Problems with Adjustable Life Insurance

Policies sold during this period of historic double-digit interest rates, are now crediting much lower interest rates. As interest rates fell, insurers’ investment returns could not keep up with the premium projections.

An extremely long period of low interest rats has caused a shortage in policyholder cash values requiring additional payments in order to maintain coverage.

Insurers say they had to reduce interest payments on adjustable life insurance policies when yields in their own investment portfolios fell.

Now, many policyholders are getting notices that their flexible premium adjustable life cash value is spiraling downward, which increases premiums and can cause policies to lapse or implode.

Furthermore, a long period of low interest rates has undermined millions adjustable life insurance policies sold when rates were at all time highs. Insurers designed these policies around the false promise that healthy investment earnings would keep these polices in force as long as you live.

There are many mentions of the subject on the internet, including a Forbes article covering the subject of falling interest rates causing increasing premiums for policyholders.

However, many life insurance companies do not widely publicize this problem in fear of jeopardizing their reputation. But, before you get further upset by reading additional articles, there is a solution to this problem.

Is your Adjustable Life Insurance Performing?

Has your policy gone off course?

It is not to late begin smooth sailing again!

All adjustable life insurance policyholders receive an annual statement showing how your policy is performing.

These statements can be confusing and may not have the proper information needed to make an informed decision.

You should pay special attention to your flexible premium adjustable life cash value performance.

Your adjustable life illustration will contain both a current interest rate and the minimum interest rate column.

If it looks like your adjustable life cash value is going down in value, it is time to take action!

Many policyholders make a more educated evaluation by contacting a life insurance specialist to conduct a policy audit.

Here is how a life insurance specialist can help you with your adjustable life policy.

Two step process to find the best option available for you:

step one First, the specialist will work with your existing life insurance company to evaluate “in-force” illustrations with your current adjustable life policy under different scenarios. What is your cash surrender value?

How long will your adjustable life insurance policy last, assuming you keep paying the current premium?

insurance policy last, assuming you keep paying the current premium? How much more you would have to pay to maintain the current benefit until your target age?

How much a smaller death benefit would cost you?

If your insurer is crediting your policy with more than the minimum guaranteed return, a guaranteed illustration so that you will have a worst-case scenario.

step two Secondly, a market evaluation will be conducted to determine if a newer policy could be more beneficial to you. How is your overall health in order to qualify for new coverage?

Illustrations will be generated on new guaranteed premium policy for death benefit you require without using your policies cash surrender value.

using your policies cash surrender value. Illustrations will be generated on new guaranteed premium policy for the death benefit you require by transferring your using existing policies cash surrender value.

Can I Qualify for Coverage?

New policies are also medically underwritten, so it is important check into whether you can qualify for coverage. First, your general medical history is initially evaluated to determine which company may be best suited for your particular medical history. Most companies also require a brief insurance examination.

Okay, I qualify for new coverage, now what are my options?

Cash Out, Buy New Coverage

So, your first option would be to keep your adjustable life cash value, and simply buy a new policy with a higher premiums.

You can withdrawal any available cash surrender value from your current adjustable life policy.

You may ask, so what is the cash surrender value? The cash surrender value of your life insurance policy is calculated by taking your cash value and subtracting any surrender charges, withdrawals, or loans against the policy.

Transfer using 1035 exchange rules for life insurance

Another option, would be to transfer your existing adjustable life policy cash value by using a 1035 tax free exchange.

What is a 1035 Exchange? The IRS’s section 1035 exchange of life insurance falls under IRC section 1035. A section 1035 exchange occurs when the cash in an existing life insurance policy is transferred to a new policy, without incurring any tax.

If you follow the 1035 exchange rules, you can directly transfer the money from your old interest sensitive life insurance policy into a new guaranteed universal life insurance contract.

This strategy could lower your future premiums, and eliminate the potential taxes by surrendering your adjustable life insurance policy.

More importantly, the newer contract offers premiums and death benefits which are contractually guaranteed not to change. These new policies are often called guaranteed universal life insurance or GUL.

Now you need to decide the best option for you?

If your need for life insurance has changed, you might get by with keeping your adjustable life insurance active with a smaller face amount.

More likely, though, your choice will be either to boost the premiums on your current death benefit, or to shop for a new policy.

Today’s insurance buyers are lucky because 35 states have moved to adopt rules that would require more realistic life insurance illustrations.

Universal life policies now include a worst-case scenario, and a projection based on interest rates halfway (midpoint) between current and the minimum rates.

So, this is good news for modern day applicants, who now have more transparency, cheaper premiums, and guaranteed lifetime coverage.

But, policyholders of older adjustable life policies may still be sitting on ticking time bombs.

New Guaranteed Universal Life

We use a very detailed process when shopping for guaranteed universal life insurance for our clients.

These new “GUL policies” are not offered by every life insurance company. The contractual guarantees offered to policyholders eliminate many smaller companies, which lack proper cash reserves to honor these long term commitments.

We have streamlined the process of shopping for the best type of life insurance and monitor a network of many highly rated companies.

We monitor the financial strength and claims paying ability of life insurance companies by using a number of different rating agencies such as A.M Best, S&P, Fitch, and Moody’s.

The life insurance companies listed below offer the best combination of ratings, guaranteed product design, underwriting fairness, and inexpensive rates.

Best Universal Life Insurance Companies