Ramesh Sarva Circular: Switch Whole Life Insurance to Universal Life

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You have a ‘Qualified Employee Benefit Plan’. Before 1998 all policies written were ‘Whole Life Policies’. After five to seven year premium payments, the policy abbreviated. The insurance companies typically invested the premium moneys in interest bearing instruments like 30 year mortgage bonds. At the end of the year, the profit from such earnings was returned to policy holders in the form of ‘Dividend’. The accumulated dividends in the policy are used to pay future annual premiums. This was to continue perpetually until death. ‘You never have to pay another premium.’

As we all know, the interest rates plummeted with the recession of 2007. Hence, there are no sufficient dividends added to your policy currently since 2008. The dividend pools have dried up and clients are being asked to start paying more premiums.

In late 1990’s the ‘Universal Life Policies’ were introduced. Once again, the accumulated interest is invested in “short Term” money market securities. While whole life policy tends to build larger cash value over longer periods, Universal Life attempts to guarantee death benefit long periods of time, almost until age 121. Average U.S. Male Non-Smoker is expected to live to age 84 per 2010 Census.

The very purpose of this letter is to alert you to the fact: although your whole life policy has abbreviated, at the current interest rates, your policy will require new premium payments from you. Therefore, the suggestion is, to convert your whole life policy into Universal Life Policy and have a “Guaranteed Death Benefit”. This circular refers to only people who have insurance written prior to 1998, not for those who already have a Universal Life Policy.

I prefer a Guaranteed Death Benefit over projected cash value policies. I will ask Gaurang Parikh to contact you and help you out. Regards.


Ramesh Sarva

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