Full Disclosures Survivorship Life Report

In these charts we strove to maintain consistency between the types in age combinations of insureds, product specifications, measurements of values and death benefits at various points. Flat premium amounts are the same between universal and variable life illustrations, and the variable life illustrations are based on a 10% gross rate of return with average subaccount expenses “netted out” of the projected values.

When reviewing illustrated values of variable policies, keep in mind that not all companies employ the same averaging method to calculate the fund expenses used in the illustration. It can be based on a regular arithmetic average or a weighted average and some systems offer a choice. Under weighting, the average is tilted toward larger subaccounts with usually lower expenses, thus reducing the average expense charge and benefiting the final illustrated values of the policy. This is only one factor of many including policy expenses and fees and cost of insurance of a policys illustrated performance.

Three charts cover current illustrated values based on current interest or dividend crediting, expenses and, in the case of variable designs, a predetermined “gross” crediting rate.

Full Disclosure applies the internal rate of return method to current illustrated accumulation values and current death benefits measured at policy durations 30 years dependent on age combination. The IRR of cash values rises over time, as the IRR for the death benefits falls. A careful analysis of the IRR measurements indicates which policies are designed (in an illustration at least) to build current cash values, guaranteed cash values or death benefits.

You will notice at the end of the SVL and SUL charts that there are columns showing how the policy would have performed under an increasing death benefit option. The cash value of an increasing death benefit policy, while not listed, would be lower because of the added costs of insurance. The whole life policies have naturally rising death benefits due to the paid-up additions dividend option.

Reproduced from National Underwriter Edition, January 16, 2004. Copyright 2004 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.