Full Disclosures Variable Life Report
In the last installment of Full Disclosures variable life excerpt (see NU, July 26) I predicted that newly introduced policy designs featuring death benefit and premium guarantees paid from a fixed account would be exploding on the scene. So far that explosion has not happened as fast as I thought, although there are product development efforts at a number of companies.
Four companies currently sell products with this guarantee structure, the same as 6 months ago. National Life was the first company to introduce a product followed by MassMutuals slightly different design. Lincoln National and Hartford Life introduced policies soon thereafter.
The lure to the customer is simple in these designs: Invest a minimum amount in the fixed account option to guarantee the death benefit and no-lapse premium. Anything paid in above that is invested in separate subaccounts at the discretion of the policy owner. This makes for a long-term low guaranteed premium and death benefit, and upside exposure to investment options selected around a clients risk profile. Because the guarantee originates from funds set aside from those used for investment by the policyholder, the lowest premium necessary to secure the guarantee for life, the necessary premium is usually lower than a traditional guarantee. The downside of these designs (and what could account for their slow adoption) is their complexity, and the correspondingly complex illustrations that can come with them.
Full Disclosure surveys the leading sellers of variable and variable universal life insurance twice yearly. The charts in this report are excerpted from our latest findings on products for sale on Sept. 1, 2004. There are three excerpts from the latest Variable Life Edition of Full Disclosure for 64 contracts (up from 61 six months ago and 57 before that). 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.