Whole Life was the most popular form of life insurance from 1940 to the early 1970s, when inflation, interest rates, and money market mutual fund returns began to soar. During the 1970s Whole Life policy owners as a group began withdrawing their cash values and investing them otherwise. December 1979 inflation was 13.29% and the Fed’s Fund rate was 12%. A 6-month CD was 11.44%. The Whole Life Industry was in retreat because their policies had so many contractual guarantees. Lapsations were a genuine concern.
Universal Life was developed in 1979 and was soon being marketed as the alternative to Whole Life with a cost that was closer to Term. At that time there were no guarantees of premium stability or cash value growth. Death benefits would be paid but more premiums might be required.
Billions of dollars of Whole Life cash values were transferred tax-free to new Universal Life policies using IRC Section 1035. Sometimes this resulted in more coverage than before and at a lower premium. It always resulted in first-year Universal Life commissions and annual renewal commissions thanks to the Whole Life cash values, which were eaten up in the transfer. There were lawsuits, FTC and Senate hearings, and some fines were paid. Illustrations were forced to become standardized thanks to the National Association of Insurance Commissioners.
During this time, “Buy Term and Invest the Difference” became increasingly popular.
When a Whole Life or Universal Life policy was replaced with a Term policy, the old policy’s cash values were returned to the Policy Owner, not consumed as with the transfer from Whole Life to Universal Life.
There were changes to the nation’s tax laws that eliminated certain insurance-based tax dodges.
Older Universal Life policies still struggle to remain afloat and what really gets Policy Owners steamed are notifications that their premiums are going up, again.
Today’s UL policies come in several forms and are better-designed than ever before.
Bring them to American Life Settlements to find out their true market value.