Full Disclosure surveys leading insurers selling universal life twice per year. There are, it seems, more products than ever to cover with a dominant trend being multiple products with different design objectives from a single company. Some insurers may name the policy after the mission”Accumulator” or “Protector” spring to mind. Most UL carriers now offer a guaranteed minimum premium option on at least one of their UL products that guarantees the premium and death benefit to age 100 or for life.
There are 2 charts in this report. Both are excerpted from the most recent UL edition featuring 84 policies for sale on July 1, 2004. The larger chart includes illustrated values on a current basis, and the second breaks out minimum premiums necessary to guarantee the premium and death benefit to age 100 or for life.
Current 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 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 other table features the minimum premiums needed for long-term guaranteed premium and death benefit. Whether by rider, a minimum premium level or automatically, mechanisms to include the guarantee differ. Other guarantee variations include duration, pre-payment discounts and other nuances that help differentiate products in a crowded marketplace and serve individual customer needs (in addition to making the jobs of product wholesalers a little more exciting). If a policy is not also featured in the minimum guaranteed premium chart, they do not offer a long-term secondary guarantee but may offer shorter guarantee durations as specified in the main chart featuring illustrated values.
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 providing 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.
In that spirit, Full Disclosure also includes information on what each product is designed to do under Product Design Objectives. While not all of a products design objectives may be listed, you can see what market many of these policies are meant for. Some are built for low premiums, for example, while others are meant to generate major league cash values. Some may be designed with special commission considerations such as high or rolling target premiums.
Reproduced from National Underwriter Edition, October 7, 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.