The latest Full Disclosure policy excerpts feature a record 107 universal life insurance policies, including 25 indexed varieties. This is 8 more than we have ever had, and it’s a good indication of both the enthusiasm with which companies are embracing indexed UL and the vibrancy of the traditional UL market.
As product analysts, we are continually challenged by the complexity of these products and the design evolutions caused by underlying industry shifts, such as the adoption of the new 2001 CSO tables.
From the standpoint of complexity, no product out there rivals indexed UL. To begin, crediting rates are typically based on the historical performance of the underlying index at various durations. Then, the methods used to credit value back to the policy can vary widely, as can the participation rates or caps that can limit credited values. Add to that the fact that more and more policies offer numerous indexes beyond the traditional S&P 500 index. Some policies also offer blending between indexes and even blending with current assumption interest rates like a traditional universal life policy. This enables the policyholder to “dial-in” a current interest rate to varying degrees.
With all of these permutations, how can a reasonable apples-to-apples comparison be obtained? In the latest edition of Full Disclosure, we asked companies contributing illustrations to base them on the S&P 500 Index, which most would have. We also requested that they use an annual point-to-point crediting method (if available). This is a fairly straightforward crediting method that we assumed most policies would offer. What we got back was a somewhat mixed bag of numbers, as not everyone did–or could do–what we requested, and there was also some unhappy feedback from companies who indicated their products were not being allowed to perform to the best of their capabilities.
Use these indexed universal numbers with care, as the policies will perform differently under different combinations of indexes and crediting methods–a seemingly infinite number of combinations if other factors are brought into play. In the future, we are going to ask the companies to provide values as each policy is typically illustrated in the field. Full Disclosure software features information on policy mechanics and how their assumed illustration rates are calculated. If you would like to sound off on this issue, I would love to hear from you.