This happen way too often. One of the main problems is how these policies are funded. There are other factors involved like interest rates and under-performance of policies. A big part of the problem is how they are sold. They are sometimes illustrated to generously or they are sold based on minimum premium which was clearly the case of the policy in the article. If the policy is not a whole life or guaranteed universal life policy, and it under performs this can happen.
If the gentleman had understood that his policy should have been reviewed annually he could have avoided the problem. A review if his policy would have shown him that he needed to add a little extra money along the way. In some policies adjusting the crediting could be a big help. Increasing his premium just 10% all those years would have increased the life of the policy substantially. If the policy was put into place during a time when interest rates were very high and then interest rates dropped, well you can imagine that the cash values in the policy would not sustain the policy. Now on a fixed type policy you may not have many options other than put in a little more money or consider what is called a 1035 exchange which is basically moving cash values from one policy to another policy might be more efficient, because not all policies are created equal.
Using the 1035 exchange provision, we recently did an evaluation for our client and found that we could get her an additional $50,000 benefit with a guarantee to age 100 --- with no cash changing hands and a simple 1035 exchange. There are many success stories here.
There are policies out there that are just not great contracts. Even those policies that would be considered good contracts, you will find that they perform better in different situations and demographics. You want the best policy for the right situation.
Most of the problem usually is the lack of understanding of these policies even by many who sell them. Life insurance contracts can be one of the most versatile financial tools available offering not only a death benefit but many living benefit as well.
Knowing this situation often occurs is why we have our Reproject program. We free of charge will run an analysis on you current life insurance policy to determine the health of the policy and is it the most efficient policy for your needs.
If you would like us to look at a life insurance policy feel free to call us at 714.377-1400 or Email: Brian@SurfCityFinancialGroup.com.