Starters - Why is Universal Life Insurance sometimes called Whole or Permanent?
- Universal Life Insurance Model Regulation
- Universal Life as Adjustable Life (Walter Chapin's Version)
- Company Taxation - 818(c)
- That is definitely an important consideration.
- Many companies are selling these plans <Universal Life> side by side with permanent insurance plans.
-- MR. SIBIGTROTH
1979 - FUTURE TRENDS AND CURRENT DEVELOPMENTS IN INDIVIDUAL LIFE PRODUCTS, Society of Actuaries - 24p
1. Universal Life Insurance Model Regulation
- The drafters chose a whole life initial expense allowance for several reasons.
- Although highly flexible, universal life insurance is generally considered a permanent life insurance plan.
- Most companies encourage a premium level which will provide lifetime insurance protection.
- Every universal life insurance policy of which the drafters are aware has a “net level premium” that could be computed which would guarantee permanent protection.
- <Bonk: Is this true anymore? ie. Guaranteed Maturity Premium>
- As a result, it is expected that most universal life insurance policies will be sold as permanent plans. (p5)
- <Bonk: Is this true anymore? ie. "r-ratio"
- The letter “r” is equal to one, unless the policy is a flexible premium policy and the policy value is less than the guaranteed maturity fund, in which case “r” is the ratio of the policy value to the guaranteed maturity fund.
- The guaranteed maturity fund at any duration is that amount which, together with future guaranteed maturity premiums, will mature the policy based on all policy guarantees at issue.
- <Bonk: Is this true anymore? ie. "r-ratio"
<Bonk: The Law seems to think they are "Permanent Plans," but perhaps not for the same reason as the Universal Life Insurance Model Regulation expected when written.>
Example: 2010 - Maloof v John Hancock - Alabama Supreme Court Opinion - 39p
- (p5) - After receiving these notices, John <policyholder> contacted Glasgow <agent>, who had retired in 2000, to inquire why his policies would be terminating, even though he had timely paid the premiums on the policies for approximately 18 years.
(p22) - Thus, the undisputed facts indicate that Glasgow in fact fulfilled the Maloofs' request to procure life-insurance policies that would provide funds that could be used to pay estate taxes upon John's death, and those policies were canceled only after the Maloofs failed to pay the required premiums.
(p7) - Glasgow (Agent) subsequently joined in that motion.
- The adoption in 1983 of the Model Regulation for Universal Life provided recognition that these policies could be configured as whole life policies.
1989-1 (p662), NAIC Proceedings
2. Universal Life as Adjustable Life
- Because of the high level of flexibility provided in a "Universal Life" style Adjustable Life product.....
-- DAVID R. CARPENTER
1979 - FUTURE TRENDS AND CURRENT DEVELOPMENTS IN INDIVIDUAL LIFE PRODUCTS, Society of Actuaries
- This leads to the second attitude adjustment that is needed.
- The old distinction between term and permanent is usually not appropriate for an adjustable life policy.
- In every sense an adjustable life policy should be a permanent policy regardless of what the current static plan may be.
- Its flexibility means that it can be the only policy a person ever owns even if the initial version corresponds to a ten-year term plan.
1976 - Toward Adjustable Individual Life Products, Society of Actuaries, Walter L. Chapin, 50p
3. Company Taxation
The 818(c) election is another issue that is being looked at by the Service.
- In the Hutton ruling, the Service specifically took a caveat indicating that they were saying nothing with respect to this issue.
- One question that was discussed briefly was what was the plan of insurance?
- How do you know whether you have a permanent policy that qualifies for $21 per thousand,
- or a term policy that qualifies for $5,
- or perhaps some that qualifies for nothing.
- That is an unanswered question."
-- WILLIAM B. HARMAN, JR
1981 - Universal Life, Society of Actuaries
- These include policies under which the cash value is credited with interest at a guaranteed rate (e.g., 3.5% or 4%), plus excess interest and whose pricing reflects term rates which can be increased up to a guaranteed maximum.
- If these policies turn out to qualify in tax treatment as permanent life insurance -- rather than as a term plus annuity combination -- the regular life insurance cost disclosure rules should apply.
- This would include NGE's based on the difference between (1) cost indexes based on the guaranteed minimum interest rate and maximum term rates; and (2) cost indexes based on currently illustrated interest rates and term rates.
1981-2, NAIC Proceedings