While traditional universal life sales continue to be dominated by products sold with low guaranteed premiums, a few companies are introducing variable universal life plans to compete directly against UL and to jump-start sales of their variable products.
The lure to the customer is simple: Invest a minimum amount in the fixed account option and anything over that in separate accounts. This means downside guarantees and upside exposure to separate accounts selected around a clients risk profile.
Two companies, National Life and MassMutual Life, have products on the street (see accompanying chart), but our intelligence is that about a dozen companies are poised to follow suit.
Insurers can price for these lifetime guarantees through choosing one of two reserving methods.
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From a policyholder standpoint certain other restrictions apply. For example, MassMutual describes its VUL Guard product on its Web site by saying, “To maintain the guarantee, the required Guaranteed Death Benefit premium must be directed to (and remain in) the fixed account investment option, called the Guaranteed Principal Account (GPA), and the policy debt limit must not be exceeded.”
An additional obstacle is the learning curve associated with a complex product design and articulating its benefits to the buyer. Despite these factors, it definitely seems more companies will be entering this market.
Full Disclosure surveys the leading sellers of variable life and variable universal life insurance twice yearly. The charts in this report are an excerpt from our latest findings on products for sale on Sept. 1, 2003.
For the 57 contracts featured in this report, illustrations are based on a Male Age 40 paying a $7,500 annual premium and a $1,000,000 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.