A. Before universal life insurance, permanent life insurance was quite simple - policies had fixed premiums, fixed death benefits, and fixed interest rates generating consistent growth of cash values over time.
However, with universal life, premium could be flexible, and policyowners have the flexibility to structure premium payments differently, either emphasizing death benefits of the policy or cash surrender values of the policy.
Because of such complexities, IRR (internal rate of return) is the best objective metric a policyowner could use to evaluate different illustrations - with the same flexible premium contributions, how much IRR a policy could generate? The policy with the highest IRR wins!
In our next blogpost, we will discuss how to properly structure flexible universal life premiums to fully optimize either one of these objectives.