Survivorship life income for most companies has been good due to strength in equity markets throughout 2007 and persistent federal and state estate taxes. According to LIMRA International, total annualized premium and face amount rose 10% from the beginning of the year through the 3rd quarter, even as the number of policies issued declined by 2%. The beneficiaries of this growth were companies selling variable products, which accounted for a 41% increase in premium volume and a 22% increase in face amount.
Universal life sales were particularly anemic through the 3rd quarter with an 8% decrease in the number of policies sold. However, overall sales of all policy types should remain strong and the pendulum will probably start to swing back to fixed products somewhat due to recession fears currently roiling equity markets and new generations of UL products taking advantage of lower mortality costs from the new 2001 tables. Safety, to certain segments of the market, sells with people looking for guarantees, as can be evidenced by an 18% jump in the number of survivorship whole life policies issued, even though relatively few companies offer it.
The Full Disclosure excerpts in this report feature illustrated values for whole, universal, indexed universal, and variable life survivorship products. 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.
Also included are charts for minimum long-term guarantee products. This increasingly popular use for flexible premium survivorship life insurance provides minimum annual premiums to age 100 or beyond (lifetime) with little or no cash value at maturity, but with low guaranteed annual premiums.
In addition to the guaranteed premium charts, 3 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 of 30 years dependent on age combination. The IRR of cash values rises over time, as the IRR for the death benefits 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. At the end of each chart (SVL & 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. The edition of Full Disclosure that included the information in these excerpts was released in December. Policy data is current as of Nov. 1, 2007. 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. Issue classes are likewise the same across the three policy types; however, we collect different classes and will likely change the issue classes shown in this excerpt in the future.
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 get to what it is designed to do best. That is the key to any successful comparison in this time of product specialization. Additionally, the market is adding new hybrid, indexed and guaranteed premium variations (of flexible premium products) to the mix. Often, simply looking at the numbers doesn’t tell you enough.