Life Settlements Might be an Option for Some Senior Consumers Following Recently Announced Premium Hikes for Universal Life Policies
For more than 130 million American consumers, life insurance (term or permanent insurance) is a critical component of sound financial planning. But when a permanent life insurance policy becomes too expensive to maintain due to premium increases, the owner is faced with some hard choices.
In light of the recently announced premium hikes for certain universal life (UL) policies, many affected policy owners who thought their premiums would remain as originally illustrated when they purchased the policies years ago are ill-prepared to absorb substantial increases. According to the Wall Street Journal, the extra annual cost for policy owners will range from about $150 for those with $250,000 policies, to six-figures for those with multimillion dollar policies. Some increases stretch beyond 200 percent.
Historically, UL policies have been attractive products for many consumers because they combine a death benefit with a tax-advantaged savings account. Since the 1980s, UL policies have accounted for approximately 25% of all new individual life insurance sales, and more than 33% over the past decade.
Unfortunately, the unanticipated rate increases come at a time when some UL policy owners are frustrated with lackluster returns for policies that combined a death benefit with a tax-advantaged savings account. When many of these policies were purchased, the insureds were expecting to use the policy’s tax-deferred savings account to help finance the future cost of insurance as they age. But due to the sustained low interest rate environment, many UL policy owners have seen their cash build-up dwindle and are currently struggling to keep the policy in force.
In the past several years, Abacus Settlements has purchased a substantial number of UL policies where owners were unable or unwilling to maintain the premiums. A life settlement can be an opportunity to regain lost premiums on an asset that has become more expensive than originally illustrated. In some instances, policy owners simply decided that the original purpose for purchasing the insurance no longer existed and they chose to use the proceeds from a life settlement to assist with medical expenses or to enhance their lifestyles.
Looking to the future, Abacus expects to see the number of settlements for UL policies increase due to the fall-out from the recently announced rate increases. While the Federal Reserve voted last month to raise the central bank’s benchmark interest rate by one-quarter of one percent, this minor increase is unlikely to make a measurable difference in generating interest income sufficient to salvage some policies that are already in danger.
We recommend that a senior owning a UL policy contact their insurance advisor to request an immediate policy review to determine whether a life settlement is the most sensible option. Proactive and prudent management of a troubled policy will help ensure the most favorable outcome. And for those who decide that a life settlement is the most financially sound strategy, it’s important to act now before too many premium payments are missed or loans are taken against the policy.
If you are an agent or a consumer and would like to speak with one of our representatives about a life settlement, please contact us at (615) 732-6241.