Term insurance offers lower guaranteed premiums, but even with thirty-year level-term plans, coverage usually ceases before the term of the insured’s life expectancy. Insurers generally will not issue thirty-year level-term policies after age fifty, so term policies generally cannot provide the lifetime guarantees of NLUL.
Whole life offers lifetime guaranteed premiums, but with the added expense of high guaranteed cash value. Whole life premiums can be one-and-a-half to two-and-one-half times that of a NLUL premium. Blending whole life with a term can reduce the premium outlay, but only by sacrificing the death benefit or premium guarantee. In many cases, if investment performance meets expectations, the whole life/term combination can significantly outperform a NLUL policy. But what if investment performance is poor, as in the recent past decade?
Insurers and policyowners can configure regular UL policies’ premium payments and death benefits to resemble virtually any type of life insurance policy, from annually-renewable term to single-premium whole life. The major problem is that it is virtually impossible to design a cost-effective level-premium term-for-life UL policy without some kind of secondary guarantee. Without a secondary guarantee, policyowners would be exposed to the risk of having to pay exorbitant and unaffordable premiums at advanced ages (when they likely are least able to afford it) to keep their policies in force in the event actual investment performance and actual values for other factors used in setting the target premiums do not quite meet expectations.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM