My Mom has a Universal Life Insurance policy with Prudential. She?

Question

has had the policy for well over twenty years. Within the last week, Prudential sent her a letter informing her the universal policy was no longer valid and she would have to sign a new policy at a new rate. This sounds like they're trying to recoup monies lost in our downward spiraling economy. Does this sound legit or are they really trying to rip off an elderly woman. A representative from Prudential talked with my mother and told her the insurance industry couldn't foresee our current economic conditions and as a result, her existing policy isn't worth the paper it's written on. Please advise. P.S. She has never missed a payment.

Answer 1

Sadly this happens with many Universal Life policies.  They are illustrated at issue with two types of scenarios, one based on current assumptions and one based on guaranteed assumptions.  Then they usually give you a target premium that they assume will keep the policy in force, but that doesn't guarantee anything.  Some policies have a minimum guaranteed premium that they guarantee that if you pay it that they will keep the policy inforce no matter what but some don't.  

Since she obviously doesn't have any cash value left in the policy, maybe you should evaluate whether she actually needs the life insurance anymore.  If nobody is counting on her income anymore she probably just needs a small amount of money to pay for her burial expenses.  This could either be accomplished with a small fixed whole life policy or some kind of prepaid funeral arrangement.

If this is a large policy that she is using for estate tax purposes, then she'll probably just have to bite the bullet and pay the higher premiums or shop around for another policy.  

The company is not trying to rip her off since this is all just comes down to lower interest rates robbing the policy of cash values.  She may have originally been mislead by the agent if he guaranteed her that this policy would last forever if she just paid $X.  The agent may be trying to rip her off if he is just trying to get her to sign up for a new policy so he can get a fresh commission.  It is illegal for agents to churn policies to get new commissions so you might remind him of that and have him explain to you why this would be a good option.

Answer 2

You need to take a hard look at the documentation for the original policy.  I'm very skeptical about what she's being told.  In any case, do not let her sign up for anything new until you completely understand what is going on.  Do not simply believe everything Prudential is telling you.  Why not take you question to a financial counselor?  Find one in your area on the Dave Ramsey website.  http://www.daveramsey.com/

Answer 3

Sounds like she started a regular payment that may have been projected to work at the time it was sold, but never reviewed the policy to see if that premium was still adequate along the way.  Unless she was a paying a guaranteed premium (no UL policy from the '80s I have seen was sold this way), the policy is not guaranteed to cover her.

She should have received communications informing her that her policy was about to lapse well before one that tells her it is no longer in force.  If that's the case, there may be other options for her (including selling the policy for more than the cash value).  Prudential's strength in the 65+ market right now is underwriting specific ailments, not price.  So if she is considering replacing the policy, she may be doing herself a favor by considering other companies.

This is unfortunately not an uncommon problem.  Here is another story: http://www.councilfinancial.com/disappea...

Answer 4

Well, there are two things to watch out for.  

1.  it's in an agent's best interest, to get her to buy a new policy.  The vast majority of the commission on a life insurance policy is ONLY paid the first year.

2.  Did she interpret that letter for you, or did you read it?  I'd find it highly doubtful that the policy has been "voided out" if she's been paying it.  It's possible, however, that it cancelled for nonpay.

You can ALWAYS call your state insurance department, or Prudential directly (or your mom can) to get the real scoop on this policy.  Which, I think, you need to do.  

And if she's an elderly woman and this policy really has cancelled, it's probably NOT worth her while to buy a new policy - it will likely cost too much.  She really needs to re-evaluate her NEED for this insurance, before she thinks about buying more.

Answer 5

Universal life is very tricky. The policy is based on interest rates and what not, so when they take a dive, so does the policy. It seems that what has happened is she wasn't paying enough on the policy to keep it in force. When purchasing this policy you need a good agent. The benefit to UL is that you can choose the monthly payment, but you need to choose wisely.

For example,  pay $25 a month for my $75,000 UL. This will only pay me until age 80. I will have to increase my monthly amount in order for it to cover me any longer. With the bad economy, my $25 a month is probably only buying me until age 70 now.

Typically they will tell you they need X amount of dollars to get caught up and that the premium will now be X amount of dollars in order to keep the policy. You may want to ask them about that because now that she's older, her premium on a new policy will be outrageous, if she can even get insurance.

Answer 6

What happen to her universal life insurance is that she was probably wasn't paying enough premiums to cover the costs. So the company took her money and also used the cash value (which is suppose to be your "savings") from the policy to pay for the costs. As time goes on, the internal cost of the life insurance increases. That means more and more money is taken from the cash value, even though your mom was paying her premiums. Eventually, there would be nothing left in the cash value. So that's why her life policy was no longer valid or have no value. That is how universal life insurance works.

Knowing the facts, why would your mom want to buy another universal life policy?

Your mom should ask herself does she still need life insurance now? If she were to die someday, would her loss affect the family's financial well being? If yes, she is better off buying term insurance and when the term expires, she should ask herself again if she still needs life insurance? Most people who retire normally do not need life insurance at all because they need to save every single dollar can. But there are agents out there who prey on the elderly and there's no laws against that. I think the government should add a suitability law in the insurance industry.