Among the scenarios for long-standing universal life policyholders to consider, Santolli cites the option of maintaining the original premium over a specified number of years at the current crediting rate, recalculating a premium that would maintain the policy for the original duration but at the current crediting rate, recalculating the number of payment years necessary for the policy to last the original duration at the present crediting rate, and recalculating the “face amount” (i.e., the death benefit) that can be supported by the original premium for the original duration at the current crediting rate.

Treat Your Insurance Portfolio Like Your Investment Portfolio

“Everyone’s situation is different,” says Santolli. “The best advice always is for clients to treat their insurance like they treat their investments, with regular monitoring and reviews. If you can check your investment portfolio every day, and sometimes several times a day, is it unreasonable to review insurance policies on a quarterly basis? If clients did this, the number of distressed policies would be minimal. … Clients and brokers need to do a better job.”

Advisors can help their customers fashion a customized portfolio of coverage. “They can increase the funding or capitalization based on more realistic assumptions or, if they are healthy, they can exchange for newer products with better guarantees,” says Herbert Daroff, an attorney and certified financial planner at Baystate Financial Planning in Boston.

“With proper assumptions and guarantees, there are very good products to choose from,” he adds, noting that exchanging like insurance policies can be done tax-free under the Internal Revenue Code’s Section 1035.

Universal Life Alternatives

Over the years, carriers have designed a number of universal life variations, such as guaranteed universal life (a.k.a. “no lapse” or “secondary guarantee universal life,”) which has a fixed premium; variable universal life (VUL), which uses stock and bond funds in place of savings accounts; and indexed universal life (IUL), which allows policyholders to divide their cash account between a fixed account and an equity index such as the S&P 500.

Valmark’s Rybka notes that guaranteed universal life policies “protect the consumer from the interest rate risk” and are often “the best option for someone looking for the lowest premium outlay. … It ends up being like term insurance to age 120.”

Yet there are also cases where he favors variable universal life. In fact, he says that nearly 65% of the premiums his firm places are in some form of VUL. “The most popular form of variable life for us is a variable policy with secondary guarantees,” Rybka explains. “With this product type, the client gets both the benefit of being in equities long term and a premium that cannot go up no matter how the market performs.”

Indexed universal life, on the other hand, differs from variable universal life in several key ways. Indexed policies tend to offer a crediting minimum—say 3%—and a crediting ceiling or cap. This reduces volatility, but it also means that if the index rises 20% and your indexed universal life has an upside limit of 10%, your cash account will gain only 10%.