Universal Life…Is an Insurance Audit Timely?
If you own a Universal Life policy — especially an Indexed Universal Life (IUL) — there is a good chance it is not performing the way you were shown when you bought it. Persistently low interest rates and volatile markets have quietly eroded the mechanics that these policies depend on, and many policyholders are heading toward a reckoning they don't see coming.
What's Happening Inside Your Policy
IUL policies have several moving parts that the issuer can adjust — and typically will adjust in their favor over time:
- Hedging costs: Insurance companies hedge the index exposure inside your policy. Those hedging costs escalate and get passed to you as internal charges that reduce performance.
- Adjustable participation caps: The cap on how much of a market index's gain you can receive can be lowered unilaterally by the insurer. A policy illustrated at a 12% cap might now have a 10% cap — and that reduction can be made without your input.
- Cash value invasion: When internal charges exceed your premium payments, the insurer accesses your cash value to cover the difference. Your principal erodes without any notice.
- Premium allocation shift: As you age, a smaller percentage of each premium goes toward cash accumulation and a larger percentage goes toward the cost of insurance and fees.
The Combination Is Dangerous
Any one of these factors alone raises the risk of policy failure. Combined — escalating costs, reduced caps, cash value erosion — the probability of policy lapse increases dramatically. Some policyholders have received requests for significant cash infusions just to keep their coverage in force. Others have seen policies collapse with no warning.
Get an Insurance Audit
If you own a Universal Life policy, I strongly recommend having it reviewed by a professional who understands these structural pitfalls — not the agent who sold it to you, and not the insurance company that issued it. An independent insurance audit can reveal the current trajectory of your policy and whether action is needed before it's too late.
If you'd like a review, reach out. I can help you understand what you have and whether there are better options.