The writer has been pleased to hear from several of his Rate of Return Service customers that his 2003 paper, Variable Universal Life Insurance: Is it Worth it?, has been useful. One intrepid medical doctor allowed that he had read all 22 pages! Others were kind enough gently to remark in passing that it was not easy reading. Is there a lesson here: If you are not willing to learn how these complex financial instruments work, should you buy one? (Whether you should hold one you’ve already bought is a different matter, the answers ranging from definitely to definitely not, with most clustering around the middle of that range.) It may be instructive to ask: Why are there so many life insurance companies in the U.S. compared to, say, auto manufacturers? The answer is that these hundreds of life insurers operate in a market where the buyers have no means of comparing prices or costs for cash value life insurance policies – whole life (WL), universal life (UL) and variable universal life (VUL) -- as they do when, for example, they buy gas for their cars. (Universal life is technically flexible premium whole life.) By contrast, the market for term life insurance is highly competitive, and relative price comparisons are quite easily made. Inefficient insurers selling cash value life insurance continue to sell their inefficient policies. This inefficiency is perhaps best illustrated by the contrast between Northwestern Mutual Life, which is crediting a remarkable 7.5% to its WL cash value policies in 2008 while dozens (hundreds?) of UL companies remain in the market crediting less than 5%.

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