Full Disclosures Variable Life And Variable Universal Life Report
By Roger L. Blease
Full Disclosure surveys the leading sellers of variable life insurance twice per year. The charts in this report are an excerpt of our latest findings on products for sale between April 1 and May 1, 2003.
This excerpt features a record 57 variable and variable universal life policies. The reason for the increase can be found in companies rolling out newer generations of products that guarantee the death benefit regardless of the investment performance of the variable subaccounts in which the policyholder is invested. As equity markets heat up, the companies featured herein are in prime position to take advantage of consumers stepping back into the market.
Of the 57 contracts featured in this report, all but two are built on a universal life chassis. These two, Northwestern Mutuals Variable CompLife and the Park Avenue Millennium series, feature level guaranteed premium structures.
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 contract issued of each policy. Companies were asked to employ a 10% gross crediting rate that is then net of average fund expenses.
Variable life is also 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 accompanying retirement income table, companies 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 companies 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 that do typically have low later insurance charges and low, or no, cost loans.