In today’s market, new and innovative life insurance product designs with guarantees continue to be introduced.
The spur was universal life with long-term no-lapse guarantees. As sales of this product grew in the older age and more affluent markets, carriers started looking at other approaches, levels and types of guarantees.
One of the first of the newer guarantees was return of premium (ROP) term. Primarily targeted at middle market customers, this guarantees that at the end of the level premium period (typically 15, 20 or 30 years), the policy will either have paid a death benefit to the beneficiary or will return to the policyowner the premiums paid under the plan. This uniquely addresses a common objection–namely, that in most cases no benefits will be paid out under the term policy, essentially “wasting” the premiums paid.
Even in the case of plain vanilla level premium term sales, the ROP option gives producers an additional story to tell. They can present the ROP feature but also show an alternative and significantly decreased cost under the non-ROP option.
This product has gained momentum over the past 3 years, with several new carriers entering the market since 2003. ROP term is still a niche product but a few writers have had significant sales gains, especially in the mortgage protection market.
Based on a recent LIMRA survey of the term insurance marketplace, policies issued with an ROP guarantee represented 10%-15% of new term premium in 2005 with just under 50% of ROP sales in the 30-year level premium plans (see Figure 1).
The much discussed flight to guarantees has also led to increased interest in existing niche products.
Equity indexed UL (IUL) policies have been offered by a handful of carriers for many years. However, since the equities market decline in late 2000 and the resulting demand for strong policy guarantees from both consumers and producers, IUL availability and success have grown dramatically. These products provide potential for higher returns through equity market participation, but with significant downside protection via guaranteed credited rates (now in the 1%-2% range). Newer versions also offer long term no lapse guarantees.
Administering an IUL line entails substantial cost. Therefore, the products seem, so far, to be a better fit for carriers having established equity indexed annuity operations and potential economies of scale.
The latest new frontier for life carriers looking to grow through innovation is life insurance with living benefits.
Today’s consumers have multiple financial risks that need to be addressed but limited disposable income to spend on insurance and other financial services products. In this environment, packaging life insurance with other types of benefits has potential appeal.
The cutting edge response falls into two categories: variable life with variable annuity type guarantees, and life insurance/health insurance combination products.
Based on information reported to LIMRA in a 2005 study of UL and variable UL insurance, over 20 carriers now offer at least one variable life product with a long term no lapse guarantee. In some cases, these guarantees involve significant investment restriction (for some, minimum premiums must be deposited to the fixed account). In other cases, they involve minimal or no investment restriction.