A universal life insurance policy gone wrong
By Michael Gray
This is a real life example of a case we worked at my company and illustrates the devastating effects of not reviewing your life insurance policy, and especially any universal life policy. The names have been changed to protect privacy.
Andrew Zathia, a 73-year-old gentleman residing in Florida called into our office a few weeks ago inquiring about life insurance. He was looking for a policy to replace his existing universal life policy. Yes, at age 73 he was looking at alternatives to his current policy.
Over 20 years ago, he purchased a $500,000 universal life policy with United of Omaha. All these years, he faithfully paid the premiums that were originally quoted at the time he applied for coverage and had not taken any policy loans or withdrawals.
Additionally, at one point a few years ago he had over $50,000 of cash value in his policy. So why was he looking at alternative options? Because of a period of significantly low interest rates (historically low), the policy did not perform as was originally projected and the policy’s cash value ($50,00 at one point) did not grow as fast as expected.
As a result, the original premiums that were projected to sustain the policy over Mr. Zathia’s lifetime were less than what the contract required, and the policy cash value was used to make up the difference. Over time, the shortfall between the cost of insurance and actual premiums paid in eventually exceeded the policy’ cash value.
All the while, Mr Zathia had no annual life insurance reviews nor did his agent notify him what was transpiring.
Since Mr. Zathia was not kept informed by his agent, nor did he stay in contact with his insurance company, and he really did not understand how his policy worked, last year he was startled when he received his annual statement from United of Omaha. It asked him to pay a significantly higher premium that he has paid all of these years or risk losing his coverage altogether. That’s right — he had no other option than to pay more or his policy would lapse.
As you can imagine, Mr Zathia was shocked, confused, upset and ultimately dismayed and left with a feeling of betrayal. He had trusted his agent and United of Omaha to provide for his family’s financial security and now was faced with a decision to let his life insurance go, pay premiums he could not afford or shop around for a new policy at age 73. Mr. Zathia found himself looking for life insurance at age 73
If you can avoid looking for life insurance beyond age 70, you certainly want to do it. When faced with the above alternatives, M.r Zathia wanted to see what he could get for new life insurance. That’s when he called our office.
Unfortunately, even though we specialize in insuring tough medical conditions, we could not help Mr. Zathia find a new policy. A few years prior he had a heart event that required a procedure to implant a pacemaker/defibrillator, which rendered him uninsurable for affordable life insurance with every company.
With much regret, we had to tell Mr. Zathia that we could not help him.
An unhappy ending for Mr. Zathia
After paying premiums into his universal life policy for over 20 years, well over $75,000 in total payments, Mr. Zathia was forced to drop his policy with no value and no financial security protection for his family. At the time he made his decision to no longer make premium payments on his existing policy and to subsequently let it lapse, his existing agent was telling him he could get new insurance. What a tragedy.
The reality is the case of Mr. Zathia is not an uncommon one. Many agents fail to provide professional service to their existing clients.
Additionally, most people are not aware of the contract language of their life insurance policies nor do they attempt to review their policies on a regular basis. You can avoid the unfortunate outcome that befell Mr. Zathia by making sure that you work with an independent insurance professional, you have a clear understanding of your life insurance contract and reviewing your life insurance policy performance annually.
If you have a universal life insurance policy that was purchased prior to the mid-1990s, you owe it to yourself and your family to get an immediate life insurance policy review.