Tens of thousands of consumers who purchased Universal Life or Flexible Premium life insurance policies decades ago are now facing huge premium increases. Many won’t be able to make these payments. The could be forced to forfeit their policies and are faced with limited affordable replacement options due to advanced age.
Basic “term” life insurance policies usually span 20 to 30 years with a fixed premium in exchange for a payout if the insured dies during the term of the policy. If the buyer outlives the term, no benefit is received with no cash accruement.
In contrast, Universal Life or Flexible Premium life insurance policies last for the holder’s entire life. In addition to a death benefit, the policies accrue value over time. These policies were popular in the early 1980s to the 1990s when interest rates were high. The Baby Boomers who purchased these policies were guaranteed a rate of no less than 5.5% annually.
But, many companies are breaching their original contract policies by sharply increasing its monthly deduction rate. This is the amount taken from policyholders’ accounts to cover premiums, the cost of the policy’s death benefit and other expenses and fees. It is speculated this is done to avoid paying the policyholders the interest rates agreed to when the policies were sold.
Along with taking more money out of the policy, the monthly premiums have increased, too. Transamerica’s cost increased 40% while AXA skyrocketed to a 70% increase. This could cause the policies to lapse more quickly than investors expect, and the contract will no longer be funded.
So, many are faced with two unfair options: tap into other savings to pay the doubled monthly premium or surrender their policy and take whatever cash value remains. And for many policyholders, this means losing a death benefit to help their loved ones when they pass.