Combating Rising Life Insurance Premiums

If you’re experiencing rising life insurance premiums, you’re not alone. 

“Insurance companies are starting to reflect lower life expectancy by charging higher premiums on life insurance,” reported Forbes magazine earlier this year.  “Group life insurance premiums were the first to reflect new rates. Premiums on term life and permanent life are also going to increase.”

This trend is hitting seniors especially hard.  One online survey found that the average life insurance quote increases by 6% between ages 25 and 30 — but escalates to an average of 86% between ages 60 and 65. Perhaps the most painful increases in life insurance premiums are the rate hikes imposed on older Americans who own an existing universal life policy.

Welcome Funds has been receiving a rising number of phone calls from concerned financial advisors seeking life insurance policy reviews and trying to help clients burdened by the premiums on a universal life policy. In many cases, the premiums have suddenly spiked and policy owners are worried that they must come up with the annual “premium due” amount on the invoice or they will surrender their coverage. 

It is important to know that there are options to reduce or even eliminate the financial burden of rising life insurance premium payments, none of which involve simply surrendering the policy without conducting any due diligence.

One easy step to take is to evaluate the policy and see if there are any unnecessary “riders” — add-on options to the base policy — that can be removed.  While this is not likely to have a massive impact on the overall premium, it could reduce it by enough to ease a policy owner’s responsibility slightly.

Another option is decreasing the death benefit on the life insurance policy. This scenario should be carefully discussed with the client’s beneficiaries if the policy is in force for estate planning purposes. In the right circumstances, such reduction can provide cash flow relief while still maintaining some level of coverage.

In addition to the above, there are four other routes to explore. 

Life Insurance Policy Withdrawals

It may be possible to withdraw limited amounts of cash from a universal life policy.  The amount available differs based on the type of policy owned and the company issuing it. The main advantage of cash-value withdrawals are that they are not taxable up to the policy basis. However, cash-value withdrawals can have consequences, such as a reduction in the death benefit, and these withdrawals are not, as referenced above, always tax-free. Moreover, withdrawals that reduce the cash surrender value could cause a policy owner’s premiums to increase to maintain the same death benefit; otherwise, the policy could lapse.

Life Insurance Policy Loans

Most universal life policies allow policy owners to borrow money from the carrier using their cash-accumulation account as collateral. Depending on the terms of the life insurance policy, the loan might be subject to interest at varying rates; the amount borrowed, which is typically not taxable, is based on the value of the policy's cash-accumulation account and the contract's terms. Payments do not need to be made on the loan, even though the outstanding loan balance might be accruing interest, however loans generally reduce a life insurance policy's death benefit, thereby decreasing the amount intended for beneficiaries.  Additionally, an unpaid loan that is accruing interest reduces the cash value, which can cause the policy to lapse if insufficient premiums are paid to maintain the death benefit.

Life Insurance Policy Surrender

A more drastic cash-out option is to cancel the life insurance policy — known as a surrender — and use the accumulated cash payout in any manner the policy owner desires; however, if the policy is surrendered during the early years of ownership, surrender fees will likely be charged by the life insurance company, reducing the cash value. These charges vary depending on how long the policy owner has held the life insurance policy. Furthermore, if the policy is surrendered for cash, the financial gain on the policy is subject to income tax. Lastly, if there is an outstanding loan balance against the policy, additional taxes could be incurred.

Life Insurance Policy Sale / Life Settlement

A creative cash-out option for consideration is a life settlement.  A life settlement is a financial transaction that enables qualified life insurance policy owners to essentially receive a cash advance on their life insurance coverage by selling it to a state licensed financial institution called a life settlement provider.  The sale of a life insurance policy is like the sale of a home or car — all rights, title and beneficial interest in the policy are transferred to the buyer, who then becomes responsible for maintenance costs (future premium payments) of the asset. The price paid for the life insurance policy, which is less than the death benefit but more than the cash surrender value, is determined by a variety of factors, including without limitation its death benefit, the associated annual premiums and the insured’s life expectancy.

Life settlements provide life insurance policy owners a safe, regulated avenue for selling their policies at prices that represent fair market value when utilizing the services of a life settlement broker. The life settlement broker, like Welcome Funds, utilizes an auction platform to maximize the sale of a life insurance policy.  The highest bid usually wins the auction.  If the life insurance policy is sold, then the policy owner eliminates the cash flow burden caused by rising premiums and can then use the proceeds to help pay for medical bills, living expenses or anything else he or she chooses.

At Welcome Funds, we specialize in assisting clients with selling their unwanted or unaffordable life insurance policies. With our innovative auction-based platform, we create competition among top licensed buyers, resulting in multiple offers for each policy. Let us help you get the highest offer for your life insurance policy!

If you would like to find out whether you or your loved one qualifies for a life settlement, please complete our quick  Life Settlement Qualifier. Our process is confidential, and there is no obligation at any time. For more information about Welcome Funds, please visit www.welcomefunds.com or call 877.227.4484.