Should it come with a Warning Label??
Life Insurance companies have made a concerted effort over time to maintain a high level of consumer confidence in their products. The most common effort these days is to include a guarantee on the death benefit in the policy. In short, if you pay the premium required, your policy death benefit is guaranteed for a period of years, some policies as long as age 125.
But those guarantees are built on a period of years, 20, 30 years or even longer. So a thorough understanding the length of the guarantee, and the requirements that need to be met, to keep the guarantee in place.
The requirements come in all shapes and sizes. It is our opinion these policies should come with a Warning Label, and here is why.
First, it is beyond rare that you implement a life insurance policy that remains in place until death without some type of change. With a GUL policy, any change is a bit of a wild card in retaining the policy guarantee.
Second, keeping the guarantee “requires” that you make all premium payments within the grace period, or be prepared to pay catch up. It has been suggested that using EFT to pay premium is a strong way to be certain premiums are paid on time. But if you are using a ILIT, that creates more work in premium notices.
Third, these GUL policies typically run out of cash, some as early as age 75. So that makes using cash value to pay a premium a problem, but more importantly, the policy becomes an “unsecured promise” by the insure for those years after the cash value is exhausted.
Fourth – what is the chance a 85 year old could miss a “Required” premium??
And finally IF you do miss a premium, and your policy lapses, it gives the insurance company the option to re-underwrite your coverage when you try to reinstate. It’s not unusual for medical history to develop as you age that would cause an insurance company to say NO to reinstatement, just because you missed a premium.
GUL may seem to be the perfect policy for your needs, but complete disclosure on the policy terms is crucial to a satisfying outcome.