New York Department of Financial Services Acting Superintendent Linda Lacewell has issued a consumer alert that talks about hidden costs and risks in universal life insurance policies. It is her first public act since taking the helm of the agency earlier this month.
“Beware of increasing charges,” the consumer alert warns in a message that appears on the website and was tweeted Thursday by the New Department of Financial Services.
Lacewell noted that the internal charges for these policies can increase annually, and can spike in later years as a policyholder ages. These internal charges are funded by premium payments, the existing cash value of the policy and interest credits or investment performance, as with variable UL products.
Consumers need to know that their payments plus the existing cash value of the policy need to cover its expenses or they might lose coverage with a lapse, according to the alert.
In addition, premiums themselves are likely not guaranteed and could increase, the department warns, adding that cash value and benefits are often not guaranteed, either, with UL policies.
The cautionary note appears to be prompted by numerous complaints filed with the department, including complaints about cases in which policies had lapsed even though the owners had made their payments, or had not realized that an infusion of cash was required to keep the policies in effect.
Market volatility and a decline in interest rates are among the factors that have affected the policy values, the department found when consumers complained.
The department has received about 1,400 complaints from New York consumers about UL policies over the past five years, and the number of complaints is higher than for other life products, according to department figures.
The department recommended that consumers understand how UL premium payments work, as well as the flexibility UL policies can offer, to and ask about illustrations for worst-case scenarios for the products, as regulations require.
The department also suggested New Yorkers get their one free in-force illustration allowed by regulation per year. The policyholder should also ask the agent annually the amount of premiums needed to continue expected coverage based on current market and other conditions, the department said.