Co-Founder, Coastal Financial Partners Group, California
The greatest strength of universal life, its flexibility, also gives rise to its potential for disappointment if the policy was not set up properly or is not managed for the inevitable changes in life.
Universal life took off in popularity in the early 1980s because, unlike whole life, it featured flexible premiums, adjustable death benefits, unbundled components which clearly disclosed policy charges and credits and dynamic interest crediting which reflected competitive interest rates. The universal life product type remains popular to this day but with flexibility comes risks of planning to pay premiums when interest rates are high which are too low when interest rates fall, as is the case today. Skipping premiums also presents a risk that the cash value may not remain high enough later to maintain the policy.
Over time, all policies must be managed. We recommend a policy review by your life insurance professional at least every three years or sooner to ensure the policy is properly maintained and to adapt where necessary to changes that occur.
There are several moving parts in a universal life insurance policy: cost of insurance, premium load, policy loans expense charges, administration and policy fee. There are two sets of rates for each of those moving parts: current company practice and contractual guarantees. The life insurance company can change the current charges to the maximum charges. This “right” to change could be extremely punitive if exercised by the company, which is the greatest drawback to owning a universal life policy.
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Universal life took off in popularity in the early 1980s because, unlike whole life, it featured flexible premiums, adjustable death benefits, unbundled components which clearly disclosed policy charges and credits and dynamic interest crediting which reflected competitive interest rates. The universal life product type remains popular to this day but with flexibility comes risks of planning to pay premiums when interest rates are high which are too low when interest rates fall, as is the case today. Skipping premiums also presents a risk that the cash value may not remain high enough later to maintain the policy.
Over time, all policies must be managed. We recommend a policy review by your life insurance professional at least every three years or sooner to ensure the policy is properly maintained and to adapt where necessary to changes that occur.