SS+D FINANCIAL NEWS AND INFORMATION

March 19, 2010

CASH VALUE LIFE INSURANCE POLICIES ARE IN TROUBLE

Are your life insurance policies in danger of terminating prematurely?  If you have variable life policies, they may be.  Many of these policies are running out of cash value, but life insurance companies aren’t telling policyholders about it until it’s too late.

In the 1990s, life insurance companies began offering variable life insurance policies as an alternative to traditional whole life products.  Variable policies allowed policyholders to take control of their life insurance policies and invest them in the stock market.  These policies were designed with the assumption that the mutual funds in the policies would produce traditional returns of 6% to 9%, resulting in cash value increases which would offset policy premiums as the insured grew older.  In the past decade, however, market performance has been negative.  As a result, cash values have not increased, premium expense has eroded cash value, and many variable policies soon will run out of money.  Life insurance companies can’t control the stock market, but they could tell policyholders that these policies are in danger.  Sadly, they don’t seem to be doing that.

If you have a variable life policy, don’t wait until it is too late.  If you catch the problems soon enough, there are options that can help.  For example, you could increase the premiums, reduce the policy’s face value, or terminate the policy and salvage what cash value is left before it is eaten away.  If you wait too long, the life insurance company will finally notify you that the policy is about to be canceled.  At that time, your options are grim–pay the extraordinarily large new premium or terminate the policy and get no cash value.

Mike Moloney, head of SS+D’s Estate Planning Department and a Certified Financial Planner, is a licensed registered insurance agent, and he has recently assisted several clients by reviewing the status of their life insurance policies.  If it has been awhile since you examined the performance of your policies, call Mike Moloney (937-222-2055) and get the process started.  Mike doesn’t sell life insurance so you don’t have to worry about being pressured to buy something new or to take an action that isn’t in your best interests.