I’ve had this discussion with many people. I’m sure I could answer this, however, I think Nelson Nash, in his book “Becoming Your Own Banker,” does a much better job. Here is an excerpt on Universal life and Variable Life from the book.
“My Thoughts on Universal Life and Variable Life
“Universal life was invented in the early 1980s by E.F. Hutton, a stock brokerage firm that, in my opinion, knew nothing about life insurance. Remember the television commercial, ‘When E.F. Hutton speaks, everyone listens.’ Have you heard him say anything lately? They don’t exist anymore! UL was nothing more than ‘one-year term insurance with a side fund of an interest-bearing account.’ It was an attempt to ‘un-bundle’ the savings element and the life insurance element of a whole life policy–something that can’t be done, if one understands the concept of whole life insurance.
“This happened during a time of high interest rates and it ‘looked good’ in the early years of the policy. When I first saw the policy I ran some illustrations and they kept ‘falling apart’ when the insured attained age 65 to 70. The cost of one-year term became prohibitive at the advanced ages and ‘ate up the cash fund’ from that point forward. Therefore, I never sold one of them when I was in the business–and I surely wouldn’t buy one!
“Next came Executive Life out in California. They made a ‘big splash’ in the business and ultimately went broke. I understand that policy owners actually lost money with their policies.
“Does the name, Michael Milken, mean anything to you? He did prison time as a result of his financial shenanigans. Would you guess where he was selling all of those ‘junk bonds?’ If you replied, ‘Executive Life,’ then go to the head of the class! Would you like your financial future in the hands of people like that?
“Lastly, there came Variable Life, invented by Equitable Life Assurance Society. It was nothing more than one-year term insurance with a side fund of a mutual fund. There are more mutual funds than there are stocks. No mutual fund is any better than it’s manager. The great preponderance of mutual fund managers had never seen a down-turn in the market until the recent one.
“I was with Equitable Life when Variable Life came on the scene. I never sold one of those policies–and I would never buy one. I do not recommend its use for the Infinite Banking Concept.
“The tragedy of our times is that the life companies never spent any time on understanding Dividend-paying Whole Life Insurance and teaching the buying pubic its characteristics.”
Nelson Nash, Becoming Your Own Banker