Similarly, Variable Universal Life (VUL) policies allocates a portion of premium payments to a separate sub-account that can be used to grow in value through investments. These types of policies terminate or lapses, if at any time the net cash surrender value is insufficient to pay the monthly cost deductions. Upon termination of the policy, the remaining cash value becomes worthless.
Investor and policy holders are often given projections of premium payments over time that are stable allowing the holder to know what the cost and terms of the policies are. Now thousands of universal life policyholders have been informed that their insurers are using the fine print of their contracts to significantly increase what was supposed to be level premiums. These increases may be multiple times more than what the insured had bargained for.
In one example cited, an 82-year-old retiree reported that his premiums for three universal life policies had more than doubled to $30,000 a year for a policy with a $500,000 death benefit after 30 years of ontime payments.
So why is this happening? According to life insurers its about interest rates. Interest rates began to decline in the 1980s and after the 2008 recession went to zero as the Federal Reserve tried to revive the economy. But while low interest rates are good for stimulating the economy its bad for life insurers who have to invest prudently in order to make money on their assumption tables.
Whatever the reason it is unlikely that this possibility was explained to investors before agreeing to make this long term commitment to obtain these policies. Given the costs involved in purchasing universal life insurance and VULs, brokers must be careful to ensure that the recommendation to invest in VULs is suitable for the client. For example, if a policy is too expensive for the client to continue to make premium contributions to the policy could lapse over time.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.