Variable life products have seen better days. After hitting a peak of 36% of annualized new premium in 2000, VL sales have dropped by double digits for 3 years in a row, with declines of 12% in 2001, 24% in 2002, and 33% in 2003.

The VL line, which includes variable universal life and fixed premium variable life, accounted for 16% of annualized new premium in 2003–less than half their 2000 share. So, if your VL sales are down, youre not alone. In the last 2 years, 18 of the top 20 VL companies reported sales declines, according to LIMRAs quarterly survey, “Individual Life Insurance Sales in the United States.”

Even so, some people are still buying. VL products brought in nearly $2 billion in annualized new premium in 2003. The product seems to do better than average in the Eastern and upper Midwestern parts of the country, based on data in the “LIMRA Life Buyer Study and MarketMap” (see map, based on 2002 data).

The high penetration regions have a higher share of VL products than the country as a whole, with 25% or more of new annualized premium coming from these products. The West South Central and Mountain regions have lower penetration than the country as a whole, with less than 20% of new premium from VL. Overall, VL products accounted for 22% of new premium in 2002 in the United States.

However, overall regional penetration levels mask some differences by state and within states. For example, the Pacific region has a moderate VL penetration rate. But within the 5-state region, 3 states have low penetration (Alaska, Oregon and Washington) while the other 2 (California and Hawaii) have moderate penetration.

Furthermore, within California, 4 of the states 25 Metropolitan Statistical Areas (MSAs) have higher than average penetration. These include the largest MSA in California (Los Angeles) along with San Jose, Orange County and Santa Rosa. Balancing these are 14 MSAs with lower than average VL penetration.

Penetration rates also seem to be related to income levels. Four of the lowest 5 states in median household income also have low VL penetration rates. Similarly, 4 of the top 5 states in median household income have high VL penetration rates.

In line with higher incomes, new VL policies are much larger on average than other permanent policies. The average VL policy size is $366,000, nearly double that of universal life and more than 5 times the whole life average size, according to LIMRAs quarterly life sales survey.

Along with larger size comes a higher premium. The average premium per policy for VL contracts is $5,800, again nearly double universal life and more than 5 times the whole life average premium.

VL products sell well in the same age groups that buy term insurance. For both VL and term, more than 80% of buyers (based on adult insureds) are between the ages of 25 and 54, compared to half of whole life buyers and two-thirds of universal life buyers. Both whole life and universal life have a higher share of buyers in older and younger age groups.

In addition, VL products are more popular with men than women. Nearly 6 in 10 adult VL buyers are men, compared with half of universal life buyers and less than half of whole life buyers.

What is in store for VL in 2004? The products sales have tracked closely with the stock market over the last several years, with VL premium market share following the Standard & Poors 500 up and then down. But the lines have diverged somewhat in the last couple of quarters, with VL share leveling out while the S&P 500 increased (see graph).

History doesnt provide much help in predicting how soon VL will recover if the stock market continues to move upward. The last time the stock market recovered from a 3-year decline (in the early 1970s), VL insurance products didnt exist. Will VL buyers (and perhaps more importantly, the advisors who recommend the product) jump back in as the market goes up or will they be gun-shy after 3 years of cash value declines? Will carriers introduce new features in their VL products to help boost sales?

This year, LIMRA will be taking a closer look at universal life and VUL product design and features available in the current marketplace. Particular interest will go to seeing if any product innovations have occurred in response to equity market volatility. Target markets, distribution channels and recent sales results are among other topics.

There is some cause for optimism. VL sales appear to be picking up at a number of major companies. Through the first 2 months of 2004, at least half the top 10 VL writers reported increases in VL sales compared with the same months of 2003. Perhaps the 3-year decline in sales has bottomed out.

Elaine F. Tumicki, CLU, ChFC and LLIF, is corporate vice president and head of the Product Research Center at LIMRA International, Windsor, Conn. Her e-mail is etumicki@limra.com.


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.