Sales of variable life insurance have been in the doldrums since before the dot-com bubble burst and the 9/11 terrorist attacks caused the stock market slide from which the United States is just now recovering. This applies to both single premium and flexible premium VLs.
At the same time, variable annuity sales have recovered to pretty much the level they were at before the stock market downturn, and fixed equity index annuities have enjoyed wide success in the marketplace.
By comparison, and particularly in view of the success of VAs and EIAs, the lack of utilization of single premium VL–or SPVL, as the industry calls it–is nothing less than amazing.
We only can speculate that the underutilization of VL, particularly SPVL, is due to a lack of understanding by members of the financial services industry about the unique features of the product. An SPVL insurance product affords virtually all the advantages of a VA plus it offers a number of advantages that cannot be obtained with a VA. The same types of advantages apply to the use of analogous life insurance products in lieu of equity index and traditional fixed annuity products.
An SPVL product is, in many ways, similar to a VA during the accumulation phase. Premiums can be allocated among a number of different types of investments, and reallocations can be made to reflect the policy owner’s risk tolerance.
Today’s VL and VA products offer investment alternatives that range from the very conservative to those that can be highly speculative. In addition, asset allocation programs, which can dampen risk, are available for most products. In short, the products provide a wide variety of investment options and great flexibility for changing options without any recognition of gain for the purposes of federal income tax.
As with VAs, the SPVLs are free from current federal income taxes on investment gains, unless there is distribution of contract values prior to death.
However, unlike VAs, distributions on the death of the SPVL contract owner or insured are totally free from federal income taxes, as these are life insurance proceeds. Moreover, SPVL distributions other than for the death of the insured are treated identically the same as distributions from a deferred VA. Thus, there is very little downside to SPVL ownership in comparison to ownership of a deferred VA.