Don't Make This Life Insurance Mistake

An episode of the The Josh Scandlen Podcast podcast, hosted by Josh Scandlen, titled "Don't Make This Life Insurance Mistake" was published on February 25, 2019 and runs 20 minutes.

February 25, 2019 ·20m · The Josh Scandlen Podcast

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Summary

Life Insurance is a big deal.  It's an even bigger deal if you thought you had a life-long policy but suddenly find out that your policy has lapsed. Now what do you do??? In this video, I'm going to show you exactly what you need to do ensure your life insurance policy doesn't expire  before you do. I can not tell you how many clients I've had in my 20+ years who thought they had Whole Life Insurance.  But in actuality they have Universal Life.  The difference between these two life insurance types are significant.  With Whole Life Insurance, you pay the agreed upon premium, on time, and the policy will literally be there for your "Whole Life".   There is no risk to you.  Other than your ability to pay the premiums.  Now, because there is no risk to you, the amount of whole life insurance protection will generally be much less than  a similarly priced Universal Life Insurance policy.  The reason for this difference is that the risk with Universal Life Insurance is on you, not the insurance company.  Less risk to the insurance company, the more they can offer.   More risk to the insurance company, the less they can offer.  It's really that simple. With Universal Life Insurance the policy interest rates can, and do change, regularly.  So, let's say you bought a Universal LIfe Insurance policy in the late 80s or early 90s, you were shown a crediting interest rate of 6% or 7% or something along those lines. Fast forward 20 years and what are interest rates today?  Half. When you bought that policy the illustration shown to you presumed the interest rates your policy received would stay at 6% or 7% throughout the policy.   That hasn't happened.  In fact over the last 15 years or so, your policy has had SIGNIFICANT less interest credited to it, all the while the COST to insure you has grown each year.  As you get older, you're more likely to die, thus life insurance becomes more expensive.  Yet, while the costs have gone up, the interest you've been making has gone down. A life insurance policy with increasing costs and decreasing interest can not last!  It will lapse.  Given the risk of lapsing policies to unsuspecting customers, one would think the insurance companies would go out of their way to help those owners understand that risk, right?   You'd be wrong.   What the insurance companies do is they send an annual statement.  Unfortunately the annual statement just represents how your policy is doing TODAY.  It says nothing about the future strength of the policy! I had a 68 year old doctor client.  He had a $1 million dollar Universal Life policy that had $88,000 cash value.  Just looking at his statement, he thought this policy was good to go and he stopped making ANY premiums. I ran an INFORCE ILLUSTRATION though.  The INFORCE ILLUSTRATION shows the FUTURE performance of the policy based on current interest rates and costs.  For my client, it was a rude-awakening.  His policy was on track to lapse in 8 yrs, when he turned 77!  To say the least, he was not happy. After the expletives cleared, I told him the options.   Reduce the death benefit.  Add cash to the policy. Cancel the whole thing and pocket his $88,000 cash value.  He wanted the policy though.  So canceling was not an option.  But he also didn't want to reduce the death benefit of that $1mill

Episode Description

Life Insurance is a big deal. It's an even bigger deal if you thought you had a life-long policy but suddenly find out that your policy has lapsed. Now what do you do???

In this video, I'm going to show you exactly what you need to do ensure your life insurance policy doesn't expire before you do.

I can not tell you how many clients I've had in my 20+ years who thought they had Whole Life Insurance. But in actuality they have Universal Life.

The difference between these two life insurance types are significant.

With Whole Life Insurance, you pay the agreed upon premium, on time, and the policy will literally be there for your "Whole Life". There is no risk to you. Other than your ability to pay the premiums.

Now, because there is no risk to you, the amount of whole life insurance protection will generally be much less than a similarly priced Universal Life Insurance policy.

The reason for this difference is that the risk with Universal Life Insurance is on you, not the insurance company.

Less risk to the insurance company, the more they can offer. More risk to the insurance company, the less they can offer. It's really that simple.

With Universal Life Insurance the policy interest rates can, and do change, regularly. So, let's say you bought a Universal LIfe Insurance policy in the late 80s or early 90s, you were shown a crediting interest rate of 6% or 7% or something along those lines.

Fast forward 20 years and what are interest rates today? Half.

When you bought that policy the illustration shown to you presumed the interest rates your policy received would stay at 6% or 7% throughout the policy.

That hasn't happened.

In fact over the last 15 years or so, your policy has had SIGNIFICANT less interest credited to it, all the while the COST to insure you has grown each year.

As you get older, you're more likely to die, thus life insurance becomes more expensive. Yet, while the costs have gone up, the interest you've been making has gone down.

A life insurance policy with increasing costs and decreasing interest can not last! It will lapse.

Given the risk of lapsing policies to unsuspecting customers, one would think the insurance companies would go out of their way to help those owners understand that risk, right?

You'd be wrong.

What the insurance companies do is they send an annual statement. Unfortunately the annual statement just represents how your policy is doing TODAY. It says nothing about the future strength of the policy!

I had a 68 year old doctor client. He had a $1 million dollar Universal Life policy that had $88,000 cash value.

Just looking at his statement, he thought this policy was good to go and he stopped making ANY premiums.

I ran an INFORCE ILLUSTRATION though. The INFORCE ILLUSTRATION shows the FUTURE performance of the policy based on current interest rates and costs.

For my client, it was a rude-awakening. His policy was on track to lapse in 8 yrs, when he turned 77!

To say the least, he was not happy.

After the expletives cleared, I told him the options.

Reduce the death benefit. Add cash to the policy. Cancel the whole thing and pocket his $88,000 cash value.

He wanted the policy though. So canceling was not an option.

But he also didn't want to reduce the death benefit of that $1mill