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: