Question: In December 1990, I purchased a universal life policy. The salesperson told me that it would generate positive unit growth. My agent performed a questionable transaction. I asked for it to be reversed. When my accountant enquired about the status of the policy, we discovered that the unit value was negative. Since then, I have not been able to get the agent to tell me exactly where the unit value disappeared to. All I have heard was that the premium would have to be paid until my 99th birthday. I am now 70 years old. I am unable to pay the premium of $6,684.48 any longer. Can you please help me to solve this problem or point me to someone who can? I do not want to close my investment.

sigismond.mc@live.com.

Answer: I sent a copy of your email to the head of the insurance company. There were several reasons for this. Issues like yours, with a history of nearly 20 years, are best understood and resolved in the context of information in the policy contract. The details you sent me were not enough for me to form an opinion about the whereabouts of your investment. Universal life insurance policies are more complicated than whole-life policies. It would have been improper for me to make comments about your problem in a newspaper without first inviting your insurer to conduct an enquiry and to offer their own comments.

The response I received was lengthy and quick. What follows is an unedited part of their comments:

"A review of our policy records reveal that ... the policy was issued under the cover of our Universal Life Plan. This Universal Life Policy is a unit-linked product with an automatic inflation linked feature of both sum insured and the premiums. A feature of this plan is a mortality charge (cost of insurance) which is a required monthly charge for the maintenance of the coverage on this plan. This mortality cost is deducted from the monthly basic premium before the respective percentage is allocated to purchase units, as outlined by section 2 of the policy contract.

annual mortality charge increase

"Please note that this mortality charge increases on an annual basis in accordance with the attained age of the insured. An audit of our records in 2002 had revealed that ... the mortality cost had come to exceed his premium payments. Consequently, there was no allocation to his investments resulting in his fund value becoming negative.

"According to section 2(h) of the policy contract, whenever the fund value is reduced to nil or becomes negative, the policy should terminate. However, instead of terminating ... the policy we communicated with him (you) in writing on the 23rd of April 2002 advising him of our findings, offering to write off this negative balance on his policy and presented him with some options to facilitate the maintenance of his valuable life coverage. However, we were not in receipt of a response ... regarding those options presented to him. Therefore, another communication was sent on the 18th of October 2002 advising him of a further decision by the company to allow the policy to continue throughout his lifetime with the same amount of coverage and premium rate. However, the investment premium would no longer have been a feature of his policy, as that would have necessitated a significant increase in the premium based on the fact that his mortality cost had considerably surpassed his premium payments and his fund value had already gone negative. We also wrote off the negative balance that was reflected on the policy at that time."

These comments do not provide a complete picture. My bible, written by Joseph M. Belth, (Life Insurance: A Consumer's Handbook) offers other clues. It says (pages 87-88) that "the marketing of universal life is characterised by heavy emphasis on what appears to be high rates of interest ... these rates are suspect for at least two reasons ... they are gross interest rates that do not reflect any portion of the expense charges built into the policy. Those attractive interest rates will not necessarily be paid. They are not guaranteed ... there is no guarantee that in any given future year, the insurance company will use for long-time policyowners the same gross interest rates used in sales illustrations shown to prospective buyers in that year" (my emphasis).

understanding the complexities

I have also looked at some of the literature that is supposed to help consumers like you understand the complexities of universal life contracts. Frankly, I fail to understand how the regulators ever gave permission for it to be used in a country like ours where only few persons hold doctoral degrees in finance, actuarial science, accounting or economics.

I am very sorry but your investment appears to have gone down a deep, dark hole, never to return.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem, write to The Business Editor or contact Mr. Stephens directly at aegis@cwjamaica.com. You can also send him a text (SMS) message at 812-7233.