ASSESS YOUR INSURANCE POLICIES
BEFORE IT’S TOO LATE
Here Today, Gone Tomorrow
Back in the eighty’s and nineties many insurance products were sold as lifetime products that once funded would be there to satisfy the desired original policy purpose. Too often the premiums were paid and the policies were “fully funded” and then filed away assuming that the required funding was satisfied. Now 20-30 years later when the intended need is getting close, insureds are finding out that years of underperforming and volatile equities as well as a low interest rate environment are causing havoc with the value of such policies. Typically sold as “universal life”, these policies were sold and backed by illustrations that showed 8-10% annual returns. However after years of underperformance, the cash values in these policies are being decimated by the conflict of increasing annual insurance cost and lower market returns, resulting in insufficient cash value to keep the policies afloat for the life expectancy of the owner.
What’s Really Going On
In many cases these policies were bought to fund a specific goal such as a specific charitable contribution or legacy need. As an example it has been reported that a small Midwestern college received 25 life insurance policies as part of a capital campaign in the 1990’s and that currently 17 of them will need significant cash infusions to stay afloat due to the underperformance experienced. The problem was so endemic that there was a class action suit that was settled due to the misleading way these policies were sold. The issue is not the polices themselves but rather the unanticipated and lack of communicated risk associated with the unrealistic performance expectations illustrated.
Be Proactive: How Telemus Can Help
If you have older life policies it is critical that you pull them out of the back of the file cabinet and have them assessed and reviewed before it is too late to do anything. The sooner one understands the economic backbone of the policy in question, the easier it is to find a funding solution to the inevitable collapse of the policy. As an independent advisor, Telemus can help you determine a course of action with respect to such policies so as to maximize the ability to still fund your goals and maintain the viability of the policy or its replacement.
