Advisers pick their poison with UL policies

I read the article “Low interest rates threaten universal-life policies” (InvestmentNews, Nov. 18), and I am glad to see that the publication is making financial advisers aware of these issues.

I just received an in-force illustration regarding a client’s child who has a UL policy at 4%, the guaranteed minimum.

The premium being paid ($195 a year for $100,000 level benefit) will last to his age 63, year 35 of the policy. He is 28 now.

They would need to put in $563.75 a year at 4% and current mortality to have a chance to get it to age 100. They have had it for 14 years.

They can easily afford the extra cost, but without an adviser such as me asking for one of these illustrations, few would ever catch on until it is too late.

Still, it is not really a matter of “shelling out more money” for the coverage, because rates have declined. The fact that they purchased a policy that was affordable at that time is the key.

If interest rates were 4% back then, many would have chosen a lower face coverage to match the budget. But think about it: I have 35 years of experience and have paid out many UL claims, none of which would have been as large had they opted for whole life or “over-funded” the UL just in case rates fell.

Over a 20-year-plus time period, many UL policies have actually paid benefits that were outstanding bargains. The higher rates enticed them to “afford” more coverage.

Certainly, it is a mess, as guarantees to age 100-plus are expensive, and there is a fiduciary liability for being wrong. The trade-off is a lower death benefit and hope one lives a long life.

I have a dear 89-year-old client who has been paying $14,000 a year for her $400,000 policy that will lapse at age 91 unless she places more money or lowers coverage. She asked how much she put in all these years, and I asked her if she would have preferred to have died earlier to have made it a better deal.

Bert H. Livingston

Independent financial representative

National Financial Services Group

Jacksonville, Fla.

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