Existing coverage
Your universal life policy may lapse. What to do before you sign anything
If your universal life policy may lapse, start with the insurer’s current records and an in-force illustration, not a surrender form or a replacement application.
Find out what’s causing the shortfall, then compare what each option would do to your coverage, your cost and your taxes.
Who this is for
- Policyowners who received a lapse warning, grace-period notice or a request for more premium
- People who don’t understand their annual statement
- Families who want to know if an old policy will still be there when it’s needed
Why universal life policies run short
Universal life is flexible: premiums go into the policy, interest is credited, and monthly charges come out. If credited interest has been lower than originally assumed, or charges rise as the insured ages, the policy value can drain until there isn’t enough to cover the charges.
That doesn’t mean every policy from a given decade is defective. The cause is in your contract and your policy ledger, which is why the review starts there.
An in-force illustration shows where the policy is heading
An in-force illustration is the insurer’s projection of your policy from today forward, using current values and assumptions. You can ask for versions that test different premiums or face amounts.
Illustrations are not guarantees. Compare the guaranteed column with the current-assumption column, and ask in writing about any no-lapse guarantee and its conditions.
The options, and the question each one answers
| Option | Question to answer |
|---|---|
| Keep it as is | Does current funding carry the coverage as long as you need it? |
| Pay more premium | What does the insurer illustrate at different payment levels? |
| Reduce the death benefit or features | What protection is lost, and how much does the cost drop? |
| Exchange or replace | Is new underwriting required? What charges or provisions reset? |
| Surrender or let it lapse | What ends, and what are the tax consequences (especially with a loan)? |
| Sell it (life settlement) | Is there a properly licensed settlement provider, and does it make sense? |
A life settlement is a separate, regulated transaction handled by licensed settlement providers. Kevin Brown Insurance Agency does not broker settlements.
Replacement is a regulated decision, not a quick switch
Replacing a life policy comes with required disclosures and comparisons in New Jersey. Never cancel the old policy until the new one is issued, accepted and in force.
Request this from your insurer before the review
Most of it is a single phone call or written request to the carrier’s customer service.
| Document | Why it matters |
|---|---|
| Complete contract, riders and amendments | Shows what is guaranteed and what isn’t |
| Latest statement and any lapse or grace notice | Sets the real deadline |
| Premium history | Shows how the policy has been funded |
| Cash value, surrender value and loan balance | Shows what you’d walk away with and what a lapse could trigger |
| Current and guaranteed in-force illustrations | Projects the policy forward under both bases |
| Illustrations at different premiums and face amounts | Lets you compare “pay more” and “reduce coverage” |
| No-lapse guarantee terms, if any | Some guarantees depend on a payment schedule |
| Cost basis | Needed to understand tax on surrender or lapse |
What to bring to the review
- Everything in the table above that you’ve received so far
- The insurer’s letter that prompted the review
- Who the policy is meant to protect today and for how long
- Any collateral assignment or trust ownership on the policy
Mistakes that cost people later
- × Waiting until the end of the grace period to act.
- × Treating a current-assumption illustration as a guarantee.
- × Assuming an exchange avoids medical underwriting.
- × Ignoring an outstanding policy loan (a lapse with a loan can create a tax bill).
- × Cancelling the old policy before the replacement is in force.
Questions people ask
Why is my universal life policy running out of money?+
Usually because credited interest has been lower than originally projected and the monthly cost of insurance rises with age. Your contract and ledger show the actual cause.
What is an in-force illustration?+
A projection from the insurer of how your existing policy will perform from today, under guaranteed and current assumptions. Ask for one before deciding anything.
Should I pay more or reduce the death benefit?+
It depends on how long you need the coverage and what each option costs. Ask the insurer to illustrate both, then compare them side by side.
Can I exchange the policy without another medical exam?+
Don’t assume so. A new policy generally requires new underwriting, and the insured’s health today matters.
What happens if I let a policy with a loan lapse?+
The loan is paid from the policy value and the coverage ends. Depending on your cost basis, that can create taxable income. Get the numbers from the insurer and your CPA first.
Could selling the policy be an option?+
Sometimes. A life settlement is a separate, regulated transaction handled by licensed settlement providers. We can tell you whether it may be worth exploring, but we don’t broker settlements.
Start a Life Planning Review
Tell Kevin what you need the coverage to accomplish. It takes a few minutes, there are no health questions online, and existing policies and documents are reviewed through a secure process.
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Kevin Brown, licensed New Jersey insurance producer (#3003694894)
Kevin Brown Insurance Agency, South Plainfield, NJ. You work with Kevin directly on every life case. Updated November 2026.
Coverage, policy features, premiums and underwriting requirements depend on the insurer, product, applicant and state availability. Approval is not guaranteed. Illustrations are not promises of future performance. Kevin Brown Insurance Agency does not provide medical, legal or tax advice. Consult your attorney or CPA about your circumstances.