Universal Life - Original Concept

  • 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 - Book - The Search for New Forms of Life, by G. R. Dinney

re: Universal Life Insurance

  • They merely afford purchasers greater flexibility in designing their contracts so as to meet their individual needs.

1982-1, NAIC Proceedings - ACLI - Statement of the American Council of Life Insurance Before the NASAA NAIC Joint Regulatory Insurance - 10p

  • Background
  • When universal life was first popularized about 20 years ago, there was considerable controversy with regard to nonforfeiture compliance.
    • Was it term plus a side fund?
    • Whole life with flexible premiums?
    • Or something entirely different?

2001 - SOA - Universal Life, No-Lapse, and the Law vs. Free Markets, Society of Actuaries, by David J. Hippen, actuary at the Florida Insurance Department - 5p

  • Everybody has been talking a lot about a paper by James Anderson on the so-called universal life insurance policy which was an annuity-term combination.
  • So you have to bring the annuity into this. 
    • [paper = 1975 (originally) - SOA - The Universal Life Insurance Policy, James C.H. Anderson, Society of Actuaries - 10p]

--  Anna Rappaport, (2023 - The Actuarial Foundation, Emeritus Trustee)

1976 - SOA - Economic Role of Life Insurance, Society of Actuaries - 16p

  • While many of the original intentions of issuers of universal life was to make clear the exact costs of life insurance by showing and charging exactly the interest, mortality and expenses incurred, most insurers do not observe this at the present time. (p15)

2007 - Book - Actuarial Aspects of Individual Life Insurance And Annuity Contracts, by Easton and Harris

  • Most of us have forgotten the original concept of universal life.
    • This was a product with flexible premiums, interest-sensitive cash values, current mortality charges and fully disclosed front-end loads.
    • The theory was that transparent mechanics would force down commissions but agents' incomes would benefit as the better value product would be so much easier to sell.
  • How much of this concept has survived?
    • The flexible premiums are still around, although some companies have switched back to fixed as this seems to encourage better discipline in paying premiums.
    • The interest-sensitive cash values have survived.
    • The mortality charges are often far from reflective of current mortality experience, the excess acting as a hidden load; for example, reverse select and ultimate rates.
    • Nondisclosure of loads has become an art form.
  • The transparent mechanics became extremely murky allowing the effective loads to increase to levels that allowed traditional commission levels to be paid.

--  Michael R. Tuohy

1988 -  SOA - The Future Economy, Society of Actuaries - 24p

  • D. Is It Life Insurance?
  • George R. Dinney, who coined the term "universal life" in the mid 1960s, pointed out that every life insurance policy could be split into four "modules":
    • 1. Death protection exceeding the initial cash value (term insurance).
    • 2. Savings fund (cash and maturity values).
    • 3. Guaranteed life insurance (or extended term) purchase rates.
    • 4. Guaranteed settlement option (or annuity) purchase rates.
  • It is the first, third, and fourth modules that distinguish "life insurance" products from "term plus side fund" products.

1983 - SOA - Universal Life and Indeterminate Premium Products and Policyholder Dividends, Society of Actuaries, by Thomas G. Kabele - 96p