Why would interest no longer cover payments on a life insurance policy?

Answer 1

When your policy was issued, a lot of things were different. First, you were 30 years younger and Second (and more importantly here) interest rates were higher than they are today. The only thing any of us knows about the future is that it will be different than today. When insurance companies issue policies, they offer an illustration of assumed future values which show A) How your policy will perform if the insurance company credits the GUARANTEED interest rate from now on and B) How your policy will perform if the insurance company credits the CURRENT (NON-GUARANTEED) interest rate from now on. NEITHER OF THESE WILL HAPPEN. It is very unlikely that the insurance company is currently paying its guaranteed minimum interest rate at this time, and even if it is, that shouldn't go on for the life of your plan. It is just as unlikely that the rate currently being paid will stay put. Interest rates go up and down. Since we are currently crawling slowly out of the depths of 45 year lows in interest rates in this economy, it simply makes sense that your policy is paying less than "expected" when you bought this plan. Since the cost of insurance (not premium, but internal cost) goes up as you grow older, you are experiencing a "double whammy"- a policy that needs to eat more money coupled with interest rates that aren't spinning off enough interst to meet the rising cost requirements of the policy. This is happening to many people who have not had contact with their agent regularly over the life of the policy. You don't get something for nothing ... consider yourself lucky that you've had (and still have) coverage and didn't have to dig into your pocket for a long time to pay for it. If you still need the coverage - and you probably need it more now than ever - do what you must to keep it. The good news: Interest rates are beginning to rise!