The Rider That Outlived the Need
Daniel, age 52, owns a universal life policy with a $250,000 death benefit and a $60,000 cash value. He has been paying the planned premium of $3,000 annually, but for three years he has skipped payments and let the policy's internal cost of insurance erode the cash value. The current cash surrender value is $9,200 and the monthly cost of insurance plus expense charges is $410. Daniel now wants to add a long-term-care rider and increase the death benefit to $400,000 without new underwriting. He also asks whether he can simply stop paying and keep the death benefit in force.
1. Assess whether Daniel's request to increase the death benefit without underwriting is feasible and what constraints apply.
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An increase in the specified amount on a UL policy is generally treated as new insurance and requires evidence of insurability; insurers rarely allow a material face increase without underwriting. Adding an LTC rider is also subject to eligibility rules and may require health questions or a full application. The existing cash value is far too thin to support the current death benefit for long, let alone a larger one, so any increase would raise the cost of insurance and accelerate lapse risk. Daniel should expect underwriting, and the insurer may decline or rate the increase.
2. How long can the policy stay in force if Daniel stops paying, and what should he consider?
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With $9,200 of cash value against $410 monthly deductions, the policy can cover roughly 22 months of charges before the cash value is exhausted, assuming no growth and stable charges. That is the no-lapse horizon under current assumptions. He should consider reducing the death benefit to lower the cost of insurance, paying at least the minimum to preserve the contract, or surrendering for the cash value. He should also weigh surrender charges and the tax treatment of any gain over basis if he surrenders.