Many ULs Serve Up Lifetime Guaranteed Premiums, With Catch-up
“Lifetime guaranteed premiums” and “catch-up provisions” are key features being touted in many of the universal life policies that have been rolling out in the past six months.
The wave of new ULs comes at a time when UL is surging in sales popularity after weathering many sluggish years. By year-end 2002, individual UL represented 28% of premium volume for all life insurers tracked by LIMRA International, Windsor, Conn.
In the fourth quarter of 2002 alone, individual annualized UL premium grew by 46% compared to the previous years fourth quarter, says LIMRA. (And, fourth quarter 2001 UL premiums were 25% over the fourth quarter in 2000.)
Many new ULs look a lot like ULs of yesteryear but with one key difference. They are being built–and marketed–to put the emphasis on guarantees and predictability, not flex premiums or liquidity.
The products still offer flex premiums and liquidity, developers stress, but the products focus on lifetime guaranteed premiums–and guaranteed coverage for life.
Following are a few examples that arrived at National Underwriters new products desk in the past few months.
Priority Max UL from Mutual of Omaha is “very much like a whole life policy,” says Brent Bench, product manager at the Nebraska insurer. It offers a “lifetime guaranteed premium” up to age 100 plus extended death benefit to age 120, when the policy endows.
A “minimum premium” option and a “target premium” option are also available–the first offering a 15-year premium guarantee and the second, a 20-year premium guarantee. But the price differentials between the three options are so small as to make the lifetime premium choice almost inevitable, Bench says.
The company built the policy to attract rollover business from older ULs that may be close to blowing up, or from 1035 exchanges, he says. If the owner pays the lifetime guaranteed premium, he says, “the policy is guaranteed not to blow up, regardless of account performance.”
If insureds age 75 and up have older outstanding loans that threaten the policys ability to stay in force, Bench adds, the “LapseGuard” rider, available after the 15th year, converts the UL to paid-up status.
The UL market is definitely moving toward making UL more like whole life, agrees Michael Harris, vice president and head of fixed life product development at ING in Atlanta. Consumers today are looking for assurance, he explains, alluding to the stock market downturn, the collapse of Enron and other current business upsets.
Producers, alert to those concerns, have been asking for ULs that have lifetime guarantees, he continues.
Those forces spurred INGs ReliaStar Life Insurance Company unit to develop its own guaranteed premium UL, Harris says.
Called ING Guaranteed Premium Universal Life, the policy has a standard UL chassis. However, “it is built so that the financial advisor can solve for any premium guarantee the clients wants, from one year to lifetime,” says Harris.
The client pays for the guarantee he or she wants and “we guarantee the original specified amount, regardless of what happens to interest rates, mortality or expenses,” he adds. If the owner takes withdrawals or policy loans as illustrated, the guarantee stays in effect.
In the ING product, even if owners take unscheduled loans and withdrawals, the guarantee still stays in effect, Harris adds. “All they have to do is request a new in-force illustration that solves for a new guarantee from that point forward.” If someone has an underfunded guaranteed premium at that time, the policys “catch-up” feature allows the person to make up the difference. In fact, says Harris, “you can catch up the premium at any time you want.”
The catch-up provision is fast becoming an essential “go-with” item for the guaranteed lifetime premium ULs being served up today. That is, if a company offers the lifetime premium, it probably will offer a catch-up provision.
The catch-up features do vary, so advisors are examining them closely. However, most of these features share the same intent: to enable owners of these new ULs to flex premium deposits according to personal need and preference, without voiding the premium guarantee.
“That is what the catch-up feature is for,” stresses Douglas Israel, senior vice president, product management at AIG/American General Life Insurance Company, Houston.
His companys Elite Universal Life G has such a feature built in. The policy guarantees lifetime coverage from date of issue on, if the owner pays the guaranteed premiums up to age 100.
If the owner gets behind on the required premium payments, Israel says, the owner can exercise the catch-up feature at any time. In addition, says Israel, “in our product, the owner can catch up for zero cost. All the owner has to do is pay the outstanding amount of premium. We dont charge interest. We just use the premium test.”
If the owner makes a partial surrender or loan, “we allow the owner to pay us back and keep the guarantee in force,” he adds.
The AIG contract also has a built-in maturity extension rider. Triggered when the insured reaches age 100, this keeps the UL in force for life.
The policy aims to meet market demand for life insurance that will not lapse but that is “significantly cheaper” than traditional whole life, stresses Israel. Todays consumers, he says, “want death protection at older ages, not forced cash savings.” This is especially so in estate planning scenarios, he adds.
“Term life insurance wont work for that–not even if it is a 30-year level premium policy–because after the term period is up, the coverage goes away or it costs so much the owner cant afford it. Besides, you cant buy a level term policy after age 55, whereas you can buy a lifetime guaranteed premium UL after that age.”
The capital requirements are very intensive to support the lifetime guaranteed premiums, agrees Harris of ING. “But we have an innovative insurance structure that makes this possible.”
Reproduced from National Underwriter Edition, May 12, 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.