In 1983, I bought a Universal Life Policy. I paid $500/year for $75,000 of life insurance and at 65, I was supposed to start receiving $113.00/month from the policy for life -- (10 years guaranteed) -- and the death benefit would decrease to $60,000.
My insurance guy was out last night and told me that there is only $4000.00 left for the rest of my life in the policy -- and that is if I take it out now and lose all insurance upon my death!
I'm about to 'fake my own death' for the death benefit!
I feel like I have really been screwed! Fortunately, I don't really need that $113.00/month to have a good retirement, but I keep having flashbacks to the years when my children were small and it was a real ordeal to scrape together that $500.00/month to make the premium -- thinking that I would reap the benefits in my old age!
Can any of you explain this better than my insurance guy -- who is lucky that I didn't just murder him and stick his body in the septic tank!?!
2010-09-25T11:46:28Z
You folks are right. I was NOT paying attention over the years -- just paying the premiums! I guess I looked at this as a 'sure thing' that would be there when I got old! But I cannot promise that if the agent shows up here again he won't wind up in the septic tank -- dead or alive! Thanks!
Insurance Pickle.com2010-09-24T13:29:12Z
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She's obviously confused. There was no such thing as a Variable Universal Life in 1983, so your policy has/had nothing to do with the stock market.
The problem is that you apparently haven't been paying attention to your policy. You bought at the PEAK of interest rates in the last....40-50 years...probably even longer. If you would have reviewed your policy even 20 years ago you would have noticed that it wasn't going to hit it's mark.
In 1983 your policy probably credited the cash in the account in the neighborhood of 12-14% (if not more) and by the late 80's, early 90's that rate would have fallen to around the 6% range.
Had you reviewed your policy to see how it was doing it would have been quite obvious that you were way off target. Frankly, both you and your agent are both to blame. As an agent he should have brought that to your attention (assuming he's the same guy that sold it to you) and you should have paid attention to your statements.
The bottom line is if you had $10,000 in cash in the account, the policy was assuming you'd be earning $1200 of interest, but at 3% interest that's only $300. Naturally there's going to be a disconnect between what you planned for and what happened.
It would have been no different for your banker to tell you that if you put the money in a CD that your money was going to double every 5 years. Naturally when those CDs stopped paying 14% and started paying 3% the doubling effect went from 5 years up to about 30.
PS I wouldn't murder the insurance guy, because a) you're almost as much to blame, and b) it'd cost you the $4,000 that's left to fix your septic tank.
See, that "supposed to" is NOT guaranteed. When the stock market does well, the policy looks pretty good. When the stock market tanks, the premiums are subsidized by cash value in the policy.
When the value falls to zero, the policy cancels. You can keep shoveling money into it, or not, as you choose. A life insurance policy is flat out a different product, than an annuity.
Universal life, well, you can look online and find thousands of stories just like this. It's sold as an "investment", and the best case scenario is presented . . . and best case RARELY happens. I'm not a fan.
Both of the above answers have given you most of the information you need to come to the conclusion that you, nor your agent, looked at your annual statements and adjusted accordingly, but I'll add one correction.
Regardless of whether the UL was a Variable UL or not, life insurance companies have been victims of the stockmarket and the return on their investments has affected your values. While you didn't directly invest your proceeds into the market and choose which markets you'd like to invest in (as you would with a Variable UL), you did choose to invest with that particular life insurance company, who, in turn didn't have such great returns. As you aged, the risk of your death increased, the cost to cover your policy increased, coupled with the decreasing returns, you weren't paying attention to, resulted in this scenario. That's the risk you take with UL and it must be fully funded to keep up. The premiums you paid just weren't enough to keep up with the costs to insure you, with that particular company and that particular product.