When contrasting the number of companies selling whole life with those selling variable or universal life, it seems like a pretty small universe. This year’s whole life excerpt from the Full Disclosure software series features 23 policies. This is an increase from 19 at last year’s review.
Our participating companies are reporting that sales remain strong and the outlook remains mostly positive as agents can make their case for stability vs. volatility in personal life insurance portfolios, and new uses for an old product continue to be found.
As we mentioned in our analysis last year (see NU, May 17, 2004), whole life is a great product for 412(i) benefit plans.The 412(i) plan (or fully insured retirement plan) is a defined benefit plan that allows tax-deductible contributions. The plan is funded with life insurance, or a combination of life insurance and annuity products, as required by the IRS. It is ideal for small business owners who are an S or C Corporation, partnership, sole proprietor, or an LLC. It also requires a return of premium, which whole life does and many newer universal life plans can as well. Whole life is very popular for these plans because the pitch to business owners is that whole life is “free of market risk.” It is not an entirely true statement, but you get the idea.
Somewhat problematic for whole life sellers, at least when and if new reserving regulations are adopted, is the lure of universal life products with guaranteed premiums for life or at least to age 100. This guaranteed premium territory was formerly the sole province of whole life, but UL, if administered properly, can do it for less premium, albeit with no cash values at the end of the contract period. Short-term interest rates are looking up, which is good news for UL current crediting rates. Variable life sales continue to be more difficult as equity markets once again are declining, but much of the public is aware of the risk and hopes to benefit from the inevitable investment upside. Given the dynamics of today’s marketplace, we envision the sales status quo pretty much continuing as it has.
The data you see here is pulled from a comprehensive database compiled annually by the editors of Full Disclosure. Twenty-three participating (dividend-paying) contracts are featured on an illustrated basis with 13 reporting actual results. This compares with 19 projections last year with 11 historical samples. All data is current as of Feb. 1, 2005, a period by which many insurers have declared their current dividend scales for the year. Companies that have a later dividend scale revision were asked to illustrate values based on the upcoming dividend scale. By using these tables you can get an idea of how policies currently are being illustrated, as well as how leading plans issued by many of these insurers 10 and 20 years ago have returned value to policyholders historically.