A universal life policy you bought decades ago can start asking for far more than it used to. The bill climbs, the cash value drains, and one day the carrier tells you more premium is needed to keep the coverage alive.
Nothing has gone wrong with your policy. This is how universal life is built.
The cost of insurance charge
Every universal life policy carries a cost of insurance charge. It pays for the death benefit itself, separate from any cash value you have built up. That charge rises as you age. The Wisconsin Office of the Commissioner of Insurance puts it plainly: as you age, the rate of the cost of insurance charge will increase. Carriers can also raise the rate when their own expenses rise, up to the guaranteed maximum written into your contract. A policy that felt comfortable at 55 can be expensive at 75 and punishing at 85.How a level payment plan falls behind
Most universal life policies were sold with a level payment schedule built on assumptions: a projected interest rate on the cash value, and a projected cost of insurance. When the interest credited runs below the projection, or the charges run above it, your cash value stops keeping up. The same regulator says it directly: if charges increase or interest rates decrease, the cash value may not be sufficient to cover the costs of the contract over time, and additional premiums may be required later. The Wisconsin alert describes a policy issued in 1985 that was funded to last to age 100. By 2019 the same policy was projected to run out at age 80. Twenty years of coverage disappeared, and the policyholder did nothing to cause it.Your four options, and what each one costs you
Keep paying. Your coverage continues. So does an expense that will keep growing. Let it lapse. Every dollar you paid over decades is gone, and so is the death benefit. Nothing comes back to you. Surrender it. The carrier pays you the cash surrender value. On an older universal life policy drained by rising charges, that figure is often small, and sometimes zero. Sell it. A life settlement transfers your policy to a buyer for a lump sum. The buyer takes over the premiums and collects the death benefit later.Why selling usually beats surrendering
Cash surrender value is set by a formula in your contract. A settlement offer is set by what buyers are willing to bid. Those are very different numbers. A buyer prices your policy on the death benefit, the premiums needed to hold it, and your life expectancy. Competition among buyers pushes the figure up. Your carrier faces no competition at all. The policies most likely to be worth selling are the same ones most likely to be abandoned: older, expensive, and no longer protecting anyone who depends on you.What qualifies a policy
- A face amount of at least $100,000
- An insured aged 75 or older, or a serious health impairment at any age
- A policy in force for at least two years
