Term life insurance is generally pretty simple for most consumers. The policy offers a level death benefit with level premium for a specific period of time.
In 2009, Genworth introduced a new Term UL in an effort to lower the premiums on their existing term life insurance offerings. This new Term UL works like a term policy with level premiums for a specific period of time, however the policy is built on a universal life platform.
The universal life platform allows the insurance company to operate with lower reserve requirements. The insurance company can invest more of its capital because it does not need to hold as large of a cash position to fulfill regulatory requirements, thus leading to more competitive rates. This opportunity cost has historically required insurers to generate additional profit from premiums rather than investments.
Further, the insurance company is no longer subject to additional administrative costs if a conversion is requested. These costs include a new commission to the agent, underwriting and printing of the new contract. The Term UL allows policy owners to restructure the policy without additional expenses saving the insurance company costs. These savings are then passed to the consumer.
Today’s term life insurance consumers benefit from the new Term UL because there is no expiring conversion age as with traditional term products. In addition, the Term UL locks rates at the current contracted level so any future changes to the policy can be illustrated now. There is no longer guessing on future changes.
One of the most beneficial features to the new Term UL contracts is the ability to exchange existing life insurance policy cash values into the policy to lower premium obligations. I constantly see cases when term life insurance is what is needed, however a whole life or universal life policy with a small cash value is owned instead. Situations like this are typically seen when the policy was sold by a captive company such as Northwestern Mutual.
Before Term UL contracts, the only feasible option was to surrender the existing permanent contract and take the proceeds in cash, sometimes creating a taxable event. Now, consumers may perform a tax-free exchange into the new Term UL to lower or even eliminate future premium obligations and save on taxes.
West Coast Life, a leading life insurance company, took note of Genworth’s pioneering approach and recently replaced their entire term product line with the new Term UL format. The Term UL concept will be offered by more insurance companies in the near future and may eventually replace term insurance as we know it entirely.