By Roger L. Blease
After seeing depressed sales through 2002, survivorship life sales growth picked up in 2003 and continued into 2004. The primary reason for this increased interest is the proliferation of secondary (death benefit/premium) guarantees that already had become popular in individual plans.
LIMRA International data from the first quarter of 2004 shows a 19% increase over sales in the same 2003 period. During this same time, survivorship universal life sales shot up 60%. Survivorship UL market share went from a little more than one-quarter of survivorship premium in 2001 to almost three-quarters.
Other factors, besides secondary guarantees and their perceived alleviation of interest rate and premium risk, have come into play. Equity markets on the survivorship variable side havent helped much aside from last years mild rally, even though secondary guarantees have become popular in these plans, tooparticularly in the earlier policy years when volatility within a VUL policy is highest. More importantly, I think there is also a general perception among wealthier consumers that, even if the federal estate tax goes away for good, wealth transfer always will be taxed at many other points, such as retirement accounts, and survivorship life is an excellent way to provide much needed liquidity for far fewer premium dollars than an individual product.
Again, forgetting about the “death tax,” survivorship life is an otherwise tax-effective method to fund needs, both financial and emotional, and the market is receptive to talk about those needs. Who, for instance, does not want to leave behind some sort of financial legacy? The names on campus buildings throughout the country testify that remembrance is a strong emotional pull. With survivorship life, you dont need the assets sitting in the bank, you just need to pay a premium at a substantial discount to the eventual benefit. Think about all of the other reasons for liquid cash at the first death of a couple, and you probably can fill a page of the good old “yellow tablet” at your next sales call on an affluent couple.
The excerpts in this report focus on illustrated values for whole, universal and variable life survivorship products from the leading companies in the market. And while these charts are only slices of the Full Disclosure database, they will give an idea of how these products perform on a prospective basis. An additional component in the latest edition of Full Disclosure is low-cost long-term guarantees of premiums and death benefits in flexible premium policies. A portion of our findings is included here as a table for leading universal life policies providing a minimum annual premium to age 100 or beyond with little or no cash value at maturity.
In addition to the guaranteed premium chart, three others cover current illustrated values for variable, universal and whole survivorship life. These illustrated values are based on current interest or dividend crediting, expenses and, in the case of variable designs, a predetermined crediting rate.
Full Disclosure applies the internal rate of return method to current illustrated accumulation values and current death benefits measured at policy durations 30 years dependent on age combination. The IRR of cash values rises over time, as the IRR for the death benefit falls. A careful analysis of the IRR measurements indicates which policies are designed (in an illustration at least) to build current cash values, guaranteed cash values or death benefits. You will notice at the end of each chart (SVL & SUL) that there are columns showing how the policy would have performed under an increasing death benefit option. The cash value of an increasing death benefit policy, while not listed, would be lower because of the added costs of insurance. The whole life policies have naturally rising death benefits due to the paid-up additions dividend option.
In these charts we strove to maintain consistency between the types in age combinations of insureds, product specifications, measurements of values and death benefits at various points. Standardized annual premiums are the same between UL and VL illustrations, and the VL illustrations are based on a 10% gross rate of return with average subaccount expenses “netted out” of the projected values. When reviewing illustrated values of variable policies, keep in mind that not all companies employ the same averaging method to calculate the fund expenses used in the illustration. It can be based on a regular arithmetic average or a weighted average and some systems offer a choice. Under weighting, the average is tilted toward larger subaccounts with usually lower expenses thus reducing the average expense charge and benefiting the final illustrated values of the policy.
Full Disclosure software includes complete policy specifications and features, current and guaranteed costs and expenses, and a wide sampling of illustrations. The edition of Full Disclosure that includes the information in these excerpts was released in December. Policy data is current as of Nov. 1, 2004. The Full Disclosure approach is to cover all aspects of the policy that translate value to the policyholder. We champion the fact that policies are designed to accomplish certain objectives. And while these illustrated values are helpful, a comprehensive analysis is the only reasonable way to draw comparisons. A policy may shine at issue ages, face amounts, issue classes, etc. not covered in these excerpts.
Reproduced from National Underwriter Life & Health/Financial Services Edition, February 11, 2005. Copyright 2005 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.