Universal Life as Permanent / Whole / Cash Value

Why is Universal Life called Permanent or Whole Life?

Maybe Universal Life Shouldn't be Called Permanent or Whole Life

How Else Could Universal Life Be Explained?

NAIC

Drafting Note:  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.
  • As a result, it is expected that most Universal Life insurance policies will be sold as permanent plans.

NAIC - Universal Life Model Regulation

  • Comment [BJC2]: Permanent insurance is a term used only by the industry – not by consumer educators.
  • We would prefer – Life insurance comes in two basic types: Term and whole life (also referred to as permanent insurance).

--  Brenda Cude - No Date, Assuming approximately 11/15/2017

Life Insurance Buyer’s Guide (A) Working Group Conference Call

  • Unlike adjustable life, where a current plan is defined, but is subject to change, a universal life policy at any time has only a "minimum" and a "maximum' plan....
  • 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

ACTUARIAL

  • 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.
  • The emphasis should be on the basic permanent result that flows from the adjustability. 

-- CHARLES E. ROHM

1976 - TOWARD ADJUSTABLE INDIVIDUAL LIFE POLICIES, by Walter L Chapin, Society of Actuaries - 50p

INDUSTRY

  • This approach treats flexible life as a continuous level premium, level death benefit whole life policy.
  • This is the type of program that most people think about when life insurance is discussed.
  • Second, this approach emphasizes that the payments made by the applicant are the premiums --not the expense loads or monthly mortality charges. 

--WILLIAM T. TOZER (ACLI)

1981INDIVIDUAL LIFE INSURANCE COST DISCLOSURE ISSUES, Society of Actuaries

ACADEMIC

  • Persons seeking life insurance for their entire lives have several choices:  they may (1) buy a one-year renewable term contract and renew it annually, paying the full insurance cost for each year.  (p37)

1987 - Life Insurance: Theory and Practice, Mehr and Gustavson

GOVERNMENT

  • There are two main types of life insurance policies:
    Whole (or universal) life insurance policies are considered
    permanent.
  • As long as you pay the premium, the policy
    is in effect.

2017 - Consumer Action Handbook - p33

LAW

  • Universal life is considered "permanent insurance" in the industry.
  • For example, a governmental website for seniors, maintained by the Social Security Administration, has the following definition
    • "Permanent Insurance -- including whole, ordinary, universal, adjustable and variable life -- is  protection that can be kept in force for as long as you live"8

2003 - Rebuttal Report of Mr. Affleck by Donna R Claire re: William L. Fay, et. al. v. Aetna Life Insurance and Annuity Company et. al.

IRS (Internal Revenue Service)

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 - 16p

1982 GOV TEFRA Act of 1982 818 disguised term

NAIC

Universal Life Insurance Model Regulation (#585)

  • The letter “r” is equal to one, unless the policy is a flexible premium policy <Universal Life> 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.

  • Mr. Montgomery <California> commented on the flexible premium Universal Life policy and the fact that it is not really a whole life policy, but a term policy until the premium is actually paid.

1988-2, NAIC Proc.


  • Unlike adjustable life, where a current plan is defined, but is subject to change, a universal life policy at any time has only a "minimum" and a "maximum' plan....
  • The adoption in 1983 of the Model Regulation for Universal Life provided recognition that these policies could be configured as whole life policies.

TASK FORCE ON NONFORFEITURE PRINCIPLES INTERIM REPORT-TENTATIVE CONCLUSIONS

1989-1 (p662), NAIC Proceedings

ACTUARIAL

  • In essence, the model regulation <Universal Life Model Regulation> assumes that at issue, all universal life policies are permanent plans.
  • The r-ratio is meant to measure the extent to which the policy is on track" as a permanent plan.

Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition, Claire, Lombardi and Summers


  • Chalke and Davlin point out that a policy <Universal Life> that provides whole life benefits assuming 10 percent interest is not a whole life plan if the guaranteed cash value is only 4 percent.
  • Such a plan is term insurance only for a period of years. 

--  THOMAS G. KABELE

1983 - UNIVERSAL LIFE VALUATION AND NONFORFEITURE: A GENERALIZED MODEL, by SHANE A. CHALKE AND MICHAEL F. DAVLIN

  • Whole life policies provide a guaranteed set of future cash values and death benefits for a specified premium. In other words, the terms are fixed and guaranteed….."  (page 299)

  • Universal life insurance contracts have "terms that are not fixed and guaranteed," (page 300)

2018 -Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition -- Claire, Lombardi and Summers


  • In the last two years a new product has surfaced - combining the buy term and invest the rest into one product which is tax sheltered from the buyers point of view.
  • This product is the so-called "Universal Life." 

--  Stanley B. Tulin

1981 - THE FUTURE OF PERMANENT LIFE INSURANCE, Society of Actuaries


  • JESSE M. SCHWARTZ: Why are people so reluctant to call Total Life <Universal Life> permanent insurance?
  • Mr. MARGOLIN: Universal Life type products are, I suppose, permanent.
    • It is a semantic question whether they are permanent life or not, but clearly they are not the traditional cash value products as we have known....

1981 THE FUTURE OF PERMANENT LIFE INSURANCE, Society of Actuaries

MR. MCCARTHY:

  • A regulator had told them that in that case they should not treat their Universal Life as though it was a Whole Life policy matured by paying the GMP <Guaranteed Maturity Premium>.
  • Rather, you should assume that people will pay the guideline level premium, and that will give you a policy that provides guaranteed coverage for something less than the whole of life. What were the implications of that?  

Craig R. Raymond:

  • I guess I don’t disagree with anything you said.
  • The model regulation <Universal Life Model Regulation> has a structure that says you must go back to this level premium format.
  • You’re caught into this box where you’ve got a product that, when you go back to that format, it’s an iteration of the product that can’t exist.

1999Valuation Actuary Symposium - Session 44, Society of Actuaries -28p

  • He said many consumers cannot distinguish between universal life and whole life.
  • He said a narrative explanation was needed because many did not understand the numbers or the fact that a universal life policy might drain the cash value until there was no coverage left.

-- Mr. Barkacs <Western Southern> 

1994-3, NAIC Proceedings

ACADEMIC

  • A few companies have introduced a product known as Universal or Total Life.
  • The concept involves...the company withdraws an amount sufficient to pay the premiums for an annual renewable term coverage for the amount selected for the for the current policy year.

1982 - Life Insurance - Huebner and Black   
<Bonk: This passage was in Chapter 5 titled "Term Insurance," p70>

GOVERNMENT

  • A Universal Life policy with a large insurance component can become a close substitute for renewable term insurance...

1984 THE TAXATION OF INCOME FLOWING THROUGH LIFE INSURANCE COMPANIES, U.S. Treasury Department

  • Overwhelming numbers of Life Insurance buyers do not even understand which, if any, elements of their sales illustrations are guaranteed.
  • For instance, as we demonstrated in our hearing, an Alexander Hamilton illustration did not make it clear that there was no guaranteed death benefit after 12 years.

-- Senator Metzenbaum

1993 -  GOV - When Will Policyholders Be Given The Truth About Life Insurance? 

LAW

2010 LC Blumenthal v New York Life, Duration, Performance

NAIC

  • "Completely Flexible" - "The completely flexible life insurance plans are sometimes called "Universal Life insurance plans."

1980-2, NAIC Proceedings

ACTUARIAL

  • "Dynamic Products" are products with premiums and benefits that can fluctuate from month to month.....
  • "Some common names for dynamic products include Universal Life.... "

2000Life Insurance Products and Finance, page 288D.B. Atkinson and J.W. Dallas

  • The product was sold as permanent coverage.
  • Policyholders could, of course, develop many different benefit patterns depending on their level of contributions. (Page 323)

2018 - Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition -- Donna Claire, Lombardi and Summers

  • 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 - 24p

  • Broken down to its simplest basis, Universal Life has eliminated the concept of "plan of insurance"..... 

-- Christian J. DesRochers

1983 - Universal Life, Society of Actuaries - 24p

  • Universal Life is a ratebook and more, all by itself.
  • If you say you have Universal Life, you in fact have more of a product than you probably have in your current portfolio at the present time. 

-- MR. EASON

1983INDIVIDUAL LIFE INSURANCE, Society of Actuaries

  • ...product that I devised in 1962 called Universal Life.
  • Universal Life is not well understood and part of the mystery about it may well be due to a failure in my communication....
  • .....Universal Life was developed in 1962 as a generic plan, which means that it subsumes all other life insurance products.

1987 - The Search for New Forms of Life, by George R. (G.R.) Dinney, Actuarial Science - Actuarial Science: Advances in the Statistical Sciences 

INDUSTRY

  • ...completely Dynamic services and policy opportunities for their customers to purchase and to elect a variety of options.

2019 1109- NAIC - LIIIWG CC - Michael Lovendusky, ACLI

  • ,,,life insurance contracts such as universal life.....  same risk-shifting attributes as their more  traditional predecessors.
  • They merely afford purchasers greater flexibility in designing their contracts so as to meet their individual needs."  <Design Your Own>

--STATEMENT OF THE AMERICAN COUNCIL OF LIFE INSURANCE <ACLI> BEFORE THE NASAA/NAIC JOINT REGULATORY INSURANCE PRODUCTS STUDY COMMITTEE,  August 31, 1981

1982-1, NAIC Proceedings

ACADEMIC

  • In fact, a UL <Universal Life> policy will turn out to provide term life insurance, whole life insurance, or endowment insurance, depending on the premiums paid and other policy factors.

2015Life Insurance, Black Jr., Skipper, Black III, (Huebner Series)

.... UL has always been a simple question of Duration.

201x - AP - Universal Life Insurance Duration Measures - 14p

Video: Exam MLC Problem 297 "Learning Objective "Universal Life." Question: Calculate the Level Annual Premium that results in an account value of 0 at the end of the 20th year." - UW- Madison / SOA - <Bonk: Goal: use a Universal Life policy to design a 20-year term policy.> 

INNOVATIVE LIFE INSURANCE CONTRACTS

1989-Fundamentals-of-Risk-and-Ins-Vaughan-5th-Tree-Diagram - UL = INNOVATIVE

GOVERNMENT

  • In fact, it is accurate to describe Universal Life as a generalized version of the actuarial formulas underlying traditional life insurance products.
  • In other words, it is possible to produce any traditional plan of insurance from the generalized formulas  underlying universal life.

-- Alan Richards, president and chief executive officer of E. F. Hutton Life Insurance Co., 

1983 - GOV - Tax treatment of life insurance: Hearings before the Subcommittee on Select Revenue Measures of the Committee on Ways and Means, (page 448)

DICTIONARY

Universal

3bcomprehensively broad and versatile
4bdenoting every member of a class

https://www.merriam-webster.com/dictionary/universal