The original intent of the development of universal life insurance (UL) was to offer an integrated planning product as an alternative to “buy term and invest the difference.” UL provided this alternative with the tax favored treatment of conventional permanent life insurance with an interest rate crediting method that was very popular in the 1980s high interest rate environment.
Insurance Advisor, Lordship Insurance Services, California
Originally there was whole life insurance (steady payments each month along with cash value increasing) and term insurance (strictly insurance protection only). At one time there were insurance companies focusing on "buy term and invest the difference" which was an attempt to capitalize on the lower cost of term insurance and yet having cash values growing at market rates. Univeral Life Insurance is a combintation of the two uniting lower cost term insurance with an internal vehicle that will grow invested cash at various interest rates. It has its place in the insurance world.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
I think it was created to solve some very real problems with life insurance at the time, which was in the 70s and 80s.
Up to that point whole life insurance was the only permanent product available. This product can be expensive because of the strong guarantees it provides. Many people would be willing to pay less for weaker guarantees, and so that makes the product uncompetitive.
Whole life is also a fixed premium product. Even if you have deviations in cash flow, you have to stick to the payment schedule in order to retain your coverage.
That can be an obstacle for people who fund their premium out of business proceeds, which can go up and down.
One of the best revisions to this product has been the recent inclusion of a lifetime guarantee. You can basically lock into rates for the rest of your life. It won’t develop much cash, but it really solves the problem of paying the lowest premium on a guaranteed basis forever.
In this way kind of functions as a permanent term insurance. Comparatively low rates, but no risk of renewing at a crazy-high rate.
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Up to that point whole life insurance was the only permanent product available. This product can be expensive because of the strong guarantees it provides. Many people would be willing to pay less for weaker guarantees, and so that makes the product uncompetitive.
Whole life is also a fixed premium product. Even if you have deviations in cash flow, you have to stick to the payment schedule in order to retain your coverage.
That can be an obstacle for people who fund their premium out of business proceeds, which can go up and down.
One of the best revisions to this product has been the recent inclusion of a lifetime guarantee. You can basically lock into rates for the rest of your life. It won’t develop much cash, but it really solves the problem of paying the lowest premium on a guaranteed basis forever.
In this way kind of functions as a permanent term insurance. Comparatively low rates, but no risk of renewing at a crazy-high rate.