Review Your Universal Life Policy Expenses
Many people often confuse universal life insurance with whole life insurance, assuming they’re almost the same. The key distinction lies in their premium structures: with whole life, your premium remains fixed for your entire life, while universal life features expenses that gradually increase as you age.
If these expenses grow beyond your premium (which is likely if you leave the policy untouched), the universal life insurance uses your cash value to cover the difference. While your cash value does earn interest over time—potentially outpacing rising expenses—there’s a catch.
If you’ve opted for the minimum premium, your cash value may not accumulate enough interest to offset the increasing expenses. This creates a ticking time bomb scenario: if expenses surpass the sum of your premium and cash value interest, your cash value will begin to decline, earning even less interest each year, while your expenses continue to rise.
Before you know it, your cash value could vanish, leaving you with no choice but to significantly increase your premium to keep the policy active. As your cash value depletes, you’ll face mounting costs year after year.
Summary:
Take a moment to check your most recent statement for expenses. If your expenses surpass the combined total of your premium and cash value interest, consider raising your premium now while you still have cash value to support it.
Your insights about universal life insurance are spot on! It’s crucial for policyholders to understand how the expense structure works, especially as they age. Many people underestimate the impact of rising expenses and don’t realize how quickly cash value can dwindle if the premiums aren’t structured properly.
Monitoring your expenses in relation to your premium and the interest earned on cash value is essential for maintaining the policy’s viability. If expenses outpace the growth of your cash value, as you mentioned, it can lead to a critical situation where the policy could become underfunded, ultimately leading to the need for increased premiums or, worse, policy termination.
It’s wise for anyone with a universal life policy to regularly review statements and consider options like increasing premiums or reevaluating their insurance needs before it becomes a scramble to keep the policy in force. Thanks for sharing this important information!