Many universal life policies sold in the 1980s through 2000s were designed around interest rates of 7% or more that did not last, and some carriers later raised cost-of-insurance charges. Warning signs: cash value falling, a credited rate below the original illustration, premiums paid at the minimum, a letter about higher charges, policy loans, a projected lapse in an in-force illustration, or no review in years. The fix starts with an in-force illustration at current and guaranteed assumptions, then options like adding premium, reducing the death benefit, a 1035 exchange, or a sale.
We are licensed insurance brokers, not CPAs or attorneys. Treat the tax and legal points on this page as general education, and confirm them with your own CPA or attorney before acting.
On this page
Why older universal life policies get into trouble
Universal life separates the premium from the cost of coverage. You pay into an account; each month the carrier deducts the cost of insurance and expenses and credits interest. When a policy is designed with the minimum premium that keeps it going at an assumed interest rate, any shortfall in that rate, or increase in charges, compounds for decades. Cost of insurance also rises every year with age, so the account can drain fast in your 70s and 80s. Many owners only find out when they get a notice that the policy will lapse unless they pay a large catch-up premium.
The seven warning signs
- Your cash value is shrinking on the annual statement while you are still paying premiums.
- The credited rate is well below the rate in your original illustration (for example, 3% to 4% today versus 7% or 8% assumed at purchase).
- You pay the minimum or "target" premium, or you skipped premiums because the policy allowed it.
- You received a notice of increased cost-of-insurance charges. Several carriers raised charges on blocks of older policies over the past decade.
- There are outstanding policy loans accruing interest against the cash value.
- Your latest in-force illustration shows a lapse before age 95 to 100 at current assumptions, or much sooner at guaranteed assumptions.
- Nobody has reviewed it in years, or the agent who sold it is no longer in the picture.
How to check your policy
- Call the carrier (or have your broker request it) and ask for an in-force illustration at current assumptions, at guaranteed assumptions, and at a premium that carries coverage to age 100 or later.
- Ask whether the policy has a no-lapse guarantee or shadow account, and whether it is still intact.
- Get the current loan balance and interest rate.
- Note the surrender charge schedule if the policy is relatively new.
We do these reviews at no cost and will request the illustrations for you with your authorization.
What you can do
| Option | When it makes sense |
|---|---|
| Increase premiums | The coverage is still needed and the catch-up is affordable |
| Reduce the death benefit | A smaller amount still meets the goal; lowers ongoing charges |
| 1035 exchange to a new policy | You are insurable and a guaranteed universal life or other design costs less for the coverage you need; see 1035 exchanges |
| Repay loans | Loan interest is eating the account |
| Sell it (life settlement) | You are older, no longer need the coverage, and the market value exceeds the surrender value |
| Let it go, deliberately | The need is gone; check tax on any gain and outstanding loans first |
Before changing anything, make sure you understand whether the coverage still has a job. Policies bought for estate tax may be less necessary with a $15 million exemption, but some still protect a spouse or fund a trust.
Frequently asked questions
How do I know if my universal life policy is going to lapse?
Request an in-force illustration from the carrier at current and guaranteed assumptions. It shows the year the policy would run out of value if nothing changes, and the premium needed to keep it going.
Can a carrier raise charges on my universal life policy?
Within the maximums guaranteed in the contract, yes. Cost of insurance and expense charges on many universal life policies can be increased, and several carriers have done so on older blocks of business.
Is it better to surrender or exchange an old policy?
It depends on your health, age, the cash value, loans and whether you still need coverage. A 1035 exchange keeps the tax deferral and can lower costs; a surrender may create taxable gain; a life settlement can pay more than surrender for older owners.
Start your life insurance request
Tell us what the coverage is for and who it would cover. For most requests we ask for each person's date of birth and sex so Erik can prepare for the call. We do not ask health or tobacco questions in this initial request. This is a request for help, not an insurance application or a promise of coverage.
Written by Erik Moran
Erik co-owns Moran Insurance Group with Amanda Moran and handles the agency's life insurance cases, from key person and buy-sell coverage to trust-owned policies. He works alongside clients' CPAs and attorneys, who make the tax and legal calls. More about Erik.
Sources
Moran Insurance Group is a licensed insurance agency. Our brokers are not CPAs, attorneys or tax advisors, and nothing on this page is tax, legal or investment advice. Tax figures and rules reflect our understanding as of October 2026 and can change. Coverage is subject to carrier underwriting and state availability. Confirm anything tax or legal with a licensed CPA or attorney before you act on it.