Sertomastore
Whether par" or "non-par;' it was the life insurance companies that assumed the investment and mortality risk inherent in the long-term promise to pay a death benefit. This was in exchange for the stipulated premium, which was reserved with a guaranteed rate of 3 or 4 percent depending on when the policy was purchased.
But when interest rates in the economy suddenly spiked to more than five times those 3-4 percent long-term rates on cash value policies, massive amounts of cash value were borrowed to chase the much higher returns available in money market accounts. As the participating Whole Life began to suffer from the issue of such interest rate differentials, it was particularly hard on non-par Whole Life policies because there was no mechanism to pass through the insurer's higher earning potential on new fixed return investments. New sales plunged on this type of fixed "investment" life insurance, and the industry quickly introduced an entirely new form of life insurance: flexible premium Universal Life and Current Assumption Whole Life. A rapidly increasing number of older policies were surrendered on behalf of the new form of life insurance.
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