Highly Questionable Agent Trick

As long-time readers know, I’ve been highly critical of first-gen Universal Life policies. But, there are almost always exceptions, and our long-time client Marcus is one of those.

His plan, purchased 26 years ago at age 43, is essentially “paid up,” with $86,000 of cash value and 5% minimum guaranteed interest rate, with a net death benefit of about $336,000. He hasn’t paid premiums for many years, and it doesn’t look like he’ll need to.

So, for once, a Universal Life policy that actually works.

Which was why I was quite taken aback to receive a letter from our carrier’s Home Office that it’s being replaced. Now, there were no specifics on which Erie plan is being used, but given the circumstances, it seems certain that it’s their version of UL, which (according to a colleague who also represents Erie) tops out at a 3% minimum interest rate, a full 40% lower than his current plan’s.

Now why would an agent do this, and why would a client be foolish enough agree to it?

Well, a couple reasons come to mind:

First, perhaps this new plan incorporates additional features, such as a Long Term Care rider. My colleague informs me that this is, in fact, not currently available, so scratch potential validation #1.

Perhaps there’s a cost savings? Well, if my client has his home and auto coverage with Erie (a distinct possibility, since it’s not with our agency), then there’s an additional discount available on those two lines if he also buys a life policy.

Here’s the thing, though: his cash value means that the 2% difference represents about $1700 a year. That multi-policy discount is worth about 5%, which means that my client’s home and auto policies would have to be in excess of $34,000 (that’s thousand) a year to get close.

Un-hunh.

Now why am I so worked up? After all, I have literally zero skin in this game (we’re long past getting any commissions or residuals from this plan, and he has no other policies with us).

It’s simple, really: what’s right is right, and what’s wrong is wrong.

And this is egregious.