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.

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 July 1, 2003, or released soon after. These values are meant to be a snapshot of how individual universal life plans are being illustrated on the street as a way to gauge their relative positions for our sample policyholder.

There are two tabular charts to this report. The larger one is illustrations based on a Male Age 40 paying a $7,500 annual premium on 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.

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.

A new chart features minimum premiums guaranteed to age 100 or for life. The premiums are culled from illustrations that are run with minimum cash value at maturity, or age 100 if sooner. Full Disclosure features 21 different scenarios across three issue classes. This chart features a male, age 55, for each class. In the future, Full Disclosure will collect minimum guaranteed premiums on a single and 10-pay basis.

Full Disclosure also includes the objectives each product is meant to fulfill so its market positioning can be gauged. As mentioned earlier, some are built for low premiums while others are meant to generate major league cash values and even fund retirement income. You can see which policies are meant for the brave new minimum premium world and which are designed for more traditional uses. Even now, the real product differentiation is at the policy level in the features, limitations, and current and guaranteed cost structure of each.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 26, 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.