Anybody see what’s going on with older universal life insurance policies? There was a recent article in the Wall Street Journal.
It’s really a shame. In the 1980s and 1990s interest rates were much higher than they are today. The sales illustrations used to sell the policies assumed that they would stay high. They didn’t. People who bought policies are having a hard time because interest rates have been a lot lower, especially the last 9-10 years. People have to pay a lot more than they thought they would, just to keep policies in force. Even if people reduce their death benefits, as some people are doing, their premiums are still rising.
Things have really changed, and it shows you that you need to plan and then continually monitor and sometimes adjust your plan.
You need to look at the underlying assumptions of the plan. Sometimes they’re unnecessarily optimistic or pessimistic, especially when they are made at times that are far from the norm. It’s a common mistake and easy to make. Interest rates were high in those days. Likewise, if someone made a product a few years ago assuming interest rates were going to stay near 0% indefinitely, there would be problems with those assumptions too.
Don’t think that the future is going to be like the recent past. Recency Bias is something that we can all fall for, but it’s a trap. Sometimes it works fine, but more often it doesn’t.
You can’t assume that things in the future are going to be the way they are today, or the way they’ve been recently. Especially if things are outside the normal ranges. If interest rates are high or low, you can’t assume that they’re going be the same three or five years down the road, or for the rest of your life as in the life insurance illustrations.
If the stock market is charging ahead or going down the tubes, at some point, that will change. Nothing lasts forever.
Mike Garry, Yardley Wealth Management. We are a fiduciary, fee-only financial planning, and wealth management firm in Newtown, Pennsylvania. That’s in Bucks County. If you’d like to talk about this or anything else, please reach out: 267-573-1019, [email protected] or @michaeljgarry
