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Life Health > Life Insurance

Full Disclosures Survivorship Life Report

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The interest in long-term guarantees of premiums and death benefits in flexible premium survivorship life policies is spilling over rapidly from individual products with those designs.

In fact, 2 new policies in this excerpt from the biannual Full Disclosure survivorship life edition feature no illustrated policy values at all. These universal life designs are designed to deliver low cost, guaranteed premiums to age 100 or beyond with little or no cash value at maturity. While more complicated than a guaranteed whole life policy, for example, insurers are filling the low cost/no values niche with either new products or guarantee riders on policies that typically have a low premium to carry a policy to maturity on a currently illustrated basis.

Thats what is new with SUL plans, but there is always something new in the survivorship market, particularly as producers and companies alike align sales scenarios to charitable giving and income scenarios.

Our usual research in compiling Full Disclosure includes complete policy specifications and features, current and guaranteed costs and expenses, and a wide sampling of illustrations. The excerpts in this report focus on illustrated values for whole, universal and variable life survivorship products from the leading companies in the market. And while these charts are only slices of the Full Disclosure database, they will give you an idea of how these products illustrate on the street. All data is current as of Nov. 1, 2003.

To get an overview of each policys strength, you can refer to the Product Design Objectives section in these excerpts that includes standardized categories. You can readily see what a policy is designed to do, what unique aspects it possesses, and taken in whole, where the marketplace is headed.

While not all of a products design objectives may be listed, you can see for what market many of these policies are meant. Some are built for low premiums, for example, while others are meant to generate major league cash values or none at all. A policy may list Maximum Retirement Income, indicating it may have “zero-cost” policy loans and strong cash value accumulation performance leading to strong income scenarios.

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.


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