There’s no shortage of articles discussing the failings of universal life insurance.
But there’s very little discussion of what’s wrong with whole life insurance – actual whole life insurance and not permanent cash value life insurance. Whole life (WL) has been portrayed as unaffected by the problems that plague universal life, but this isn’t entirely the case and policy owners are paying the price.
Most consumers believe that their life insurance is guaranteed, and even more believe their whole life policies are guaranteed. And while whole life policies are, some policyholders who think they have whole life policies don’t. First, what is a guaranteed WL policy?
A WL policy is guaranteed for the death benefit when the premium is paid annually when due and there is no term blend incorporated. Many clients believe that if they purchase a policy designed to have ten premiums, they’ll be done when the premiums are paid. But often, this is not true. Sometimes the pays are projections and clients find out that they may have to pay a lot more, or they may see their death benefit decreasing.
How doeshttps://www.cavalierassociates.com/wp-admin/edit.php?post_type=chch-pfc this happen? Term blends. Term blends (TB) are layered into policies to reduce premiums and make the policies more affordable and competitive with universal life policies. The intention was that the TB insurance would fade from the picture when the base WL grew to replace it. But interest rates rose, dividends dropped, the WL portion saw growth slow, and the TB remained. And the cost of term insurance increases as the policyholder ages.
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So, many policies that the holders refer to as “paid up” are nothing of the kind. And even worse, if the policyholder doesn’t realize that more premiums will be due it could be covered by an automatic internal loan. And if the dividend rate falls below the loan rate, very bad things can happen. Most policyholders have no idea this is happening because they don’t actively manage their policies. They find out when they get the insurance industry version of a margin call. What this means is that it behooves every policy owner to actively manage their policies and acquaint themselves with all policy details – even the fine print.
For more information, please read:
When Is Whole Life Not Really Whole Life? | Wealth Management