- 2-Minute Article
Life Insurance Then and Now
A look at life insurance’s evolution.
Life insurance is hardly a new concept — it's been around for centuries. From its first appearance in the United States in 17351, total life insurance coverage was 20.1 trillion by the end of 2014.2 As the life insurance business — and number of providers — continued to grow, so did the number of products. Now we have term life, whole life, universal life, variable universal life, and more. Not to mention the dozens of optional riders that allow clients to further customize their policy to help meet specific needs. Having an advisor who knows a thing or two about life insurance can make the policy itself that much more valuable.
In the Beginning: Term Life Insurance
In their earliest days, life insurance companies focused on providing what we now refer to as term policies. These types of policies were considered "pure" insurance since premiums went fully towards insuring the policyholder's life. Still popular today, term life insurance offers coverage for a specific number of years and only pays upon the death of the insured. The premiums for term life insurance depend on the individual customer but generally is relatively inexpensive when purchased at a younger age and rises in price as the purchaser's age increases.
Permanent life insurance Expands options and Business
One of the major drawbacks of a term policy is that if the policyholder survives the policy term, they get nothing in return for the premiums paid out over the years. This was the impetus for the development of whole life insurance. A whole life policy is designed to last for the insured's whole life. Other benefits of whole life policies have expanded to include access to cash value at any time and at any age without penalties and tax favored.3 And because the cash value guarantees in a whole life policy are subject to the issuing company's claims-paying ability, the policy won't be directly impacted. Policyholders won't lose any money even if the stock market tanks.4
Game Changer: Universal Life
Prior to the 1980s, the life insurance industry primarily consisted of term life and whole life policies. As sales of whole life stalled, another type of permanent life insurance called "universal life insurance" burst onto the scene and revolutionized the life insurance industry in the 1980s. Universal life insurance provided permanent life insurance protection and access to tax-deferred cash values. Consumers now had flexibility in their premium payments, death benefits, and the accumulation element of their policy.5
Today: A Multitude of Products
Now, in the digital era, the industry is changing again. Not only are life insurance products evolving to include new features in addition to the death benefit, but they're also becoming easier to apply for and in some cases easier to buy.
While a greater variety of products means consumers are better able to choose a policy tailored to meet their particular needs, this also means advisors need to ensure they're educated on the nuances of each product, and can explain the differences to clients to help them make the right choice.