Universal Life became popular in the 1980s as a way to provide permanent life insurance protection but at a price point that was more attractive when compared with whole life insurance. These universal life policies were designed to take advantage of high interest rates and positive market conditions which could offset expenses and result in reduced premiums (compared to traditional permanent whole life insurance) while still providing attractive cash values-(the term for the built-in savings component of a life policy).The longevity and premiums of universal life programs were closely tied to investment decisions of the insured or the financial strength of the insurance company.
In either scenario, interest rates played a vital role in the policy projections. With high interest rates in the 1980’s and 1990’s, the universal life policies were very attractive to an individual or organization looking for permanent protection. The risk/reward was the trade-off that, unlike whole life protection, the universal life premiums were based on current assumptions – which meant that premiums would need to be adjusted (increased) if the assumptions were not realized. This adjustment created a “no win” situation for the policy owner. They were left with the decision to either pay the increased premiums or risk the policy’s premature lapse.
The long sustained (and current) low interest rate environment has catapulted the underfunding dilemma into the national spot light. Millions of Americans (vast majority of retirees) are being impacted. The attached New York Times articles focuses on the direct impact interest rates and the insurance companies’ investment strategy have on the policy performance.
However, as highlighted above, declining interest rates and overall market conditions have potentially created an exposure that should to be addressed. Stellar Benefits Group has the expertise to perform an in-depth audit of your current Life Program can confirm if the issue stated above impacts your policies and (if it does) present some options on how to remedy the problem.
Please call Alan Greenberg to discuss how we can assist you with a life insurance review.