Universal Life Insurance Policy Holders Face Premium Hikes

Over just the last two years, tens of thousands of universal life policyholders have been hit with double-digit premium increases from companies such as Axa Equitable, Voya Financial, and Transamerica.  

Universal life is a permanent and somewhat flexible hybrid life insurance policy that is intended to combine the reasonably affordable aspects of term insurance with a savings element similar to whole life. Universal life insurance typically offers policyholders a “cash value” savings account that earns tax-exempt interest along with the flexibility to adjust premiums and to increase or decrease death benefits. The policy’s investment account accumulates cash when interest rates are high, but can plummet when rates are low. In the 1980s and ’90s, the most common guaranteed rate in universal life contracts was 4%; some insurers guaranteed more.  Many new policies are tied to the stock market and don’t guarantee returns at all.  

Life insurers blame the economy for the premium increases. Interest rates began to slowly decline in the 1980s, but then plummeted during the 2008 recession as the Federal Reserve tried to improve economic conditions by making money cheap to borrow. But low interest rates are bad for the investment.  Low interest rates mean  lower profits.  In response, life insurers have begun to raise premiums on older universal life policies.

Understandably, universal life policyholders, many of whom were assured by agents that their premiums would never increase, are angry.   There are now a dozen lawsuits against insurers who sold those policies

Of course, regulatory reforms are suggested to help minimize the impact of these premium increases.  The New York Department of Financial Services, for example, proposed a rule that would require insurers to notify the agency at least 120 days before an “adverse change” in “non-guaranteed elements of an in-force life insurance or annuity policy.” This rule would also force insurers to notify consumers at least 60 days before the change. The regulation could be used as a precedent for other state insurance departments.  The Consumer Federation of America last year sent a letter to all state insurance commissioners asking them to study and prohibit any unfair price increases being imposed on consumers owning universal life policies.  Regardless, these reforms don't offer insureds a financial solution- only time to react.

Scott Hanson, a senior partner and founding principal of Hanson McClain,  a financial advisory firm in Sacramento, California,  offers the following advice to insureds holding universal life policies:

• Get ahead of the curve by contacting your insurer to find out just how much your policy’s cash reserves are worth.  Depending on the amount you have accrued over the years, you might be able to afford future premium hikes.

• Alternatively, consider working with your insurer to lower the policy’s death benefit, and by extension, your costs.

• You could also inquire about changing policies. What else does your insurer have to offer you? Fair warning: It can be hard to get approved for a life insurance policy when you’re in your 60s or older.

• If all else fails, you could look for a life insurance agent or company who would buy the policy from you now in exchange for receiving the death benefit later.

For more information regarding life insurance in estate and financial planning, go here.