In general terms, a policy owner’s decision to cancel a universal life insurance policy arises from one of the following:
- The owner feels that the policy is underperforming projections.
- Scheduled premium increases make the coverage unaffordable.
- The needs for which the policy was purchased have changed or no longer exist.
- To qualify for Medicaid, life insurance is non qualified asset
Consumer’s thinking on life insurance has changed dramatically over the past 50 years. Policy holders typically looked at a life insurance policy as an important element of protection that had to be kept in-force until their death. Life insurance loans were only taken on a policy if all other alternatives were exhausted. To that end, policies were rarely surrendered. Everything changed in the 1980’s when universal life insurance hit the street. Interest rates were historically high during the eighties. Many whole life insurance policy holders replaced their policies with universal life insurance policies to benefit from a higher projected return. For the most part that is when life insurance was started being viewed as an asset; an asset that had to be managed to provide maximum policy holder value.
Interest rates have declined and many UL policies never came close to realizing the cash values depicted on the illustrations at the time of the sale. Universal Life put that interest rate risk on the consumer. There are now some UL’s that have a guaranteed death benefit if the stipulated premiums are met, but that overall failure to even come close to projections have prompted many advisers to have those policies valued in the secondary market prior to surrender.