What problem was universal life insurance primarily designed to address?

Universal life insurance was primarily designed to address the problem of low interest rates during periods of high inflation. This type of insurance product offers a flexible premium structure and an interest-earning cash value component. During times of economic uncertainty, especially when traditional fixed-rate instruments may not yield sufficient returns, universal life insurance allows policyholders to accumulate cash values that can grow based on current interest rates, which can be adjusted over time.

This flexibility helps individuals manage their long-term financial planning more effectively, especially in environments where inflation diminishes the purchasing power of cash assets. By allowing the cash value to fluctuate with changing interest rates, universal life insurance aims to provide policyholders with a hedge against inflationary pressures.

In contrast, choices such as low premiums, high mortality rates, or regulatory changes do not capture the primary intent behind the structure and function of universal life insurance products. The focus is on providing a solution to the challenges posed by inflation and low returns, making it a unique offering in the life insurance market.