Universal Life

[statsman 5450]

Not a huge problem, but an opportunity to share, and help others avoid the issue…

In 1997, we wanted to start a family. We decided to get life insurance, a stand alone policy not dependent upon my employer. I bought a universal life policy. I was 33 years old and it was structured thusly:

$161/month premium, 

$450k term life, for 30 years 

$200k universal life, promised to be good until 93 years old, as long as the premium was paid. 
 
I liked the idea of leaving a chunk of cash to whoever was stuck holding the bag when I passed. 
 
I got a letter from Allstate (the guy who sold the policy got out of the business 20 years ago, and the policy was moved to a different office). They say that because of low interest rates for so long, the cash value didn’t increase enough, and the universal life portion would only last until I was 77. Unless I started increasing my premium by $200/month. 
 
I talked to my current agent (who I really like and trust). She said this is real, that she feels bad because she sold those policies (and bought one for herself) making the same promises. She said that if I looked at the original agreement, there is language allowing them to do this; they just never thought it would happen. 
 
This is not a crisis. I have some savings now, and expect to leave something. I am disappointed. I bought the policy as a hedge against a premature death, and an investment for a later death (my dad, 88, has a $150k whole life policy- it is absolutely an investment now. I told him that if he ever struggled to make a premium, to let me know and I would make it for him). 
 
Choices: do nothing. Pay $161/month, have $650k life insurance for three more years and $200k 14 years after. 
 
Pay $200 more per month and have the $200k last until I’m 93. 
 
Cash out the $21k cash value and just get by with my (other) term policy until I’m 70. Lord knows there’s no shortage of things to do with the cash. 
 
Lesson: Don’t look for insurance to be anything more than insurance, a hedge. Buy term life insurance. 
 
Any thoughts are welcome, although admonishments that I should have known better are wasted. I know better now. 

[immamac 42834]

Going from 160 to 360 a month seems like quite the jump. 

[DaysOff 7946]

Universal life is a scam. Lesson learned.

[Muny_Tex 293]

What is the tax liability on the $21K cash-out?  Certainly hope it's $0 given the post-tax nature of the payments and massive aggregate loss..but wouldn't rule out another screw job to add further insult to injury.

My math says 27 yrs of premiums, times 12 mo's a year....makes 324 monthly payments thus far.  At the premium rate of $161/mo that is $52,164 in sunk costs thus far?  Jesus man...

In any event, I would just take back whatever $$$ you can salvage now....put in in a high-yield savings account, divide it by ~24, and then just dollar-cost-average that amount (plus your normal $161/mo + any HYSA interest-earned) back into a normie index fund on a monthly basis over the next two years and then re-assess your financial needs/goals.

These assholes have already rug-pulled you once, they're just keep moving the goalposts except now you're gonna get bled out at a materially-higher rate.

P.S. I'm v.sorry this happened to you...You had good intentions of trying to be prudent with your kids' security at heart....This was not some greed-driven deal, which makes the nature of the scam (and those who perpetrated it) that much more disgusting. 

Edited August 7 by Muny_Tex

[Nice Guy Eddie 13507]

My only comment is that someone should not look to use a life insurance policy as a inheritance upon their passing. It's a poor return on your money. Life insurance should only make sure your current dependents are cared for and/or your burial and estate can be settled.

If you have a young family, a policy should be structured  to replace your income and maybe slightly more. If you're older and have a spouse, you may not need any life insurance since your death may not impact the income. If you're older and single, life insurance is a waste.

There used to be a life insurance commercial, maybe MetLife. It pissed me off. A older woman is helping her adult son and his family put up the groceries. The woman is talking how MetLife is making it so she can leave a little something behind to make her family's life a little more comfortable after her passing. If you want to do that, just give the premium amount to your son instead. 

My mom had a post-retirement policy where she ultimately paid 1-2x the payout via the premiums because she lived into her mid 80s. It was like gambling that she was going to die early into retirement to come out ahead. Weird bet.

Edited August 7 by Nice Guy Eddie

[TwiceHorn 31435]

I believe one of the features of most of these things, "whole life" anyway, is the ability to take a loan against the death benefit.  And the loan can be floated until death (or expiration of the coverage), where the death benefit then discharges the loan with no further liability and no loan-forgiveness taxation.

That wrinkle can be of some benefit to certain people, usually high net worth types.  

We have had this discussion before, at least in the context of "whole life" policies.

But the general rule is to avoid these in favor of plain ol' term insurance and reasonable if not wise investment in other vehicles.

[tx 3 putt 76863]

2 hours ago, DaysOff said:

Universal life is a scam. Lesson learned.

All of this. Your agent retired because they got huge payouts on the shit policies that he sold to you and many others. Isn’t Allstate considered the biggest ripoff insurance company ?  Shocked he didn’t offer you a deal on annuities 

 

Take that money and invest it yourself. 

[tomahawk dunk 321]

You might look to see if you could 1035 it into a paid up policy with a lower death benefit. 

https://www.investopedia.com/terms/s/sec1035ex.asp

[statsman 5450]

Thanks for all the comments. 
 
As I ponder this, I’ve come around to two things I believe to be true:

1. The original contract allowed Allstate to change the expected benefit (this is verified), due to a long run of low interest rates  

2. Allstate was not losing money, because of these low rates. They were investing my premiums in whatever financial instrument (or portfolio of instruments) they believed would yield the best returns. 
 
They are doing this because they can, not because they were forced to by the economy. 

[luke duke 6412]

Term life until the kids are out of school. Maybe a little longer if the wife doesn’t work. By then all your shit should be paid off and most on this board will have 7 figures in retirement accounts.