the instructions on how they worked were extremely vague. Now, many of the policies are starting to expire, and people wonder why.
How Universal Life Insurance Policies Work
Universal insurance policies were designed to pay interest on the policy’s cash value. While the owner was paying a lower premium, the interest made up the rest of the policy’s cost. If the interest rates dropped, less interest was paid into the policy. Even though the owner was paying the premiums for the policy if they didn’t increase the amount they paid to compensate for the loss of interest, the policy would eventually expire. This means all of the money paid into the policy would be forfeited.
Universal Life Insurance Policies Are Not Guaranteed
Unlike whole and term life insurance policies that offer guaranteed payouts, a universal policy is not guaranteed and can expire if the premiums are not kept up. In the past, as long as the interest rates were high enough, paying the minimum premium was fine. However, once the interest rate would drop, less interest was paid into the policy. If the owner did not raise their premium, there would not be enough principal within the policy to make it solvent.
Who Is Responsible for Managing a Universal Life Policy?
Owners of universal policies left the managing of their accounts to the insurance agents. In reality, it was never up to the agent to manage the policy. Universal policies were designed to be managed by the owner. It was up to the policy owner to monitor the fluctuations in the interest rates. As the interest rates fluctuated, it was up to the owner to adjust the amount of premium they paid. Higher interest rates mean lower premiums and vice versa.
How Do You Keep a Universal Life Policy from Expiring?
If you have a universal insurance policy, the easiest way to keep it from expiring is to manage it like any other investment type. The amount of premium paid each month must be adjusted to match the raising and lowering of the interest rates. This will keep the policy from expiring and prevent you from losing your investment. If you are unsure of how to effectively manage your universal life insurance policy, talk to your insurance agent. They can help you determine the rate of adjustment for your premium so that you are always on track.
Understanding universal life insurance policies can be a challenge, especially for someone who doesn’t have a background in either insurance or investments. At Gee-Schussler Insurance Agency, our life insurance agents can help you find the best life insurance rates. They will help assess the best rates possible and find the coverage you wanted for your loved ones. Working with your specific situation, we are well-versed in insuring individuals, whatever their case.
Have more questions about life insurance? Contact Gee-Schussler Insurance Agency who can help you find the right policy for your needs and wants.
