Page 6 - Life Insurance Today OCTOBER 2017

policy that combines the low cost of Term Insurance with By the mid-1980's, variable universal life insurance had
the savings options and lifelong coverage of Whole Life. emerged as a means of pairing the flexibility of traditional
universal life insurance with the investment choices
Universal Life Insurance Working Model offered through variable life insurance. By the turn of the
twentieth century, low-interest rates spurred many
Universal life insurance was created under the umbrella
insurers to begin marketing indexed universal life
of permanent life insurance options to provide more
insurance. Indexed universal life insurance combines the
flexibility than whole life insurance. Premiums within a
potential for market based growth with protection from
universal life insurance policy are broken down by the
negative market returns. Sales of this product have grown
insurance company into two categories namely the cost of
considerably over the last decade as those nearing
insurance and a saving component known as the cash
retirement seek to balance risk with growth that will
value.
support retirement income needs.
The cost of insurance must be covered so the policy
remains in force, but premiums may be shifted over time Features of Universal Life Insurance
based on the policyholder's needs. Premiums paid over the Beyond lifelong protection, there are a few additional
minimum cost of insurance accumulate within the cash features of universal life policy
value portion of the policy, and funds can be used to pay 1. Withdraw money or borrow against the policy
premiums. For example, if the savings portion is earning 2. Earn Interest on Cash Values
a low return, it can be used instead of external funds to
pay the premiums. As long as the minimum cost of 3. Flexibility with premiums.
insurance is covered, either through paid premiums or 4. Adjust the death benefit.
cash value, the policy is guaranteed for as long as the initial
contract dictates. 1. Withdraw money or borrow against the
policy
In simple universal life insurance policy has two accounts,
When the policy holder pay the premium, a portion
namely a savings account and the life insurance account. of each payment goes toward the death benefit, but
Each month the premium plus interest goes into the
a portion also goes to building up the policy's savings
savings account. At the same time, the company transfers
component known as the cash value. Over time, after
money into the insurance account to pay the cost of money has accumulated, the policy holder can
insurance plus any related fees.
withdraw or borrow against the cash value of the
policy for emergencies.
Origin and Development of Universal Life
Insurance
Prior to the 1980s, insurers sold primarily fixed premium
term and whole life insurance to individual policyholders.
Acute competition significantly reducing sales of whole-life
products, insurers had little choice but to innovate in the
1980s to meet demand. They did so by redesigning whole-
life into a hybrid product that included a traditional income
protection component and a long-term investment
component using market based yields (and thus were
interest return-sensitive). The first of these new complex
products, universal life insurance, revolutionized the
industry. Its popularity was rooted in its flexibility.

Courage is not the absence of fear, but rather the judgement that something else is more important than fear.

6 October 2017 Life Insurance Today

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