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Life Health > Life Insurance

Full Disclosure Universal Life Report

By Roger L. Blease

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While new product introductions and repricing have been accelerating over the last 18 months due to adoption of the new 2001 mortality tables, much of the action has taken place more recently. The editors of Full Disclosure periodically survey life insurers active in upper markets across a wide range of product specifications, illustrations, guaranteed minimum premiums and more.

The first universal life release of 2008 features 120 policies including 33 indexed UL contracts. This excerpt is for traditional products only, with one following within the next couple of weeks for indexed varieties.

Of the 87 traditional UL policies included here, nearly 20% are brand new policies. This is an impressive change from last summer, especially in light of a nearly identical list of participating companies. Products using the new tables and ongoing product specialization are the two trends driving the number of policies represented and new product introductions. Of the 87 policies in this section, 45 utilize the new tables. These new policies have a maturity age of 121 or “lifetime” and are more competitive on a policy cost basis, as the Cost of Insurance (COI) in a given year is lower in many cases.

Companies are eager to incorporate the new pricing and roll out new generations of products that are not only more competitive, but are more specialized than in the past. The design pendulum continues to move away from single products that can be modified by options (such as adding a long-term guarantee) or riders, to ones that are designed for a specific outcome.

Specialized policy types include minimum premium/maximum death benefit policies, accumulation policies for maximum cash values and income for the insured in the future, business policies that may include high early cash values and return of premium death benefit options, and policies that aren’t designed to produce much cash value at all. In fact, of the 87 traditional UL policies in this edition, 18 are not designed for building current assumption values. Their goal is minimum guaranteed long-term premiums. The release features a separate section for those products and the premiums of each across a wide range of ages and issue classes.

There are 3 excerpts in this report taken from the latest Full Disclosure UL/indexed UL edition. The largest chart includes illustrated values on a current basis and is accompanied by one featuring select minimum premiums necessary to guarantee the premium and death benefit to age 100 or for life (or age 121). A final table features retirement income from policies generally designed for maximum accumulation values and resulting income streams. The parameters of the illustrations are included with the charts.

Current illustrations are based on a Male Age 55 with a standard nonsmoker class (representing at least 15% of the contracts issued) paying a $7,500 annual premium and a $250,000 policy. In the past we have excerpted the $1 million best issue class from Full Disclosure. If our specified premium of $7,500 is too low to illustrate the policy for this age and face amount, the policies are blended with term insurance if available. The death benefit type is level; however, a column is included with a true increasing death benefit for each policy to indicate which are designed to generate maximum death benefits. All of the data is current for products for sale on Jan. 1, 2008.

The guaranteed minimum premium excerpt is for long-term (age 100 or lifetime) guaranteed premium and death benefit. Whether by rider, a minimum premium level, or automatically, mechanisms to include the guarantee may differ. Other guarantee variations include duration, pre-payment discounts and other nuances that help differentiate products in a crowded marketplace and serve individual customer needs. If a policy is not featured in the minimum guaranteed premium chart, it does not offer a long-term secondary guarantee but may offer shorter guarantee durations as specified in the main chart featuring illustrated values.

Internal rates of return (IRRs) figures included in the main chart indicate which products are designed to be more efficient in producing cash values, death benefits or providing an all-around solution. The IRR can be applied to cash values as well as death benefits, and we have chosen to measure both at a policy duration of 30 years.

Those seeking to analyze the relationship between cash values and death benefits will find the IRR measurement a useful tool. It’s easy to see, using the provided IRRs, which policies are built to generate death benefits, which is why it would be unfair to compare them under a level death benefit only. These values are meant to be a snapshot of how individual universal life plans are being illustrated on the street as a way to gauge their relative positions for our sample policyholder.

Also included at the end of the current illustration chart are the minimum level premium on a current basis to endow the policy (cash value equals death benefit at maturity) and minimum premium to carry it (cash value equals lowest cash values at maturity). With the advent of longer maturity ages we have assumed that these figures are to this age but will clarify this in future reports.

The real product differentiation is at the policy level in the features, limitations, and current and guaranteed cost structure of each. In a separate section we have included information on what each product is designed to do under Product Design Objectives. While not all of a product’s design objectives may be listed, you can see for what market many of these policies are meant. Some are built for low premiums, for example, while others are meant to generate major league cash values. Others may be aimed at the business market with accounting benefit riders or high early cash values.

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