Unless you live under a rock, you should be aware that we have had years of low interest rates. But, if you own Universal or Whole Life insurance, you should also look into how they have been impacted.

When these policies were sold in the 1980’s and 90’s, agents were showing 8-10% crediting or dividend rates which many buyers did not understand.

Insurance companies had to eventually reduce crediting and dividend rates when yields in their own investment portfolio dropped. Many experts said that policyholders were not adequately informed that they would need to increase their premium payments. Annual statements rarely disclosed it and the only way a policyholder could see the impact was if they proactively contacted the insurance company to request an updated illustration.

The policyholders most affected were the middle class. The rich have high priced trustees managing their finances who knew how to deal with the dropping interest rates by swapping policies out for cheaper ones.

Some experts fault insurance companies for not having searched their policyholders years ago to identify those affected by low rates. Insurance companies were also faulted for having a self interest not to inform them: if those policies lapsed, then the death benefit would never be paid.

Will it get worse? Yes. Interest rates are still low. If and  when they do begin to move there will be a lag between their movement and the positive impact on older policies. If you are one of these policyholders, are healthy and know where to look, you should consider a life insurance 1035 exchange. This type of exchange could move you into a more cost effective policy.

If you do, use an expert that understands and specializes in the 1035 exchange life insurance market.