Q. My parents (very old age now) have an old universal life policy bought many years ago. Now they just received a notice about the premium would jump to an extremely high number. What to do with it?
A. Universal life policies sold in the 1980s and 1990s were sold with illustrations showing the excess earnings anywhere from 6% to 12% interests. Now with interest rates so low since 2008, policy holders will soon have a rude awakening that premium would jump to unbelievably high levels.
What can you do now? There are some actions you can take and a few options to consider:
First, you can call your insurer and ask for an "in-force" review of your policy to see how the policy's cash value and premiums are expected to change using current interest rates, death benefit costs and other fees.
Depending on how bad the numbers might look like, you can:
Make sure you get a financial planner involved to evaluate the different scenarios listed above, don't forget tax consequences. Ask a planner or broker to disclose any commissions he or she will earn from a swap.
A. Universal life policies sold in the 1980s and 1990s were sold with illustrations showing the excess earnings anywhere from 6% to 12% interests. Now with interest rates so low since 2008, policy holders will soon have a rude awakening that premium would jump to unbelievably high levels.
What can you do now? There are some actions you can take and a few options to consider:
First, you can call your insurer and ask for an "in-force" review of your policy to see how the policy's cash value and premiums are expected to change using current interest rates, death benefit costs and other fees.
Depending on how bad the numbers might look like, you can:
- sit tight
- reduce the death benefit to make the cash reserve last longer
- put in more money
- swap the policy for a different one
- sell it to a life settlement company
Make sure you get a financial planner involved to evaluate the different scenarios listed above, don't forget tax consequences. Ask a planner or broker to disclose any commissions he or she will earn from a swap.
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