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September 25, 2003 at 08:00 PM
By Roger L. Blease
In the last installment on Universal Life insurance that appeared in the March 31 issue, we noted that sales growth, in part, continues to be driven by the popularity of “secondary” guarantees. These guarantees protect the death benefit and premium outlay in the event current credited interest rates fall.
What really has taken the industry by storm is selling UL on a minimum premium basis with these secondary guarantees all the way out to age 100–or even for life. The pitch is obvious: For a low premium you can get guaranteed level premium coverage for as long as you live; in effect, term insurance for life with potential cash values at a cost less than whole life or even term.
The emergence of this trend in product design and placement is sparking a dramatic change in direction in the cash value life insurance market. The emphasis among many insurers to low premium outlay with long-term guarantees is causing nearly all upper-market companies to add a product (or rider to an existing product) to their portfolios to compete. At the very least they have to judge the impact on their sales as long as interest crediting rates stay low and their marketing focus remains on the cash value accumulation market.
The catch–and the whole life companies are quick and correct in pointing this out–is that long-term guarantees are dependent on the insured not changing the policy or missing a premium payment. A change in face amount or death benefit option could void the guarantee, and if the policy has no premium “catch-up” provision to bring premium payments up to a level required to fund the guarantee, that, too, could end it.
Many new products are designed to be flexible with riders or features to accommodate change, and nearly all policies have some kind of provision if premiums are missed, but some are more liberal than others.
