A New VUL Twist Is On The Street

Variable life also 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 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 zero, cost loans.

The illustrated values in this report are meant to be a snapshot of how individual life variable plans are being illustrated on the street as a way to gauge their relative positions for our sample policyholder. However, we champion the fact that policies are designed to accomplish certain objectives. In addition to illustrated values, we have included summaries of each policys “design objectives.” While not all of a products design objectives may be listed, you can see what market many of these policies are meant for. Some are built for low premiums, for example, while others are meant to generate major league cash values.

As previously mentioned, newer products may include death benefit guaranteesvia a rider or policy featurethat help insulate the death benefit and required premium commitment from market volatility.

Internal rates of return (IRR) 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.

The real trap to avoid is comparing variable products mainly by available subaccounts. 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 (minimum guaranteed premiums, cash values, death benefits or flexibility), is much more relevant to a comparison between contracts than that of one whose leading fund has had the best returns over the last few years.

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