The Remaking Of Variable Universal Life Insurers are considering adding variable annuity and universal life touches
By Linda Koco
It seems as if every industry conference that Jerry Patterson goes to these days, life insurance people are talking about variable universal life insurance.
Specifically, they are watching the annuity space, says Patterson, who is vice president and chief marketing officer of the life and health segment at Principal Financial Group, Des Moines, Iowa. They are taking apart various features in variable annuitiessuch as the guaranteed minimum income benefitto see how these might be leveraged to the VUL space.
National Underwriter interviews indicate many experts are exploring different ways to refashion VUL to meet modern-day and future needs. Some of the current thinking follows.
Insurers are trying to see the pain points in VUL and whether bringing in newer featuresfrom VAs, saywill make sense, says Patterson. Already, he notes, there has been a lot of development around no-lapse guarantees and extending policy maturity beyond age 100.
Now, he says, people are looking at the income guarantees in VAs, to see if we can replicate that in a life insurance contract.
This requires putting a guarantee on the accumulation component and, if certain conditions are met in, say, 15 years, then the owner might have guarantees something like those in annuities. These might be select income withdrawal options.
The carriers are focusing on what these guarantees might look like and what protection would be afforded the customer, in view of reinsurance, cost and similar issues, he says.
One thing Principal already has done is to roll out an automated income distribution option for VUL. This allows partial surrender automatically, on a monthly, quarterly, semiannual or yearly basis. It is a back-end solution that we borrowed from the annuity side, says Patterson, adding, now, our VUL owners wont need to do withdrawals manually anymore.
The insurer also has launched a consumer education program, called From Here To Security, that aims to build understanding of life (and also disability) insurance and how to use the products to meet needs, including supplemental income needs. In a few months, the insurer also will launch a new productcalled VUL Income.
VUL is not just about maximizing the death benefit, stresses Patterson. Its also about what happens in those out years of a policyholders life.
A number of VUL insurers are borrowing feature ideas from fixed universal life insurance, too. For example, some now offer secondary lifetime guarantees similar to those made popular by UL policies in the past 3 to 4 years, says Paul Strong, vice president-life products in the Boston office of John Hancock Financial Services.
Industrywide, VUL sales have taken a backseat to UL since the stock market fell in the early 2000s, Strong points out. That resulted in an exploding focus on guarantees and their importance in life insurance, he says, and VUL carriers want to build on that.
Marketers at Hancock still are strong believers in the benefits of VUL, he stresses. Over the long haul, it should be the most economical choice for someone looking for death benefit.But we want to adopt some of the features that are hot now in UL for the VUL, in order to get the VUL product back on the plate for consideration.
The firm does not view this as an effort to prop up use of VUL for retirement income purposes, Strong says. Rather, our goal is additional security. That is, to ensure that even if the market does poorly, the VUL owners who have such guarantees will not see their coverage lapse.
Four carriers have brought out new VULs that are built to provide both the long-term secondary guarantees of a UL and the investment opportunities of a VUL, points out Thomas Norton, an actuary and president of Norton Consulting Group, Emerson, N.J. The companies are National Life, MassMutual, Hartford and Lincoln. (For more discussion on this, see the July 26, 2004, National Underwriter article by Roger L. Blease, Full Disclosures Variable Life Report.)