The new kid on the Variable Universal Life block that everyone seems to be talking about features guarantees by paying some or all the premium into a fixed account. The lure to the customer is simple: invest a minimum amount in the fixed account option and anything over that in separate accounts. This makes for a long-term low guaranteed premium and death benefit, and upside exposure to investment options selected around a clients risk profile.
Four companies now have this guarantee structure, an increase from only two 6 months ago. National Life was the first company to introduce a product followed by MassMutuals slightly different design. Since we last surveyed the market at the end of 2003, both Lincoln National and Hartford Life have introduced these policies.
For now, its only a handful of companies in the game, but a 100% increase in 6 months is something that should be noted. Barring any unforeseen regulatory constraints, we think the basic concept is the wave of the future for VUL.
The key to success is overcoming the learning curve associated with a complex product design and articulating its benefits to the buyer. They are all a little different, so when investigating these “hybrid” policies, look beyond the numbers at how they work. The Specifications section of Full Disclosure is a good place to start, as is the prospectus and sample policy.
Full Disclosure surveys the leading sellers of variable life (VL and VUL) insurance twice yearly. The charts in this report are excerpted from our latest findings on products for sale on May 1, 2004. There are 3 excerpts from the latest VL edition of Full Disclosure for 61 contracts (up from 57 six months ago). There are charts for current illustrated values, a sample case with maximum retirement income, and a small excerpt from our section on the minimum guarantee products mentioned above. Regular Lifetime/Age 100 minimum guarantee premiums are featured in the illustration chart.
Current illustrations are based on a Male Age 40 paying a $7,500 annual premium and a $1 million 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.