secondary market watch

Wall Street Journal: Insurance carriers raising universal life insurance rates


January 14,16 | 12:00 am

Americans holding universal life insurance policies may get an unpleasant surprise from their insurers in the next few months, if they haven’t already. According to the Wall Street Journal, many major insurers are raising the premiums on universal life insurance policies that they sold as many as 20 or 30 years ago.

This means that people past retirement age could see premium increases that range from 5-6 percent to as high as 200 percent, depending on the amount of their coverage.

What’s prompted the change is the fact that interest rates have been low for the past several years, which has impacted investment income. Although insurers have a contractual right to raise costs on policies, it’s rarely invoked.

However, the article continues, many expect other insurers to do the same, which means rates could rise for thousands or millions of people holding various types of policies.

For individuals with universal life insurance policies with coverage amounts around $250,000, the extra charges come to around $150 a year, but for those with “jumbo” or multimillion dollar policies those charges can reach six figures.

Unfortunately, the insured has no recourse – insurance companies are legally granted the rights to raise their rates, so those affected have to pay if they want to keep the policy active.

This unexpected increase in the insurance premiums charges comes at a time when policy owners have already had their savings and investments battered by the economy. Many policy owners will be faced with the reality of having to reevaluate their life insurance coverage in light of the increased cost. 

Most policy owners will need the support of their financial planner to help them sort it all out and examine the best alternatives to deal with this surprise. 

Some policy owners may just decide to surrender the policy for the cash value – in this case, the insured will get some money out of the policy, but it will be much, much less than the policy’s face value.

One option that you may not have considered for your clients is to sell the policy on the Secondary Market. Selling the policy in a life settlement can result in your client receiving a much larger amount of money than they would simply by forfeiting the policy for its cash value.

What happens in a life settlement is that a policy owner, working through their financial advisor and a life settlement broker, sells his or her policy to institutional investors. The life settlement broker represents the policy owner in the negotiations, while life settlement providers have a fiduciary responsibility to the institutional investors to buy the policy at the lowest rate possible.  Many policy owners aren’t aware of this distinction and are taken advantage of by the buyers if they aren’t represented by a life settlement broker.

Since the policy is being sold on the market, brokers can shop the policy around to find the best possible offer. Often, that offer can be many, many times greater than the cash surrender value. For example, one of Ashar’s clients had a universal life policy with a face value of $2,500,000. The cash surrender value was $55,000. After shopping the policy, Ashar was able to facilitate its sale for $450,000 – a much higher value.

When considering a life settlement, there are several things you can do to ensure that your client truly receives the best possible offer.

The very first step, of course, is to see whether the policy might qualify for a life settlement. The easiest way to do this is to take Ashar’s quick, seven-question policy quiz. You’ll answer simple questions about the age, gender, and medical condition of the insured and give some basic financial details of the policy. This will tell you whether the policy is likely, highly likely, or unlikely to qualify for a life settlement solution.

Once you have determined you may have a case and have conferred with Ashar, we will work with you and your client to make sure you receive the best possible offer, and will continue guiding you through the process until the sale is finalized and your client’s lump sum payment has been received.

Do you have a client who is interested in avoiding higher premiums by doing a life settlement? Contact Ashar today!

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