So in the 40 years of writing Life Insurance policies I have lived from Whole Life, to Universal Life, to Variable, and now Indexed and Guaranteed Life (GUL) policies. I have always investigated how the life contract works, both today and into the future. That investigation has peaked first with a mutual insurance companies failure to pay a dividend on an 85 year old’s contract, and even more so with GUL.
Guaranteed Life contracts provide a company sponsored guarantee that if you pay the policy premium on time (not early or late), the death benefit is guaranteed to be paid.
But what happens to the guarantee if you are late or miss a premium?
This concern led me to a conversation with a product actuary with a major publicly traded insurer. I asked that question!
Using an example, if a healthy 35 year old, implemented a GUL contract the premium would be < 7,000 per year for life. But the mortality cost for the insured is $125,000 (not a typo) at age 85, how does that guarantee work? And then if they are late, what is the catch up premium?
I was advised that the policy has a “Shadow Account” that is running in the policy that determines the catch up cost. Is this the CIA I am talking to? Was my initial response.
The GUL type Life policy has great value as a death benefit with little concern about the investment performance but, only if premium is paid in the grace period when it falls due. If you miss or are late, the shadow account is your guide.