By Robert P. Stone

What sells variable universal life insurance? Lest anyone get upset, this question should be framed properly: “Apart from the selling skills of the agent, what features generally sell VUL?”

For instance, if talking about secondary guarantee universal life insurance, the answer would be obvious: The lifetime guarantee usually sells those contracts (and seldom with much cash surrender value). If discussing variable annuities, the conversation might turn on the contracts guarantees options such as guaranteed minimum withdrawal benefits or guaranteed return of premium riders. For term insurance, low cost is usually the main selling point.

But what is the key feature of VUL? The answer: Cash. Lots of cash!

The prospect of having future access to significant cash value accumulation, available under the tax-advantaged umbrella known as life insurance, is a big driver of VUL.

Shocked? Probably not. Its an obvious answer. Very few other life insurance products can offer the cash value accumulation potential of VUL.

Compared to VAs, which offer similar growth potential, the carefully funded (as in, no modified endowment contract) life insurance contract offers access to values on a tax basis that VAs cant match. The trade-off, of course, is higher contract charges for cost-of-insurance and other policy loads not normally a part of VAs. Even so, the client gets life insurance benefits on a tax-favored basis far beyond what VAs can provide.

Further evidence backing the claim that VUL sales are about cash value accumulation is the relative lack of guarantees in the VUL market, especially as compared to the guarantees available in the VA market. Where VAs have a well-documented menu of guarantees to help protect policyholder principal (at increased cost, of course), few such guarantees exist in the VUL market today.

Clients opting for VULs must be looking at upside potential, as the downside protection options rarely exist as they do for VAs. The exception to this are the VUL no-lapse guarantees (NLGs).

Unlike NLGs in the fixed UL market, these VUL features mostly are offered for a limited number of years and they are driven by a cumulative specified premium. (That premium provides a floor amount of funding that must be paid into the VUL by the end of each contract year.) By contrast, the thriving fixed UL-NLG market provides lifetime guarantees, many of which may be funded flexibly. This is a case of a guarantee being available on VUL, but its a more limited guarantee than can be had elsewhere in the life insurance market.

Besides providing a valuable death benefitthe primary purpose of every type of life insurance productthe VUL is all about cash value accumulation. Thats its premise. It means sales success lies in illustrating a well-funded contract at point of sale. In short, load it up with premium.

If available, consider running an illustration using the cash value accumulation test (CVAT) instead of the guideline premium test to satisfy the definition of life insurance rules. Under CVAT, there will no longer be a guideline single or guideline level premium to worry about. Therefore, the only limitation on premium at that point is the 7-pay premium, which keeps the contract from becoming an MEC. After the 7th policy year in this scenario, a policyholder can pay any amount of premium the issuing company will accept.

Once the client has maximized the account value that will fit under the chosen face amount according to the CVAT, every premium dollar pushes up the policy death benefit (similarly but not quite the same as what happens under the guideline premium test for substantially funded contracts).

One caution: When inexpensive insurance coverage is the goal, it can be tempting to illustrate VUL premiums that minimally carry the contract to age 100, or some other chosen age using illustrated separate account rates of 10% and 12%. A scenario such as this, however, does not always provide a realistic view for a client about the funding that will be necessary to provide that coverage. While such an illustration is feasible, it doesnt get at the key feature of VUL, which is the ability to accumulate cash value for future use.

Robert P. Stone, FSA, MAAA, is assistant vice president-individual product development at OneAmerica Financial Partner Companies, Indianapolis, Ind. His e-mail is

Reproduced from National Underwriter Edition, April 1, 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.