Universal Life Insurance - Part 2

E. F. Hutton's success with universal life brought in small niche companies born in the days of very high interest rates. The baggage of portfolios of old, low-interest-rate, long-term bonds and mortgages did not burden the new companies. These new companies were able to get a fast and effective start. The old-line life insurance companies looked fearfully at universal life as a vehicle that would create more rather than less disintermediation problems.

According to a 1981 Life Insurance Marketing Research Association study, 78 percent of the annualized premiums went into traditional cash-value life insurance, 19 percent paid for term insurance, and only 3 percent of new premium was allocated to the newer products, such as universal life. By 1985, these figures changed dramatically. Only 47 percent of the new annualized premium was going to traditional whole life insurance, while universal life' s market share had risen to 38 percent.

Of the rest, 11 percent went to term insurance; 3 percent to fixed­premium variable life, which became available in 1976; and 1 percent to variable universal life, which first became available in 1985. The shift in market share has continued. By the first quarter of the year 2000, among the 89 companies tracked by LIMRA-which make up 75 percent of the total industry-variable universal life had become the dominant product with a 38 percent market share. Term insurance was second with a 22 percent market share, whole life third with 21 percent, then universal with 16 percent, and fixed-premium variable with 3 percent.