Life insurance was a lot easier to sell in the boom times of the mid- to late 1980s, and even into the '90s, than it is today. However, it seems that many of the people who bought such coverage at that time were purchasing products they might not have fully understood, and as a result are now dealing with potentially significant financial difficulties these days.
This is a problem that is now starting to impact people who bought universal life coverage a few decades ago, according to a report from the Lebanon Democrat. These plans - many of which may not have been properly funded - are now developing a tendency to "blow up." This means that the premiums associated with the death benefit start to balloon so significantly as to become unaffordable if the person who bought the policy did not fund it properly way back when.
How does this happen?
The most obvious way in which this happens is if a person buys a UL policy years ago and then at some points stops making monthly premium payments, the report said. The policy will still exist in a lot of cases, but the cost of those premiums necessarily rises to make up for the payments they've missed, meaning that they're no longer affordable and therefore carry no benefit even if the person funded them almost all of the way toward being fully paid off in some cases.
In other cases, a person might have kept up with their premium payments but encountered different problems, the report said. For instance, a person who bought a policy for a specific amount decades ago may have paid premiums even slightly past the value of the plan, and will potentially still see them lapse if they live too long.
For instance, one case saw a woman buy a policy for $10,000 about 25 years ago, but is now facing a lapsed benefit if she lives beyond this year, the report said. This can happen because people do not fully understand the policies they're buying, which may have provisions written into them stating that they will lapse, by a certain date even if the person wants to keep the policy.
This could obviously become an even greater problem as time goes on, because people are generally living longer these days, and many Americans may not know about these expiration dates, so to speak, if they did not study their policies carefully when signing them years ago. Likewise, this could come as some rather shocking bad news if they realize that these problems could arise for them if they live too long.
This is something that life insurers may need to discuss with their older clients as time goes on, because it's an issue specifically related to policies that were particularly popular in the 1980s and '90s. Having open lines of communications with clients about their changing life insurance needs over time is a good policy anyway, but may be particularly important in these cases.