Review Your Universal Life Policy Expenses
Many people mistakenly believe that universal life and whole life insurance are almost the same. The key difference is that whole life insurance has a fixed premium that remains constant throughout your life. In contrast, universal life policies include expenses that tend to increase as you age.
If your expenses rise above your premium (which can happen if the policy is left untouched), the universal life policy will start using your cash value to cover the difference. While cash value does accumulate interest over time, there’s a risk that rising expenses could outstrip any growth from interest.
If you’ve chosen the minimum premium, your cash value might not be substantial enough to generate significant interest. This can create a precarious situation where the gap between expenses and premiums outpaces cash value growth. As a result, your cash value could diminish, leading to reduced interest earnings each year, while your expenses continue to increase.
Ultimately, you may find yourself with no cash value left and facing the need to significantly raise your premium to maintain your policy. Once the cash value is depleted, it becomes necessary to increase your premium annually to keep pace with rising expenses.
In summary: Review your latest statement for expenses. If your expenses are exceeding your premium plus the interest on your cash value, consider increasing your premium now while you still have cash value available.
Your points about Universal Life Insurance are crucial for anyone considering or currently holding such a policy. Many policyholders underestimate the impact of increasing expenses over time and how they can affect their cash value and coverage.
It’s important for policyholders to regularly review their statements and understand how factors like interest rates, premium payments, and policy expenses interact. If expenses outpace the premium and interest gains, as you mentioned, it can lead to significant financial strain in the future.
Increasing your premium early can be a wise decision to ensure that your policy remains sustainable and to avoid the risk of losing cash value. It’s always a good idea to consult with a financial advisor or insurance professional to explore your options and develop a strategy that works best for your long-term financial goals. Staying proactive about your Universal Life policy can make all the difference in the long run!