I’ve started checking the surrender value of my whole life policy and have found that the amount drops $11 everyday. Why would it do that? It seems like it should be going the other way.
Are you paying premiums or are you having premiums being supplemented by the cash value? Have you taken cash out of the policy via a loan (and thus are subject to interest assessed to the cash value)?
Or, is it a universal life policy?
Paying premiums. No loans or anything like it.
Its value is your money in vs having to pay out in the future. That money in is finite and will end one day. Every day the value of that investment decreases for them as you are now one day closer to having to pay out and there is less total in left. Basically you are a commodity, and it’s value is being evaluated daily. If you can cash it out you are basically buying it back.
Whole life, not universal.
Thank you for the explanation. That makes perfect sense.
That is not how whole life insurance works at all.
Then my guess is also that it’s actually a universal whole life policy, which functions differently. You need to find the prospectus, year end statement, or give them a call.
I agree with @Munch, you may have been sold a whole life policy but got something different; universal life.
I never had to deal with this stuff, so I’m a bit confused.
In UL does the minimum premium (I.e. the amount to cover the death benefit, COI?) actually go up as the insured gets older? This seems to imply it’s a waste of time unless you become seriously unhealthy early on. I don’t imagine death benefit coverage for a 90-year-old is cheap.
I assume the selling point was that the growth in the investment portion should have taken care of the increase in the premium?
That’s exactly right. It’s a hybrid between a term policy and a whole life policy. They were designed to be front-loaded with a premium that was above the COI, and the balance would go into a cash pot earning interest, and as the COI got higher than the premiums, the balance would be pulled from the cash balance. They were super popular in the 90s when interest rates were high, and companies grossly misjudged how much they’d need to set the premium at.
I’ve reviewed my policy. Nothing in it would indicate that it’s universal. The cover page says “Whole Life Insurance Policy” and the policy description is “Prestige 10 Pay II Whole Life.” My premiums are fixed for 10 years.
I believe the “II” may stand for “Innovative Indexed”, meaning it has a cash value that is tied to an index. So the value will go up and down with the index (but never below zero growth), likely on a year-to-year mark-to-market basis.
As a whole life policy, I like the idea. Cash values on most whole life policies are based off of dividends paid to the policy from the insurance company - when the insurance company is making money, so does your policy. This takes a lot of risk out of that, and when the S&P 500 (or whatever index it’s tied to) does well, so does the policy. There’s likely a cap on the yearly growth, which helps offset the fact that indexed policies can’t have negative growth.
That all makes sense, even though the policy makes no mention of it, but all indices that I’m aware of have been going up lately while my cash surrender value has gone down exactly $11 a day for the past 2 weeks.
I’ll start tracking the other policy values as well and see if they’re changing too. I only tracked the surrender value because it was initially the highest.
Yeah, that part’s weird. Maybe a premium didn’t go through? A misapplied loan? Definitely worth a call.
Definitely agreed. The information in this thread strongly suggests that a call to the OP’s insurance agent for clarification and explanation is needed.
When I still had a mortgage, I had a policy that would pay it off in the event of my death. Since the cost of settling the mortgage was reduced every month, the sum assured was reduced in line with it.
This meant that in the early days, the insurance company could have seriously lost out, but at some point in the twenty-year term, they stood to make a profit.
When I logged into the website to check today’s balance, I noticed this note, which has probably been there all along but I hadn’t read.
Since I don’t have a loan, I assume my decreasing cash surrender value is due to the premium refund decreasing. That would explain why it’s always the same amount.
Indeed. The class-action suits are ongoing because of it.