Policies are in trouble - Need Advice

by Moondoggy » Sun Feb 22, 2015 12:15 am

I have 2 universal life policies with 2 different companies. These policies were taken out in the early 80's and the expectation was that the interest rate would remain high and as I got older the cash value in the savings component of the policy would have built up enough to offset a portion of the cost of insurance and that I would either die and my heirs would receive the death benefit or the policy would age out at 100 and I'd be paid the remaining cash value.

Two weeks ago I received a frantic call from my new agent (I moved) and he said that my policy with his firm is in trouble. The policy is currently paying 4.5% on the cash value and they guarantee that they will always pay 4.0% minimum. The problem, as I understand it, is that my $100 quarterly premium is no longer covering the cost of insurance and the policy is eating up the cash value to pay the difference in cost. What the agent was telling me was that if the company increases their expenses on the policy to the max they are allowed to and also reduce the interest rate paid on the cash value to the 4% minimum, my policy will be out of cash value by age 74 and if that happens my policy will no longer pay the death benefit. His suggestions were to:

1. Increase my premium from $100 to no less than $250 per quarter.
2. Reduce the cost of insurance by reducing the death benefit and continue to pay my $100 quarterly premium.
3. Converting my current policy into a substantially reduced paid up whole life policy using my existing cash values to buy the policy.
4 Convert the existing policy to a different type of Universal life policy where the existing cash value would be invested in mutual funds managed by the insurance company. There would be no guaranteed minimum amount that this policy would earn but the hope is that the policy would earn an average of 8% return per year over any 10 year period of time.

Since my other policy was very similar to the one noted above, I checked it out and found that it too was now eating my cash values to pay the premium and this policy will also be dead by age 77.

At this point, I'm almost 64 years old and retired. My wife and I have pensions, IRA's, stock and in another 3 years I'll take Social Security. Before we retired we had everything analyzed and we will never need the cash value in either policy. The thought was that my $60,000 policy would go to my wife and a portion of that benefit would pay off any car loans and my final expense. The other policy would be paid to my daughter to pay the education expenses of my grandchildren. My concern now is that if I don't do something there won't be any death benefit and I'm also concerned that the agent may only be giving me the options that are in his best interest as opposed to my best interest. Does anyone have any suggestions on how to get out of this mess? Are there other alternatives to this problem that don't involve the agents, the companies or the existing policies? Please let me know.

Total Comments: 11

Posted: Fri Mar 06, 2015 03:25 am Post Subject:

Your situation is not unusual. If you were taught how to read your annual statements, you might have discovered the problem about 20 years ago. At this point, the only solution is to (1) throw more money at the policy and hope it is enough before you die, or (2) give up the policy and go looking for something else that meets your current need.

Reducing the coverage amount may be a temporary solution, but it is not a permanent fix. You may not even be able to reduce it enough to be able to keep it afloat with the premium of $33 per month.

Reduced paid up insurance is a possibility, but if your policy is truly "in trouble" your paid up insurance amount will be a few hundred to a few thousand dollars. Probably not enough to make a car payment or a funeral purchase.

And under no circumstances do you need to put your money into a Variable Universal Life policy! You don't understand what is wrong with what you have, and you will have the same thing, only tied directly to the stock market, where negative returns can put your policy into a nose dive. Sure, you might be able to get 8% gains in some years, but not in all. And at your age, the cost of insurance will devour those 8% gains faster than you think.

Obviously, the one thing you do not have that you absoltutely need is called an IN FORCE ILLUSTRATION. If the agent told you that all you need to pay is $250 every three months, he has no clue. You probably need to be paying $300 per month.

What I think is happening is your "NEW AGENT" sees an opportunity to confuse you and get you to buy a new policy so he can earn a commission. If that makes you happy, be my guest.

You could also pay a disinterested party, such as a Life & Disability Insurance Analyst (or Insurance Counselor or Consultant in some states) to analyze your policy(ies) and give you an honest assessment of your situation.

Posted: Fri Mar 06, 2015 08:06 am Post Subject:

Since I wrote the original thread I've been able to get some more info and come up with 2 options.

It seems that my second policy that has a death benefit of $60K doesn't have much hope for survival as there's only about $7300 in cash value in the policy and It would cost a fortune in premiums to keep it afloat. What I can do however is cash in the policy and take that cash value as a 1035 and add that cash value to the existing cash value in my $100K policy. If I then take the $60 a quarter that I was paying in premiums and paying that additional sum on my $100K policy I can hopefully make that first policy survive. The only thing that the agent told me, and your right he wants to sell me a policy, is that his money the company charges in fees may go up. In his illustrations he provided what he referred to as an "illustrated" set of fees which I assume is their current fee structure. He also showed an illustration using what he referred to as their "Maximum" charges and another illustration that they called the "Midpoint" illustration. The latter two were designed to scare me into doing something else with my policy but if one can assume that the company will continue with their current, "Illustrated" costs then things work out. If they would increase their price to match the "Midpoint" illustration then I could be in trouble again.

The other option I have available is to take the cash values out of each policy and use that cash to buy 2 single premium whole life policies whose combined value would be about $75K. The appeal of this option is that they would be paid up policies and I would never have to pay another cent in premiums.

So neither option preserves my current $160K death benefit and I can accept that. One option has a higher death benefit than the other but I have to continue to pay premiums perhaps my whole life. The other offers a smaller death benefit but costs me less as the policies are paid up.

So, Given this new Info does anyone have any thoughts regarding what option is the better of the two?

Posted: Fri Mar 06, 2015 08:54 am Post Subject:

What I can do however is cash in the policy and take that cash value as a 1035 and add that cash value to the existing cash value in my $100K policy.

NO YOU CANNOT! A 1035 Exchange must go from one policy to a new policy and must be done directly from one insurance company to the other (which could be the same company). YOU CANNOT TOUCH THE MONEY IN ANY WAY, SHAPE, OR FORM.

It is possible to create a new policy with multiple 1035 Exchanges from other policies, but you cannot combine existing policies into one or the other through 1035 Exchange. And there is a good reason for this.

Policy A and Policy B were not started at the same time, and they do not have the same cost basis or mortality assumptions. Putting Policy A and Policy B into a new Policy C will preserve the cash value and combine your cost basis from each policy into the new unified cost basis and single mortality assumption. The problem, obviously, is that you are now a number of years older and the cost of insurance is much higher than it was in either policy to begin with, thanks to mortality.

his illustrations

I think you mean "his illusions" -- because that's what Universal Life -- especially Variable Universal Life -- sales illustrations are. They are nothing but pie in the sky, and when created in a way that reduces the premium that must be paid, it sets up the policy for failure from Day 1.

The latter two were designed to scare me

Not exactly, but that's not an entirely bad impression. The Guaranteed Columns are the "worst case scenario" -- I draw attention to them simply to show a client that even though you pay what the insurance says you should pay, the policy will collapse under its own weight within a matter of years -- could be as few as 5-8, or as many as 10-20. The "Midpoint" is simply a number that is the average of the Guaranteed and the Illustrated -- so if the Guaranteed is 0% and the Illustrated is 10%, the Midpoint is supposed to be 5%. And that won't be enough money to keep the policy going either.

The worst case scenario is not likely to occur, but neither are either of the other two scenarios. Nothing about Universal Life performs in straight line fashion like the illustrations. Nothing. If you don't have the time, temperament, and talent to manage a Variable Universal Life policy, it will be nothing but heartache.

What I do next is run an illustration that shows the maximum premium necessary using the Guaranteed numbers. That forces the premium to the extreme, but it generally takes the policy to maturity, which, in a new policy will be age 121 -- your existing policies mature at age 100. If the policy cannot lapse with that premium, what will happen if you earn a higher rate of return and the insurance company does not raise its internal fees and expenses to the maximum? Your policy will be just fine forever.

The problem is that the cost will give most people a heart attack right there at the kitchen table. Universal life insurance is designed to be maximum funded as early as possible, and anything less is not good. Whatever you are paying for a $100,000 policy today, plus $20 per month, plus the cash value from the exchanged policies . . . without knowing more about your situation, I can almost assure you it will be pennies on the dollar what you would really need to pay into any new UL policy at your age.

The agent does not have your best interest in mind, but he's planning on doing something with the nice commission check he thinks you're worth. You can bet on that.

The other option I have available is to take the cash values out of each policy and use that cash to buy 2 single premium whole life policies whose combined value would be about $75K. The appeal of this option is that they would be paid up policies and I would never have to pay another cent in premiums.

Yes, that is an option, but I don't think your estimate of the paid up death benefits is accurate. It will probably be much lower, perhaps $40,000-$50,000. Again, I would have to see more details of your situation. Besides, it would be better to use the Nonforfeiture provision in your existing policies to purchase paid up policies with the same two insurance companies. You won't be charge sales charges, and will get the maximum benefit each company can offer you in the current situation.

Mostly, whatever you're thinking of doing . . . none of it should involve any money coming in direct contact with your hands or your bank account. When that happens, whatever tax advantages might have been available completely evaporates. This is not a D-I-Y situation for you.

If you have recent policy statements for both of your contracts that can be faxed or emailed to me, I can give you a better idea of what options exist. Paid up policies probably make the most sense, but there could still be other alternatives.

You might even want to consider an annuity instead, which could be created using the 1035 Exchange, too. You will preserve your cash values as they exist today, reduce the amount of taxable income thanks to your screwed up cost basis in one or both of the life policies, and can continue to contribute premium dollars that could later be taken as income if you need it, or left to your beneficiary if you die before you start taking income. That could be a WIN-WIN situation.

Posted: Fri Mar 06, 2015 04:25 pm Post Subject:

I'm only going on the basis of what the agent is telling me. He really wants me to take out a Variable UL policy which everyone has told me is not in my best interest so that's out.

On the other end of the spectrum what he told me about the 1035 is that on my UL, perhaps because it's an old policy, he said that it is grandfathered as it existed before certain IRA rules in regard to how outside funds are handled. He stated that that without a doubt the cash value from Policy B could be added to the cash value of Policy A however the company has to keep the funds separate even though on paper it looks like they are combined. He also said that his company charges a 5% fee to bring in outside money into a policy so when he did the illustrations he did so with their 5% cut taken out.

To me it's odd that he never showed me any illustrations using the "Midpoint" set of expensed until I started to press him on bringing in the cash value from the other policy. I also find it annoyingly humorous that if he was trying to sell a new policy all a customer would see would be the worst case scenario and what they refer to as the "illustrated" rate and they probably only show the worst case because the law probably requires them to do it. At that point in a new sale I'm sure the agent would be stressing that the worst case would never happen and further stress that the "illustrated" expenses and returns are what the customer can really expect. So in some respects I didn't find it odd that he started pushing more bad news my way hoping that I would take the bait and not consider this option because with the midpoint expenses, even at their current 4.5% return and a boost in premium from $100 to $160 a quarter the policy won't last but with their "illustrated" expenses at a 4.5% return at a $100 premium with $7200 added in from the 1035 the policy not only lasts but at age 100 there would still be money left in the policy that would have to be paid out. So the long and short of this is that he's attempting to spread FUD (fear, uncertainty and doubt) in my mind so I'll follow his lead. To me if things were that bad and he was showing the midpoint expense to his customers he'd never sell another policy in his life as agent is going to show that much potentially bad news to a customer because no other agent or company will show that much bad news either..

Also on the Single Premium Whole Life policy he said that taking my current cash values in Policy A and buying this paid up SPWL policy it would buy me over $63K in death benefit. He also said that even though it was a new policy, underwriting would not be involved because the death benefit was less than the current death benefit on my existing policy. He also said that unfortunately they cannot take a 1035 and add it to a SPWL policy like they can on my current UL. He said that they could take the 1035 in and buy a separate policy but if they did that then underwriting would have to evaluate my current health and rate accordingly. In that case it seemed to me more appropriate to have company B write the SPWL policy and be able to use 100% of the cash value instead of giving company A a 5% cut off the top.

So, assuming that the agent is right and that I can use the 1035 money to give my existing UL a shot in the arm it seems my choices are still to go that route and hope that the company doesn't jack up the expenses to the midpoint. My only choice if I went down this path is to watch what's going on with the policy and go from there. My other choice again, if the agent knows what he's talking about is to take the SPWL policies and be done with it.

Posted: Fri Mar 06, 2015 07:14 pm Post Subject:

On the other end of the spectrum what he told me about the 1035 is that on my UL, perhaps because it's an old policy, he said that it is grandfathered as it existed before certain IRA rules in regard to how outside funds are handled. He stated that that without a doubt the cash value from Policy B could be added to the cash value of Policy A however the company has to keep the funds separate even though on paper it looks like they are combined. He also said that his company charges a 5% fee to bring in outside money into a policy so when he did the illustrations he did so with their 5% cut taken out.


I'm only going to say this one more time. YOU NEED TO GET AWAY FROM THIS AGENT WHO DOES NOT HAVE YOUR BEST INTERESTS AT HEART.

He is lying to you to get your money and make a commission. Insurance companies do not "charge fees" to do 1035 Exchanges, the charge sales loads on every dollar that comes into a UL policy, whether from your pocket or another insurance company. The only time they don't is when the 1035 Exchange is "internal' (same Insurance Company).

Before you give any UL policy a "shot in the arm"
GET AN INFORCE ILLUSTRATION FROM THE INSURANCE COMPANY!!!
-- it's the only way you'll know if what you intend to do is better than taking a shot to the head, which is what you will do if there is no hope for the policy.

My other choice again, if the agent knows what he's talking about is to take the SPWL policies and be done with it.

You are completely missing the point. Why is the agent trying to sell you anything that makes him a commission when you can get the same thing from the existing insurance company at no cost to you? All this agent sees is $$$$$ when he looks at you. Don't you see the $$$$ in his eyes when you look at him?

NONFORFEITURE RIGHTS in your existing policies provide that you can have the PAID UP life insurance WITHOUT ANY UNDERWRITING AT ALL -- it's guaranteed to you by state law. Get rid of this agent once and for all or plan on losing whatever money you let him touch with your name on it.

I HAVE SEEN THIS TOO MANY TIMES IN MY CAREER THAT STARTED IN 1980. I don't want to see it happen to you. If you ignore this advice, then you will end up what you don't deserve. Nothing.

Posted: Fri Mar 06, 2015 07:49 pm Post Subject:

Max, you've given him sound advice. Whether or not he follows it is entirely up to him - it's out of your hands.

Moondoggy: Max and I have been investigating these kinds of cases for many years. I agree with what Max has suggested and I urge you to follow his advice. If not, do yourself a favor; take lots of notes (names, dates, times, illustrations, etc.) You'll need this when your policy implodes and you discover you've got nothing left.

When you're ready, go onto Google and type in the words LIFE INSURANCE FRAUD INVESTIGATOR and you'll find me at the top of the page. Don't wait too long though; you've only got a 4-year statute of limitations and the clock has already started.

If it'll make you feel any better, you are only one of around 40 million people this has happened to. Good luck

Posted: Sat Mar 07, 2015 01:00 am Post Subject:

I understand where you're coming from regarding the agent as I understand that he's trying to take me for a ride. The problem is that the company is a fraternal, Christian based company and they only have captive agents. Unfortunately, there are only two agents with that company in the city I live in and both work out of the same office and furthermore both of them have been working in conjunction with one another to convince me that I need to switch to the Variable UL. Bottom line is that he can say whatever he wants and show me all of the bad scenarios he wants but it won't do any good as I'm not going to take the bait.

The thing that I was trying point out is that since he doesn't want me to add money to my existing UL, in which case he doesn't make anything, he's trying to instill fear, uncertainty and doubt (FUD) in my mind and I'm not buying his spin. What I would like to know from you in the industry is what the probability is that a conservative, Christian based insurance company who pretty much only writes policies for conservative Lutherans would increase their costs to the point where those costs would reach the midpoint on the in force illustrations that he sent me? My gut tells me that with the limited scope of their client base, it would be suicide for a company like that to increase costs to that extent unless the economy totally tanked and stayed that way and it was their only means of survival.. My gut tells me that to preserve their client base they are more likely to stick with their current costs which I'm assuming are what was listed as the "Illustrated" costs on their in force Illustrations. If someone has an opinion on the likelihood of them jacking up the costs, I'd appreciate hearing it but right now I'm thinking that it's more than likely that they will stay the course as long as I own the policy.

In addition, my problem is that I feel that I'm stuck with what working with the companies I have policies with today. I'm 64 and according to some, I have some medical conditions that may be problematic from an underwriting perspective. In my opinion I need to work within the framework I have today and either do something with my existing UL or convert the policy to a paid up SPWL policy as long as underwriting stays out of the picture. What they've been telling me is that I could, without underwritings involvement, convert my current UL to the Variable UL but this isn't going to happen. If I don't convert my current UL to a Variable UL then what are my other options other than (1) keep the existing 100K UL and boost the cash value by $7200 and increase my quarterly premium by $60 or (2) take two SPWL policies with a combined death benefit of $75K? Although both options are less than the combined $160K death benefit I have now, both will still provide my survivor with enough death benefit to meet my financial obligations and get me in the ground.

Posted: Sat Mar 07, 2015 01:17 am Post Subject:

InsInvestigator:

Thanks for your input. In my mind, I don't think that there's any insurance fraud here. Back in the 80's when I took these policies they were simply based on assumptions that turned out to be incorrect. From my perspective both companies are reputable and the UL's provided a good death benefit for the price and offered some level of savings. Sadly, the savings component just never panned out and both companies probably wish they had never offered them to their clients. Unfortunately they did and In some respects I'm thankful that one of the agents from one of the companies was bold enough to step up and alert me to the problem. Most of the time on deals like this the policy would be worthless and there wouldn't be any time to do anything. Right now I feel that there's still a couple of options available to me that I can at lease salvage something here

Posted: Sat Mar 07, 2015 07:33 am Post Subject:

What I would like to know from you in the industry is what the probability is that a conservative, Christian based insurance company who pretty much only writes policies for conservative Lutherans would increase their costs to the point where those costs would reach the midpoint on the in force illustrations that he sent me?


OK, so we're talking about Thrivent Financial For Lutherans -- formerly Lutheran Brotherhood. Nothing wrong with the company . . . and that's coming to you from a Baptist.

My gut tells me that to preserve their client base they are more likely to stick with their current costs

You may understand salvation and who our Lord and Savior is, but you do not understand insurance.

Thrivent is in business, just like any other insurance company, to make money. If they slow down when it comes to making money, like virtually all other insurance companies have in the past 12-15 years as the economy went through a recession from which it still hasn't recovered much, then they, too, will be forced to raise costs to make ends meet. After all, they are regulated by the state, and responsible to all of their policyholders, too. Just because they have certain values that other companies might not, doesn't convey any special blessings on them.

If Thrivent has not raised it internal policy expense, then you have more to worry about than just how much you're paying into those policies. I'm sure they have, just like virtually all companies selling UL products -- especially policies as old as yours.

But that doesn't mean your UL policies are headed for Hades right away. If you will call Thrivent and ask for IN FORCE ILLUSTRATIONS, you will see where your money is going to take them under today's assumptions. You need to ask for two different illustrations. (1) Based on Current Assumptions and (2) based on how much money you will need to pay to keep the policies in force to (_____) [insert any age up to 100], with the understanding that even those numbers will likely change with time and may not be enough five or ten years from now.

If, after getting the illustrations, you don't want to continue putting new money into the policies, then you call Thrivent and say, "I want to exercise my NONFORFEITURE provisions and convert these policies to REDUCED PAID UP LIFE INSURANCE."

And in a matter of a few days, you will have new policies that are fully paid up, but with lower face amounts -- you will never pay another dollar in premiums -- they will have cash value, and that cash value will continue to increase toward the full face amount of the policies. You can borrow the money, you can surrender the policies, you can die and leave the money to your beneficiary or the church. You will never lose those policies unless you borrow against the cash value and don't repay the interest each year.

I feel that I'm stuck with what working with the companies I have policies with today

Again, you misunderstand. You have been doing business with a good company. They limit their sales to a specific crowd, with better than average life expectancies, and you derive a small benefit as a result. But you are not stuck with them, they are stuck with you. You have a contract that forces them to keep you if you want to stay with them. No matter what your age or health is today, they can't make you quit.

But they can sell you new policies that take them off the hook with regard to the old ones, or make you mad enough to go to another company and leave them with a nice profit after all these years.

If I don't convert my current UL to a Variable UL then what are my other options other than (1) keep the existing 100K UL and boost the cash value by $7200 and increase my quarterly premium by $60 or (2) take two SPWL policies with a combined death benefit of $75K?


You still aren't getting "it". A VUL policy is not a conversion -- it is NEW life insurance at a late age, and it will be very expensive, and you won't do well with it. You are not going to surrender your policies and take the money to some other company and buy SPWL policies for which you will have to undergo underwritiing and could be rated substandard and that will cost you money, in terms of less death benefit.

No, what you are probably going to do is exercise your NONFORFEITURE PROVISIONS and exchange your existing Thrivent policies for new Thrivent policies, and no one gets a commission, you get the full value of your current cash accumulation which will buy as much death benefit at a standard rate as you age permits. No underwriting, no declines. You will probably not even be asked to do more than sign a form directing the insurance company to do that for you. No suicide provision, no new two year period of incontestability, none of it.

Every other option you THINK you have, has a number of disadvantages that you cannot see. If you want to talk to me about this, click on the link to my website, get my phone number and call me. I'm in the Pacific Time zone, but I'm usually up by 5am local. I'll be happy to answer ALL of your questions -- no charge.[/quote]

Posted: Sat Mar 07, 2015 08:43 am Post Subject:

OK.... So what I think you're saying here is that the only sure thing is to exercise my NONFORFEITURE PROVISIONS and exchange my existing Thrivent policy for a paid up policy with them and do the same with my other UL policy with Country Financial. I may have used the wrong terminology but in my threads this was my second option as Thrivent said that if I wanted to do that my the $32K in cash value I have in my current UL will get me about $63K in death benefit if I take this option.

In regard to keeping my current UL I have asked for and received a number of illustrations that I've been told are In force illustrations as they specifically show the impact on me and my existing $32K worth of cash value at various ages up to age 100. I have not asked for illustrations that specifically take either the worst case scenario (i.e. their 4% guaranteed return and maximum expenses) or a 4% return and the Midpoint expenses and calculate the necessary premium that would be needed to keep the policies alive to age 100. My hope was that the agent was just trying to confuse me with the bad midpoint illustrations at various returns that essentially showed that even with a $150 a quarter premium, which is $50 more than I'm paying now plus $7200 I would receive via a 1035 from my Country Financial policy no matter if they are paying the existing 4.5% return or the 4% guaranteed return, no scenario using the midpoint costs would keep the policy viable. My hope was that by taking and boosting the cash value by $7200 from my Country Financial policy there would be a better than likely chance that their costs would never reach anywhere close to the midpoint costs. What I think you're telling me is that the chances of that happening (i.e. not reaching the midpoint costs) are not good and the only sure bet is to take the paid up policy. If I'm understanding you correctly let me know.

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