Death benefit guarantee products continue to dominate the survivorship life market and are a key option of most new products. While Full Disclosure has featured long-term guarantee (age 100 or lifetime) minimum premiums for survivorship universal life, we also have added these for variable products. Excerpts from the latest edition of Full Disclosure are included in this report in addition to the regularly featured product design objectives, illustrated values and death benefits.
Competition in the guaranteed premium/face amount market only has caused minimum premiums to fall, adding to the products’ luster. Our guess is that they will fall further.
The other good news for insurers is that a complete repeal of the “death tax”–for which survivorship life is an ideal solution–as recently proposed in Congress is unlikely to pass. The tax raised over $23 billion last year even as the threshold was raised to $1.5 million. In 2000, by contrast, the threshold was $675,000. Current arguments swirling in Congress are that the tax should kick in at between $3 million and $5 million, indexed or not to inflation. I don’t like taxes as much as anyone else, but with our industry providing a cost effective “pennies on the dollar” solution, it’s not all bad.
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 give an idea of how these products perform on a prospective basis. The additional components in the latest edition of Full Disclosure are low-cost long-term guarantees of premiums and death benefits in flexible premium policies for both SUL and SVL policies. These tables provide minimum annual premiums to age 100 or beyond (lifetime) with little or no cash value at maturity.
In addition to the guaranteed premium charts, 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 and SUL), 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.
Full Disclosure software includes complete policy specifications and features, current and guaranteed costs and expenses, and a wide sampling of illustrations. Policy data is current as of May 1, 2005. Standardized annual premiums are the same between universal and variable life illustrations, and the variable life illustrations are based on a 10% gross rate of return with average subaccount expenses “netted out” of the projected values.
Because survivorship life products are designed for certain objectives, whether maximum cash accumulation or none at all, for example, we have summarized what each is designed for. Some have simplified underwriting, short-term values, living benefit riders, or many others. We not only examine a product’s premiums and illustrated values, but to get to what it is designed to do best. That is the key to any successful comparison in this time of product specialization. Often, simply looking at the numbers doesn’t tell enough.
“Death tax” aside, survivorship life is an otherwise tax-effective method to fund needs, both financial and emotional. 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 don’t need the assets sitting in a 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 affluent couple sale call.