Questions – Universal Life

Questions - Universal Life
by Steve Goodman

CPA, MBA – President & Chief Executive Officer

Contact Steve today for more info.

Q. Do I need to determine how the policy will perform based on the guaranteed interest rates and mortality costs?

  1. Unless you are acquiring a fully guaranteed universal life policy, you need to determine how the policy will perform based on the insurance company paying you the lowest return they are required to pay and charging you the highest mortality (or term) insurance cost.

There are several reasons why you might acquire a non-guaranteed policy:

  • due to a greater build-up of cash value that exists in a guaranteed policy
  • a potentially lower premium
  • the possibility that the premium could be lowered if interest rates rise
  • because your health choices are limited.

Q. Do I need to determine how the policy will perform based on the guaranteed interest rates and the current mortality costs?

  1. Yes. The difference between the previous worst-case scenario and this scenario is that only the interest rate is being illustrated in the worst-case scenario.

Q. Do I need to determine if the insurance company has raised their mortality costs over the last few years, on which products they were raised, and by how much were they raised?

  1. Yes. Recently a few insurance companies have raised their mortality costs even though people are living longer. This is because the minimum interest rate they were required to pay was too high based on the current interest rate environment. In simple English, the insurance companies were losing money on policies issued in a higher interest rate environment. They increased mortality costs to recover their losses at policyholders’ expense.

Q. What is the target commissionable premium?

  1. This is the portion of the premium upon which the agent is paid. The commission rate is typically between 80% and 115% of the target commissionable premium.

Q. Are there lower commission products, such as a term blend, that can reduce the commissionable premium? If so, how does that affect the policy?

  1. A few insurance companies offer lower commission products or allow you to lower the commission to reduce the premium. Ask questions to determine how this impacts the policy.

Q. Do products sold outside of New York differ from those sold in New York?

  1. There are universal life products available outside of New York that is not available in New York. Sometimes, these products have lower premiums or better features and/or performance.

Q. Do some products offer a return of premium feature?

  1. There are a few universal life products that offer the ability to get a refund of premiums in year 15, 20 or 25. This is beneficial if you decide to cancel the insurance. Even if the premium is slightly higher, it may be worth it.

CPA, MBA – President & Chief Executive Officer

About Steve Goodman

For more than 30 years, Steven has provided insightful solutions to the challenges of business succession, wealth preservation and charitable planning, focusing on the needs of owners of closely held businesses and high net worth individuals.

He's been featured in the New York Times and is an accomplished speaker and has presented over the years to many organizations and professional groups on efficient business succession, estate planning issues and tax strategies. Steven is a CPA who was vice president of the Trust and Investment Division of JP Morgan Chase and a supervisor for KPMG Peat Marwick, and holds an MBA from Fordham University.

Email Steve today for the business succession planning you deserve.

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