Full Disclosures Survivorship Life Report
Twice a year the editors of Full Disclosure compile the life insurance industrys largest survivorship life insurance product database. Our research includes complete policy specifications and features, current and guaranteed costs and expenses, and a wide sampling of illustrations.
The excerpts in this report feature illustrated values for whole, universal and variable life survivorship products from the leading companies in the market. And while these charts are only slices of the Full Disclosure database, they give an idea of how these products illustrate in the market.
This report features a record number of policies. If Full Disclosure participation levels reflect the vitality of this segment, fears of estate tax reform may be misfounded.
Because policies are designed for specific outcomes we usually run a Product Strengths section in these excerpts that includes editorial comment from our participating companies. In this report, however, we have standardized some of these answers and added them to a section of the regular report known as Product Objectives, which are also repeated here. While not all of a products design objectives may be listed, you can see for what market many of these policies are meant. Some are built for low premiums, for example, while others are meant to generate major league cash values.
Extending the issue of the product objective is the fact that a policy may be intended for a purpose and market as remote from illustrations as you can imagine. For example, it may have broad underwriting classes so more policies are issued preferred, or it may be oriented to business applications with appropriate features. If there is little detail for a policy in the Product Objectives section that doesnt mean its a non-performer; chances are its designed as a middle-of-the-road product designed for wider markets.
Certain companies specialize in “uninsurable” lives, while others build their variable products around a huge selection of subaccounts. You will notice in the variable survivorship life (VSL) chart there is a new column with the number of available subaccounts for each one.
This report features abstracts of 87 universal, whole and variable life policies and is excerpted from Full Disclosure Survivorship Life Volume I edition. The popularity of flexible premium policies with guarantees of death benefits and premiums (secondary guarantees) are taking their toll on whole life. They are able to offer generally lower premiums with lesser risk of interest rates or equity returns potentially torpedoing an expensive plan. (Caution should be exercised that there are no contingencies on these guarantees.)
All data is current as of Oct. 1, 2002. We do not charge companies to be in Full Disclosure and strive to be fair through consistency maintained between all types in age combinations of insureds, product specifications, measurements of values and death benefits at various points. Flat premium amounts are the same between UL and VL illustrations, and the VL illustrations are based on an assumed 10% rate of return net of average fund expenses.
Full Disclosure applies the internal rate of return method to current illustrated accumulation values and current death benefits measured at policy durations 30 years dependent on age combination. The IRR of cash values rise over time, as the IRR for the death benefits falls. A careful analysis of the IRR measurements indicates which policies are designed (in an illustration at least) to build current cash values, guaranteed cash values or death benefits.
You will notice at the end of the SVL and SUL charts, there are columns showing how the policy would have performed under an increasing death benefit option. The cash value of an increasing death benefit policy, while not listed, would be lower because of the added costs of insurance. The WL policies have naturally rising death benefits due to the paid-up additions dividend option.
Variable illustrations are calculated at a 10% gross rate of return with average subaccount expenses “netted out” of the projected values. When reviewing illustrated values of variable policies, keep in mind that not all companies employ the same averaging method to calculate the fund expenses used in the illustration. It can be based on a regular arithmetic average or a weighted average and some systems offer a choice. Under weighting, the average is tilted toward larger subaccounts with usually lower expenses, thus reducing the average expense charge and benefiting the final illustrated values of the policy. This is only one factor of many, including policy expenses and fees and cost of insurance a policys illustrated performance.
A key to a competent product analysis is knowledge of what each product is designed to do. This may seem like a simple fact, but one routinely overlooked. For example, an advisor brought into a large case may have to choose among many proposals with illustrations galore. To someone looking at illustrated values alone, price may win the day without consideration of the other policy dynamics in play. This is particularly true in big-ticket survivorship life sales where annual premiums may vary by tens of thousands of dollars.
Reproduced from National Underwriter Life & Health/Financial Services Edition, January 27, 2003. Copyright 2003 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.