If your clients would benefit from a low-cost, term-like product with permanent features, take a look at Term Universal Life (Term UL). But do not make the mistake of assuming that Term UL is your father's convertible term policy.
Gone are the massive premium increases at conversion that cannot be predicted when the term policy is issued. Term UL gives your clients a clear view of future premiums, making the product suitable for long-term planning without the high premiums of other permanent products.
What Is Term UL?
Term UL is a relatively new product that starts as a term policy but automatically converts to a UL policy after the policy's term phase—be it 10, 15, or 20+ years. Although not every carrier offers Term UL, it is offered by a growing number of carriers, including Genworth Life and Annuity, West Coast Life, and Protective Life.
What is the big deal about Term UL? After all, most carriers allow insureds to convert their term products to permanent products. The difference is that the conversion is automatic after the term phase and, more importantly, at the time the contract is signed, the insured knows what his premiums will be throughout the policy's life cycle–both the term and UL phases. Contrast that with conversion options, where the insured will not know the rates they will be paying on the permanent product until they make the decision to convert.
Although Term UL offers certainty after the term phase, that does not mean it is a level premium product throughout its life. Premiums jump when the product converts. The difference between Term UL and convertible term is that the size of the jump will be known ahead of time, and after the jump, premiums will remain level through policy maturity.
Term UL offers a level of certainty unavailable in convertible term products, making it suitable for long-term planning and some estate planning needs. But keep in mind that Term UL does not build up much cash value, so it will not be suitable where the insured may have a need to access cash in the policy.
The Economics of Term UL
Term UL was designed by insurers to offer lower rates than typical term and whole-life products. Term UL offers lower premiums than straight term because it allows carriers to utilize the lower reserve requirements of AG38. AG38 is used to calculate reserves for UL policies that have a secondary death benefit guarantee—policies with a guarantee that they will remain in force through maturity, regardless of whether the cash value drops too low to sustain the policy, as long as minimum premium payments are made.
