A new life insurance design–the large initial premium variable universal life (LPVUL) policy–offers benefits and advantages over typical single premium variable universal life (SPVUL) policies.

Further, it offers virtually all the benefits of a variable annuity, but with additional tax benefits unavailable within VAs. For example, unlike SPVULs but similar to VAs, LPVULs may be easy to obtain with little or no underwriting; have no current, immediate charges for premium expense fees or cost of insurance; offer a guaranteed income withdrawal option without annuitization; and provide opportunity for growth through investment options.

But unlike VAs, LPVULs have significant death benefits with tax advantages at death.

The LPVUL is client-focused. Here are 7 product features (by no means all) that help with this:

o Lifetime no-lapse guarantee within certain limits. This assures the death benefit will not lapse due to poor performance.

o No current cost of insurance charges. This means policyholders can invest a larger percentage of net premiums than with more traditional VULs, potentially enabling LPVULs to accumulate cash value more quickly than with SPVULs. (Note: COIs may be assessed in the future).

o Death benefit in excess of the cash value is free of federal income tax.

o No premium expense charge is applied to the initial premium.

o Guaranteed withdrawal benefit (GWB) allows access to a set percentage of the initial premium annually. This can be used for income purposes.

o Simplified issue underwriting offers a considerably less complicated purchase experience than for most life policies, and not just at low face amount.

o Surrender charge period is typically half that of periodic premium VUL.

Who is the ideal client for such a contract? A person who needs additional life insurance to meet financial objectives, is already investing in equities, has considerable funds accumulated already and has the risk tolerance to handle market volatility.

The target market is broad, as LPVULs can meet needs at 3 life stages:

1) Pre-retirement: The product can accumulate wealth through cash value growth potential while deferring taxes.

2) Retirement: The product guarantees income for life through a GWB, no matter how the investment options perform.

3) Death: The product transfers proceeds to beneficiaries without federal income taxes, and without being subject to probate delays and costs.

Before even discussing LPVUL’s suitability as a possible solution, however, agents should carefully assess the financial situation, goals and objectives.

During disclosure, it’s important to note that withdrawals under the GWB reduce the policy value, death benefit and other benefits, and may have tax consequences. Also, in most situations, the policy will be a modified endowment contract. Thus, agents should explain how LPVUL’s tax treatment on withdrawals differs from that of non-MEC life policies.

Here are 4 general situations where an LPVUL may be a solution.

Retirement accumulation. LPVUL may help agents convince clients who already have some accumulated funds to save more, since it can provide life insurance protection and potentially help with future retirement accumulation and income.

Family or charitable legacy. Through LPVUL death benefits, affluent clients can meet specific needs. Examples include providing for a special needs child or a spouse’s income or care; covering long term care expenses; paying for college educations of grandchildren; equalizing estate shares among children of differing circumstances; providing various income settlement options; and designating a charity as owner or beneficiary under several arrangements.

Analyze existing assets. Some clients may wish to liquidate existing “idle” assets not being used for income, and not anticipated to be required for income–in order to purchase LPVUL. This could create additional estate value and tax advantages.

Trust-owned life insurance. Bank trust officers have a fiduciary responsibility to ensure that any policies inside trust arrangements are currently appropriate for the trust beneficiaries. In assisting these trust officers with TOLI policy analysis, agents can suggest an LPVUL as a product that may help meet the needs, while taking care not to disturb the relationship between the bank and its trust clients.

For the right client, LPVUL offers many benefits, ranging from immediate day-one, enhanced death benefits and ease of transaction on simplified issue cases, to multiple tax advantages and GWBs for lifetime income options.

Jack Kenney is chairman, CEO and founder of Clearwater Financial Marketing, a business unit of InterSecurities, Inc., and an AEGON company.