CalcFocus

How My Policy’s Administration Failed Me?

I have a universal life policy. I am the owner and insured. The policy is active, and I have access to my carrier portal where I may retrieve information about my policy and the documents pertaining to it. Online, I may perform a group of non-financial transactions, and I may perform a group of financial transactions.

The blog’s author has had the opportunity to view many policyholder sites / portals during his professional career. The narrator’s portal is typical, and, for the most part, useful and user friendly.

Following is a quick inventory of my policy site’s content:

  • Basic information about my current policy values and product features that are in force
  • Documents associated with my policy:
    • Confirmation Notices
    • Billing Notices
    • Annual Reports
  • Available non-financial transactions
    • Address change
    • e-Mail change
    • Bank account change
    • Manage beneficiaries
  • Available financial transactions
    • Single payment
    • Allocation change (not applicable for my universal life policy)
    • Transfer funds (not applicable for my universal life policy)
    • Systematic payment
    • Payment frequency change
    • Single loan request
  • Method to request a check-up with my agent

I can view my current account value, cash surrender value, and loan balance amounts. However, my review of available policy values does not provide any guide whether my current policy values are “on track” to meet the simple goal I set when I purchased my policy – I may only view the numerical amounts.

My original goal was simply to have my death benefit available to my beneficiaries regardless of my mortality age; that is, I wanted life insurance. 

My policy had good interest earnings early on and, later, I skipped several annual premium payments. At some point I borrowed against my cash value to help pay some unanticipated taxes. I never repaid this indebtedness. About ten years ago, I received a pre-lapse notification that communicated my policy would lapse if I did not pay a premiums equal to $753.66 (the blog author notes that this payment was based on carrier rules to equal the greatest deficiency during the pre-lapse period plus two monthaversaries payments grossed up for premium charges plus loan interest due through the pre-lapse period).

I paid that amount and then began paying the policy premium I was originally quoted when my policy was issued; and I repaid my policy loan. I committed to paying every premium when due (the blog author comments: the issuing carrier failed to communicate that the initially billed “target” premium was no longer a viable premium – in fact, at this later attained age, the originally quoted premium then exceeded the cost of insurance and policy fees by just a  small margin).

I just turned 59 and I observed that my policy cash surrender value was $25,137.52.  That information is useful if I am required to list my assets on a financial statement or if I am searching for an asset I might borrow against. But the cash surrender value presented on my carrier’s policyholder portal does not, in and of itself, reveal whether my policy is “on track” to meet my goals.

I can look deeper and review my last annual statement which is conveniently accessible on my site. My carrier includes a footnote on my annual statement that communicates how long my policy will remain in force under both guaranteed and current assumptions assuming continued premium payments and considering no premium payments (the blog author notes that not all universal life annual statements provide even these details; these projections are based on values as of the narrator’s last policy anniversary and they are typically presented without comment or remediation recommendation). This year the footnotes stated that my policy will lapse at attained age 71 even if I continue paying my planned premiums on-time.

This footnote was quite disconcerting. I contacted my carrier, like my annual statement advised, and asked for help. I had been paying my policy premium regularly and on-time. My policy loan was repaid. I requested to learn what premium I should pay to maintain my death benefit availability for my beneficiaries regardless of my own mortality age.

My customer service representative was very polite and promised to email me an illustration with  graphs in just over a week.

A week later, just as promised, I received a document from my carrier that included the following graph:

The document explained that even if I paid a premium much higher than what I was paying today (which the document said was the maximum level premium consistent with the life insurance statutes); I would still run out of cash sometime around my 81st birthday. I was told there was an exception to the law and that I could keep my life insurance in force so long as I paid what they called the yearly term insurance costs each year. (The blog author notes that the narrator is referring to the exception provisions of IRS Section 7702 (f) (6)). Those costs were astronomical and quickly totaled far more than the death benefit I wished my beneficiaries to receive.

I called my carrier to confirm my observations which my representative kindly did. He also remarked that it was a shame I didn’t adjust my premiums back when I was in my thirties and early forties when I first knew my plan was drifting “off track” (because of the premiums I missed; and the loans I took; and because the carrier was paying less interest than was originally supposed and the policy costs had changed several times since I bought the policy – something he referred to as nonguaranteed elements).

I decided to stop paying premiums altogether and I assume my policy will likely lapse long before my life insurance benefits are needed (at least I hope so – I hope to live a long life even If I have become uninsured).

The blog author comments: The narrative presented here is not an extreme case, but one that many owners of universal life policies are now faced with. Many other universal life policyholders are not provided specific guidance when their policies begin to drift “off-track”. When they first observe they are way “off track”, they learn that the remedy is to pay  a premium that is multiples of the originally sold premium (and they might be told that had they identified and remedied the problem sooner – the cost might have been just a few pennies or a few dollars difference from the premium originally scheduled). It is a cruel irony that the law put in place to ensure policyholders were not using their life insurance policies as tax deferred savings accounts (i.e. DEFRA) is now preventing policyholders from making payments to preserve their life insurance – bought and paid for over the years with the expectation that their family would be protected – while the policy has nearly have zero cash value.

CalcFocus provides software and services for several carriers that are instructive of a better path:

CalcFocus implements comprehensive, cloud-hosted policy administration for a private placement carrier that offers private placement variable universal life and private placement flexible premium variable annuities. What excited the team was the outstanding policyholder service the carrier expected: CalcFocus policy administration must memorialize the full plans and goals for each policyholder, and quote forward looking consequences from multiple automated inforce illustrations for every financial event contemplated  – every premium paid, every loan or other distribution taken, every time the interest earned from investment divisions deviates from the previous current interest assumption – to project values until maturity to make certain the policyholder remains on-track and on-goal. Plus, there is regular policyholder notice whenever events taken today might jeopardize policyholder goals with automated inforce illustration recommendations to reset the policy on-track.

CalcFocus worked with another carrier to implement and deploy “smart” annual statements. Based on the projected current and guaranteed policy longevities, with and without continued premium payments, the processing creates new solves, new annual report paragraphs and pages, and new policyholder options. The documents present premium increase options and face reduction options if the current longevity projected is not to maturity, including cost of waiting values if remediation is deferred. In addition, there are different options if the policy has a loan balance. For guideline premium test policies, annual report logic projects forward to detect whether the policy will lapse and become subject to IRS Section 7702 (f) (6) force-ins to keep their policies in force (the hopeless and unfair scenario the blogger found themselves in). Internal exchanges to new cash value accumulation test policies may be offered in these circumstances.