To The Editor:
The article on VUL Blowups in the April 8 issue was long overdue. Over the last two years at my speaking engagements and workshops I have been stating that the next big wave of class action litigation would come from the VUL market. This was becoming obvious as the planners had not learned their lessons from the UL blowup.
Back then, illustrating double-digit interest rates, along with illustration trickery, assisted in “closing” the sale. Competition was fierce and generating income was a priority. Most planners did not understand the concept behind the development of the UL policy. With the advent of VUL, the same techniques are used, i.e., high assumed return to lower premiums for a competitive advantage.
It is amazing to me how many planners/advisors do not understand the structure of the VUL policy. Even more is needed by the agents and the provider companies than the article suggests. Full disclosure is a must, including that of running separate illustrations of the term component when term riders are used. The “Zero % Return” column of illustrations should be eliminated as it gives a subtle hint of fraud (assumes that the worst-case scenario is “no return” as opposed to a negative market). A break out of current and maximum charges per thousand should run congruent so the client and planner/advisor can get some semblance of actuarial basis/soundness.
As a personal producer, most of the conferences and seminars I attend spend no time on the structure of the policy design. The industry is wholly lacking in this arena. I personally feel that the VUL will never be positioned as a consumer understood product until commission compensation is levelized, or the product is designed by a fee-based advisor. As it currently stands, what we are selling is term with a heavily loaded B-Share fund.
Joseph W. Maczuga
Capital Planning Strategies
Reproduced from National Underwriter Life & Health/Financial Services Edition, May 6, 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.