Has No-Lapse Universal Life Been Oversold?

Moreover, taking policy loans has the same effect as skipping premiums, assuming that cash value is actually available. On top of this, there is the additional burden of loan interest, assuming that cash value is actually available. Typically, cash value is nonexistent because of guaranteed coverage charges for the no-lapse rider, leaving little or no loan value for emergencies.

Finally, adding more premiums than originally planned offers limited flexibility for a client. This is because the death benefit is usually level in nature. An increase in cash value would extend the year in which cash value would hit zero, but offers little hope for developing supplemental funds that can be accessed for emergencies.

Alternatives to no-lapse UL

When developing a life insurance plan for a client, many things should be considered besides the death benefit. These include cash flow, financial emergencies and changing financial needs. Even the wealthiest of your clients likes to save money. Because of this, consider the efficient use of premium dollars in your solution.

We need to shift our thought process to one of offering multiple product options — even if the products considered may include higher initial costs. Clients today may appreciate a solution offering a cash value fund in addition to the protection guarantee. By offering options that include both cash accumulation and protection, a client can have an insurance plan with flexibility for unanticipated changes that may occur down the road.  So how is this shift in thinking accomplished? An answer may be to start offering multiple product options, rather than the single solution of no-lapse UL.

Other products to consider would be universal life, non-participating whole life and participating whole life. Each of these products offers different characteristics to fill a client’s financial need.  These permanent products offer cash-value accumulation and protection guarantees.  Although these products may require initial higher premiums, they provide for more long-term flexibility than a no-lapse UL product.  These products offer flexibility in different ways. For this discussion, assume there is enough money (typically at least three premiums are paid), and available cash surrender value, to meet premium payments when needed.

What was the last life insurance policy you sold? In this environment, probably a good number of financial professionals would say a universal life (UL) policy with a guaranteed death benefit.  If that was your answer, the next question is was no-lapse UL the only product considered? If yes, you may want to consider additional product options for planning flexibility and to avoid limiting your clients’ options.

When you are creating a financial plan and assume a static environment, you are risking a plan failure. On the surface, a no-lapse UL product may appear to be the perfect solution: A fixed guaranteed premium and death benefit for life — no problem, right? But what happens when a premium needs to be skipped, a client needs a short-term loan, the premium frequency needs to be changed to monthly, or a client decides to pay additional premiums? The inflexible nature of no-lapse UL may not lend itself to the changing long-term financial requirements of your clients.


Published 12/2/2010


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