As evidenced by the positive sales results of universal life insurance recently published in National Underwriter, the product is undergoing a renaissance.
Everything, of course, is subject to change, and smart companies are the ones with enough diversity in their product portfolios, between fixed and variable designs, to take advantage of these popularity fluctuations.
In compiling the latest numbers for the first edition of Full Disclosure on universal life for the year 2002, we have been watching the proliferation of products within company portfolios as well as the increasing flexibility offered within a single product design.
We probably have more differentiation in the universal life market at this point than in any other since UL hit the scene in 1979. The ones poised for success are those with UL plans (or any other type) designed for particular purposes, and the communication skills to effectively position the product regardless of the distribution channel(s) they use.
Whether the goal is generating accumulation values (short or long-term), maximum death benefit for a low premium outlay, providing guarantees for life, or generating retirement incomes, companies with an arsenal of alternatives for the producer are the ones that will, in a “Darwinistic” sense, excel.
Twice a year, the editors of the Full Disclosure policy analysis software series collect universal life data from the leading insurers serving upper markets. And while this report features a record number of UL plans, you will notice that some companies usually featured in Full Disclosure are not present. Companies such as Transamerica and Sun Life were in the process of introducing new policies, while others, including New England Financial, pulled older designs without an immediate replacement. Companies new to our universal life list include the MONY Group and Equitable.
There are two main parts to this report: current illustrated values and illustrations designed to show heavily funded policy performance when providing retirement income streams.
The regular illustrations are based on a male age 55 paying a $5,000 annual premium on a $250,000 policy. The class specified is best nonsmoker as long as the class represents at least 15% of the contract issued of each policy. The death benefit type is level; however, a column is included with a true increasing death benefit for each policy. Accumulation values under an increasing death benefit option would be less, but some policies are designed to generate increasing death benefits and it would be unfair to compare them under a level death benefit only.
In the retirement income table, companies were asked to run illustrations that, at retirement, surrender accumulation values to the contracts cost basis and use policy loans thereafter to maximize income. Our samples use a $10,000 premium starting at a males age 40 and an increasing death benefit until age 65. At retirement age 65, the death benefit type is switched to level as values are liquidated. A residual value of $100,000 was requested at the policy maturity age and companies tried to come as close to that as their illustration systems would allow.
The death benefit was requested to be the guideline minimum at the $10,000 premium level as the goal of funding a policy for income places a high death benefit secondary in importance. However, other factors may influence performance, and a high cash value at age 65 does not necessarily translate into high retirement income.
A comprehensive approach can lead you to the true nature and architecture of the contract. We recommend a policy analysis approach based on illustrations, current and guaranteed (contractual) costs, features (and their costs), as well as knowledge of what each product was designed to do.
While it may be designed with strengths at higher or lower ages or face amounts, a policy may be intended for a purpose/market as remote from illustrations as you can imagine. For example, it may have broad underwriting classes so more policies are issued preferred, or may be designed for the substandard market.
Use the figures in this report as a snapshot of how policies are illustrated on the street currently, but remember each policys value is built on the economy and quality of individual attributes that are often not apparent through any illustration. Only a comprehensive analysis can reveal its true nature.
Reproduced from National Underwriter Life & Health/Financial Services Edition, March 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.