Full Disclosures Universal Life Report
By Roger L. Blease
Universal life insurance sales growth continues to be driven not only by the obvious consumer shyness over variable plans, but also by the ongoing proliferation of secondary guarantees.
These guarantees protect the death benefit and premium outlay in the event current credited interest rates fall. While this trend has been continuing for some time, the differentiation of these guarantees within each companys UL portfolio (and even within each individual policy) has picked up speed.
Mechanisms to include the guarantee (riders, premium levels or even automatically) continue to differ. But increasingly, wide variations in duration, prepayment discounts and other nuances are emerging. Companies are also seeing demand for death benefit guarantees that are issued on policies with an increasing death benefit.
Generally, guarantee premiums are only much higher when guarantees are extended to age 100 or the lifetime of the insured. “Dial-A-Guarantee,” “Whole Life Alternative,” and “Lifetime Security” (or combinations thereof) are increasingly creeping into the UL lexicon. Information on the maximum secondary guarantee period and the premium required to buy the guarantee, is included in this report.
Full Disclosure surveys leading insurers selling universal life twice per year. The charts in this report are an excerpt of our latest findings on products for sale on Jan. 1, 2003, or released soon after. These values are meant to be a snapshot of how individual UL plans are being illustrated on the street as a way to gauge their relative positions for our sample policyholder.
There are 73 contracts featured in the Full Disclosure database, with excerpts from 65 featured in this report. Companies were asked to limit the number of policies to two in each section due to space limitations. Not included were two each from American General Life and Protective Life, and one each from Canada Life, Midland National Life, New York Life, and Conseco Life. The policies not featured in this report are included in the regular edition of Full Disclosure.
Illustrations are based on a male age 40 paying a $7,500 annual premium and a $1 million policy. If our specified premium of $7,500 is too low to illustrate the policy for this age and face amount, the policies are blended with term insurance if available.
The death benefit type is level; however, a column is included with a true increasing death benefit for each policy. The class specified is best nonsmoker as long as the class represents at least 15% of the contracts issued of each policy.
Full Disclosure also includes editorial comment from our participating companies. Listed under Product Strengths, this data is meant to show some of the key purposes and design elements of each policy. 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.
As mentioned, increasingly the thrust of each contract is the degree to which the death benefit and premium can be guaranteed regardless of the current interest credited within the policy.
Internal rates of return (IRRs) figures, included in the main chart, indicate which products are designed to be more efficient in producing cash values, death benefits or are an all-around solution. The IRR can be applied to cash values as well as death benefits, and we have chosen to measure both at a policy duration of 30 years. Those seeking to analyze the relationship between cash values and death benefits will find the IRR measurement a useful tool. Information is included to show what the death benefits would be illustrated under an increasing death benefit option.
Its easy to see, using the provided IRRs, which policies are built to generate death benefits, which is why it would be unfair to compare them under a level death benefit only.
Universal life is marketed as a tool to supplement retirement income by surrendering accumulation values to the contracts cost basis and using policy loans thereafter to provide maximum income. In the retirement income table, insurers were asked to illustrate policies using a $10,000 premium starting at a males age 40, selecting an increasing death benefit option 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 insurers tried to come as close to that as their illustration systems would allow.
Again, certain policies are designed to do certain things, and a high cash value at age 65 does not necessarily translate into high retirement income. Ones with high retirement income typically have low later insurance charges and low, or no, cost loans.
The real product differentiation is at the policy level in the features, limitations, and current and guaranteed cost structure of each. A contract that is policyholder friendly (catch up provisions on secondary guarantees, for example) or that matches the goal of the policyholder (cash, death benefits or flexibility), is much more relevant, as we have repeatedly found out, than solely relying on illustrations. In that spirit, we champion the fact that policies are designed to accomplish certain objectives. And while these illustrated values are helpful, a comprehensive analysis, using data such as that found in Full Disclosures software database, is the only reasonable way to draw comparisons.
Reproduced from National Underwriter Edition, March 31, 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.