It seems there's no end to the bad news in our industry as it relates to increased COI/expense charges for universal life insurance policies that were sold by SOME companies. Lawsuits are popping up and embarrassing company practices are being revealed.
First, let's get a few things on the table…
Yes, within every universal life contract, the company has the right to increase charges within certain limits. There are contractually guaranteed caps set forth in the policy.
Are the problems that are being created for these policyholders a result of the increased charges or are the problems caused by chronically underfunded policies?
And before I get tons of hate mail–I'm not absolving bad behavior from insurance companies.
In a recent court filing against Transamerica (relating to increased charges in UL contracts), there are allegations of subverting agents to talk directly with policyholders (not something insurance companies ever want to do normally), withholding in-force illustrations (and/or representing a truly terrible outlook for the policies in an effort to coerce policyholders to surrender their contracts), and setting up separate phone lines to “deal” with these policyholders.
All bad, no excuses (if it's true).
However, as we've discussed over and over…universal life insurance (especially older policies that were sold with current interest rates that were much higher than anything the policies are actually earning today) is a product that needs to be managed. It's not a set it and forget it sort of product.
In the many examples of collapsing universal life insurance policies we've seen, all could have been saved by slight increases in premiums paid over the years. Of course the problem is that many people have no competent resource to manage their policy and they don't know there's a problem until there's a big problem that's compounded over an extended period of time.
The industry needs to figure out a way to do better. Life insurance companies need to do better. When they (life insurance companies) removed themselves from the distribution, they seem to have thought they removed themselves from the management/service side of the equation.
That attitude is proving to be shortsighted and foolish.