• The basic concept behind universal life is so simple that very few people understand it. It is almost as simple as annual renewable term insurance, which is essentially what UL is, with a side fund added.

  • Any premiums paid are added to the fund along with interest, and charges for the ART (mortality) and several other expenses are subtracted at regular intervals.

  • As long as the fund is sufficient to pay the charges, the policyholder can pay any premium he wants, or none at all. In practice the policyholder usually doesn't remember that, and regularly pays the same premium until notified that he has to pay more to keep the policy in force.

  • Most UL is (understandably) sold at the "target premium", which is the maximum premium that is fully commissionable, and the target premium is usually high enough to be sufficient for 15 to 20 years before it is necessary to pay a higher premium.

• Simple enough, so what is the problem?

  • There is a big problem.

• Ask a policyholder what the product costs, and he will tell you the premium.

• Ask how long it will stay in force, he will say "as long as he pays the premium".

• It is unlikely that most policyholders realize that they have purchased a product on which the cost increases every year.
  • Since the premium doesn't change that increase is hard to discern on the annual statements in the early durations, and even in the later unless the policyholder notices that his cash value is decreasing.
  • The notice from the company that the cash value is all gone and it will take a higher premium just to pay the charges one more year, much less create any cash value in the future, will make an unhappy policyholder, a replaced or lapsed policy, and a problem for the industry.
  • There is further discussion on this page, but no solutions are offered.
  • There may not be any.
  • Once a UL is sold the past is prologue.

cooperconnect.com/Checklists/UniversalLife.htm