Fixed life insurance sales were on the rise near the end of 2003, and the big winner was universal life with long-term premium guarantees. In the third quarter of the year, LIMRA reported UL sales growth of 36% and 28% for the first 9 months. Whole life sales rose 8% for the quarter and variable universal life dropped 32%. Clearly, guarantees are winning the day as most UL carriers now offer a guaranteed minimum premium option and are aggressively promoting their products in every distribution channel they have.

Full Disclosure surveys leading insurers selling universal life twice per year. Our latest UL edition includes 80 contracts for sale on Jan. 1, 2004. One of the areas of expertise contained in Full Disclosures competition database is on minimum premiums required to guarantee the premium and death benefit of universal life plans to age 100 or for life. An excerpt of our latest findings is contained in this report, and we have expanded the guaranteed table to feature minimum annual (see chart on page 35) and single premiums (see chart on page 40) necessary to obtain the guarantee.

Whether by rider, minimum premium or automatically, mechanisms to include the guarantee differ by policy design and objective. Other variations in guarantee duration, pre-payment discounts, and other nuances help differentiate products and serve individual customer needs.

Additionally, this report for the first time includes products that do not have illustrated values at all as they are not designed for cash values. This marks the introduction of a true term alternative-only concept. Look for more companies to introduce such plans as we move forward.

The main chart (see pages 36-39) features illustrated values on a current basis. Illustrations are based on a Male Age 40 with a best nonsmoker class (representing at least 15% of the contracts issued) 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.

If a policy is not also featured in the minimum guaranteed premium chart, it does not offer a long-term secondary guarantee.

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. 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.

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.

The real 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 (cash, death benefits or flexibility), is much more relevant, as we have repeatedly found out, than solely relying on illustrations. In that spirit, we champion the fact that policies are designed to accomplish certain objectives. And while these illustrated values are helpful, a comprehensive analysis, using data such as that found in Full Disclosures software database, is the only reasonable way to draw comparisons.

This excerpt series formerly included a chart featuring products used for maximum income at retirement. This data is still included in Full Disclosures software database as is the information previously included covering product design objectives for each policy.


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 25, 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.