Is There Any Way to Guarantee the Death Benefit on My Cash Value Life Insurance Policy?

Hamlet's To-Be-or-Not-To-Be rendition

An issue that has always caused concern with universal life (UL) is that the death benefit is not guaranteed for the life of the policy. Insurance companies are now starting to offer policies that continue past age 95/100 and up to age 120. Most insurance policies will terminate (mature) at age 95 or 100 and cash out at that time, leaving the insured to self-insure. This leaves the client with the cash value, which often is lower than the death benefit after years of paying premiums. This payment is also reported to the IRS on Form 1099 for the amount of cash value, less the basis (typically the sum of premiums paid). This potentially widens the gap further between the cash value at that time and the death benefit of the policy.

A number of carriers are offering and/or deferring the maturity of a life insurance policy beyond age 100. There are two methods that are used—the death benefit guarantee and the no-lapse guarantee. With either method, carriers may charge nothing, expense costs only, or expense charges plus cost of insurance. At this time, there are no actuarially calculated cost-of-insurance charges for ages greater than 100.

With secondary guarantee-supported universal life, the few carriers that offer the death-benefit extension, as opposed to the cash-value extension, provide an enormous consumer benefit. In the case of our 50-year old male again, his $12,607 premium purchased $1 million of death benefit with cash values in the guaranteed column that zero out at age 71. Cash value at age 100 is obviously still zero. A number of carriers provide a death-benefit extension, though, which supports the death benefit until death actually occurs.

No-Lapse Guarantee Clause: Under a typical clause, the policy would be guaranteed to stay in-force for a number of years, as long as you have paid at least as much as the required premiums. This is called a no-lapse guarantee. Even though it contains the no-lapse guarantee, this policy may provide non-forfeiture benefits (such as cash surrender values) that are less than those that would be provided if the no-lapse guarantee were issued as a separate policy (for example, as a term policy). However, the premiums for the term policy might be higher than those for the no-lapse guarantee in this policy. When considering the purchase of this policy, you should consider the value to you of higher non-forfeiture benefits versus the level of the premiums required to keep your insurance coverage in-force.

Death Benefit Guarantee: This is a guarantee that the policy will remain in effect, provided you pay sufficient premiums and you do not take loans. This guarantee will depend on such factors as the amount and timing of premiums paid and withdrawals taken, and changes made to the policy. The premiums shown on an illustration with the death benefit guarantee, which is based on the initial basic insurance amount, will guarantee the contract will remain in effect for the periods shown, if these premiums are paid exactly on the first day of each policy year and no loans or withdrawals are taken. These premium amounts can be affected by policy changes. The premiums for this option are usually not much higher than a policy without a death benefit guarantee.

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