Do You Understand Your Insurance Policy?
Your life insurance may be a predatory policy. Some policies are intentionally deceptive and don’t provide the coverage you think you’re paying for.
Will your life insurance policy be there for your family when you pass away? Did you sign up when you were young to lock in a great rate you’ll be able to afford for years to come?
You might be surprised to learn the dirty little secrets that insurance companies don’t want you to know. Today we’ll talk about how some policies are designed to become unaffordable when you really need them.
I’ll help you understand the basics of how life insurance works, how predatory universal life policies are designed, and what you should do if you believe your rights have been violated.
Whole Life Insurance Policies
Generally speaking, there are two kinds of life insurance policies. “Whole life” is a type of policy that ensures your premium is set it stone forever. In other words, if you have a whole life insurance policy, your currently monthly payment (also known as your premium) is what you’ll pay next year and what you’ll pay 50 years from now. It does not change.
Whole life policies usually also generate cash values and dividends from the insurance companies that offer them. That means they can be used as collateral on loans and earn actual cash you can spend. Whole life policies are good because your premium and your coverage won’t change. But whole life policies require a higher premium (they are more expensive) and are generally only available from reputable and trustworthy insurance companies.
Universal & Variable Life Policies
A second category of life insurance policies are known as “Universal life” or “Variable life” policies. These are seemingly less expensive options, often used by unscrupulous insurance companies to prey on a person’s emotions and budget during the purchasing process.
Initially, many Universal Life and Variable Life policies seem to have similar death benefits as a Whole Life policy but with a much lower monthly premium. Seems great, right?
But first impressions aren’t always accurate.
An honest insurance agent will tell you why a Universal or Variable policy may not be the best choice for you if you have a set income.
They’ll also explain that Universal and Variable policies are not guaranteed.
How Universal Life Policies Work
Initially, a Universal Life insurance policy does offer you life insurance. But companies who offer these policies know that statistically speaking, there’s a low probability of you passing away before you retire. Universal Life policies center around the insurance company’s ability to make money off of your policy.
This means that you’ll be paying low premiums during a time when you’re statistically unlikely to pass away. Because of this, Universal Life policies seem like a good deal at face value. You pay a relatively low amount for a good amount of coverage.
This is true– but only if you die at a young age in the early years of coverage.
However, these policies are designed to expire or adjust (read: increase) premiums before the policy holder reaches his or her life expectancy.
The Hidden Costs of Universal Life Policies
Here’s what some insurance agents don’t tell you about these Universal Life policies:
If you don’t monitor your policy closely and read the fine print of your policy, the cost of your insurance may eventually exceed the premiums of the policy, thereby depleting the savings of the policy.
Essentially, if interest rates drop too much from the time the policy was created, the insurance company can give you the “choice” of several horrible options. Typically around the time the policy holder retires and begins to experience declining health, the insurance company will offer:
Horrible Option #1
Increase the premiums required to cover the higher cost of insurance. In order to keep the coverage you thought you were paying for, you’ll have to pay astronomically high premiums, that a set income likely cannot afford.
Horrible Option #2
You can abandon and cancel the policy. This leaves you with no life insurance policy whatsoever, and you lose all the money you put into it.
An Example of Universal Life Policy in Action
Let’s imagine this all-too-common real world scenario:
- When you were 35 years old, you agreed to pay $200 per month for a Universal Life insurance policy with a $100,000 death benefit.
- When you turn 70 years old, the insurance company says you have the option of abandoning your life insurance policy, paying $800 per month to maintain the $100,000 death benefit.
So in our hypothetical example, despite paying $200 per month for 25 years, a total of $60,000 paid to the insurance company, you will receive no benefit if you don’t continue to pay a newer, much higher premium. Or you can pay the new, much higher premium, to maintain the coverage you thought you had been paying for.
That $60,000 you invested? It’s gone if you don’t pay the higher premium. You’re basically being punished for living longer.
Sound scary? Believe me, it is happening to people every day.
Who’s Hurt Most by Universal Life?
Will you be able to enjoy your golden years?
Universal Life policies tend to be most problematic for people on fixed incomes, disabled people, or retired people who were counting on only paying a fixed premium throughout their lives.
The vast majority of Universal Life policy holders don’t understand their policies and it’s often because of deceptive practices used by dishonest insurance companies and agents.
The Judnich Law Office Can Help
At the Judnich Law Office, we believe this isn’t right, and we want to do something about it.
If you have a Universal Life or Variable Life insurance policy and were told that your premiums will soon skyrocket, call us for a free consultation to discuss your options. If your premiums have not increased yet, you should contact your agent and ask them if that is a possibility. See how they try to squirm out of it, while at the same time confirming that your rates will likely increase.