Written By — David Shafer
A potential client this week asked me some important questions about the flexibility of the equity indexed universal life insurance policy. He asked me, “What would happen if they ran into financial difficulty down the road and wanted to skip some premium payments?” Universal life insurance has much more built-in flexibility than the old whole life insurance policies. If you run into financial difficulties you have several options.
1. Since I structure my policies in a way that minimizes the life insurance component, you could choose to pay a minimal amount that would cover the insurance costs and other costs which, if your are beyond the first 10 years of the policy, would be less than 5% of the planned premium [less than 25% if within the first 10 years]. You could continue this until your financial situation gets healthy again.
2. You could just stop making premium payments if you are several years into the policy because you have some cash value built up, which would cover the policy costs. Later you could catch up by making larger premium payments.
3. If you were over five years into the policy you would have built up enough cash value that would allow you to access your cash value via a policy loan and use that to make premium payments and have additional cash to make other payments like a mortgage. This reserve of cash is accessed free of penalties. Then when you get financially healthy again you can pay your policy back to get on schedule for your retirement.
*One note. Loss of job is the most common financial malady, but disability is second most common. If you are on a monthly premium then I probably suggested you add a rider, which would pay the premium while you are disabled. This rider is cheap and can protect your retirement!
As you can see there is flexibility built into the EIUL. Proper planning requires this flexibility and EIULs deliver it.
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