Low Interest Rates Require a Performance Review of Your Insurance Policies

forefront wealth planning life insurance article

by Richard Yuran

Insurance Specialist,  Advisors Capital Planning, LLC

Interest rates have a direct and indirect impact on life insurance companies, their product offerings, and existing (“inforce”) policies. Most life insurance products with declared dividend or interest rates are illustrated at the interest rate in effect at the time the illustration is prepared. When these rates are not maintained over time, they can cause insurance policies to underperform compared to original assumptions.

Interest rates inside your universal life insurance policy may have dropped. Dividends on your whole life policy may have been lowered. If you were expecting a specific cash value in the future, say for your retirement, you may not meet your target. If you were expecting to stop paying premiums at some point in the future, you may find that you reach that point and still have to pay premiums. If you were expecting your death benefit to last forever, IT MAY NOT.

Policy owners should consider proactive steps to mitigate the impact of further crediting rate reductions. Annual in-force policy reviews are critical—in-force illustrations on policies should be run with lower rate of return assumptions to stress test the policy and to determine if additional premium payments or other corrective actions are advisable.

Life insurance products are some of the most complex financial vehicles available to the general public. The mechanics of the various product structures operate very differently and must be carefully examined. Considering the product complexities, it is not advisable to ignore or to attempt to self-diagnose the problems and potential solutions.  ACM Wealth provides policy reviews and maintains the expertise to assist you with your life insurance and long term care needs. Please reach out to your advisor with any questions or concerns you may have.