We’ve been working through Lincoln National with a client who wanted two life insurance policies, a $250k term policy for business purposes and $150k term policy for personal insurance. Lincoln Financial has a minimum face amount for term insurance of $250k, so it put us in a bind to meet her $150k need. Lincoln had the best rate class offer by a big enough margin that we really needed to stick around if we could.
I ran an illustration for a universal life policy for $150k (only term is capped at $250k) and was able to get a policy that while only guaranteed 20 years, met her needs. So she asked us to explain the difference between the term policy for business purposes and the universal life policy. She asked a question that cuts right to the core of one of the biggest issues in our industry, “Doesn’t universal mean that it lasts forever?’ “Doesn’t it have cash value?”
The product we had used for the $150k quote was called Life Current UL and it is one of those UL products that defies all of the logical assumptions people have about universal life. Does it last forever? No, in a best case scenario the policy would last 39 years, but it was only guaranteed to last for 20. Does it have cash value? Well, yes, sort of! It’s actually one of the oddest little “universal life” illustrations I’ve ever seen. Most UL’s build at least some cash value and to keep people from dumping it, taking the cash and moving on they have a surrender charge for the first 7-10 years. In most UL’s the surrender charge pretty much offsets the cash value for at least that period.
In this Illustration there is no surrender charge for the first 10 years on the guaranteed side and in year 11 the surrender charge shows up and by year 20 the policy ends. On the current or assumed side the surrender charge starts earlier and never goes away. By year 20 it equals the cash value which makes the cash value a mute point. But if everything, and we mean everything, goes perfectly she could theoretically have insurance to age 79. The reality is that it is an overpriced term policy in a weird kind of camouflage. When we ran quotes for another $250k term policy it turned out to be less than this morphed, stranger than fiction UL.
So the question is why would a person buy $150k weird universal life policy instead of a $250k term insurance policy that has the same guarantee and has a lower premium? There is no logic that supports the UL and in this case the client gets $100k more coverage for $60 a year less, guaranteed. Is there a risk in buying the universal life insurance policy? No, as long as you treat it like a 20 year term policy and knowing that willingly pay more.
We know the country is littered with nonsensical policies just like the one illustrated above that were sold because the compensation was better for the agent. If you have a universal life policy that truly makes no sense to you, call or email. We can help you make sense of what you have.
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