Universal Life as Permanent / Whole
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
OTHER – Brenda Cude
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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). No Date, Assuming approximately 11/15/2017 |
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 ownseven 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)
1981, INDIVIDUAL 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. (page 37)
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
NAIC
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
Chalke and Davlin point out that a policy 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
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 guaranteedcoverage for something less than the whole of life. What were the implications of that? — Daniel J. McCarthy
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.
— Craig R. Raymond
1999, Valuation 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,” page 70>
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
Ruling:
Thus, the undisputed facts indicate that Glasgow <The Agent> in fact fulfilled the Maloofs’ request to procure life-insurance policies that would provide funds…. upon John’s death, and those policies were canceled only after the Maloofs failed to pay the required premiums.
2010 – Maloof v John Hancock – Alabama Supreme Court Opinion – 39phttp://c6b.f81.myftpupload.com/maloof-v-john-hancock/
….which allegedly deceptive sales practices used by Manulife between 1982 and 1993 were challenged; Glasgow <Agent> subsequently joined in that motion.
Maloof v. John Hancock Life Ins. Co.60 So. 3d 263 – Ala: Supreme Court, 2010 – Google Scholar
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…. “
2000, Life Insurance Products and Finance, page 288, D.B. Atkinson and J.W. Dallas
(2) – 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
1983, INDIVIDUAL 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 itmay 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.”2019/11/09- 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.”2015, Life 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
3b: comprehensively broad and versatile 4b: denoting every member of a class