Universal Life Insurance
Universal Life Insurance is a hybrid mixture of 1 year term and a side fund of money.
Universal Life Insurance was not developed by the traditional life insurance industry. E.F. Hutton, a part of the stock market, purchased a life insurance company and developed universal life insurance about 1981. E.F. Hutton persuaded the IRS to make a ruling permitting tax qualified advantages for universal life products just like all past whole life insurance products, but they managed to unbundle the whole life qualities of ordinary whole life insurance plans. While ordinary whole life insurance is totally guaranteed with a fixed cost of insurance, universal life has an increasing cost of one year term insurance and a totally separate side fund. The real seriousness of Universal Life and its long term stability is the huge increase of the internal cost of insurance during the later years of its existence. Universal Life plans allow flexible premiums and even allow policy holders to reduce their premiums to nothing for extended periods of time.
The life insurance industry has been plagued with life insurance companies being bought out or taken over by larger companies. When larger companies take over smaller companies and their universal life policies, many times they reduce the interest that they will pay on the old plans and raise the internal cost of the insurance (just because they can). This cannot happen with a traditional whole life plan. Since the interest rates are bundled with a fixed cost of insurance, whole life policies cannot be changed like their universal life counterparts.
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