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 from Full Disclosure is for indexed products only. The portion featuring traditional UL varieties appeared in the March 24 issue.
The companies entering or reentering this market, and those updating existing lines, are becoming more imaginative and creative with product designs and pricing as they try to achieve market share in this emerging environment. The survey reveals increasing numbers of indexing options beyond the S&P 500, as well as multiple crediting strategies. And while the goal in each of these policies is to minimize losses in down equity and other markets, the way in which the pieces of the puzzle fit can be wildly varied. These puzzle pieces include indexing option, crediting method, participation rate and caps on gains.
With indexed UL, contract information (as opposed to simply considering illustrations) is paramount. This may be truer than with any other life insurance product on the market, especially at a time when companies are aiming to capture the hearts and minds of brokers and independent producers who may still be trying to get a handle on exactly how these plans work. It is sometimes too tempting to highlight the best parts of the contract when promoting products, while ignoring other elements that may place them on a more level playing field with competing contracts. A “whole contract” policy analysis will fill in the gaps and allow for more accurate comparisons.
As with traditional UL plans, companies are eager to incorporate the new 2001 mortality-based pricing and roll out new generations of products that are not only more competitive, but more specialized than in the past. 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. Their goal is minimum guaranteed long-term premiums. The release features a separate section for those products and the premiums of each across a 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). The parameters of the illustrations are included with the charts. Also included are product design objectives as stated by participating companies.
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 $1,000,000 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 indexed UL 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.