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. As indexed policies are often used to accumulate maximum values, we are including, for the first time, an excerpt from Full Disclosure software showing a maximum income stream at retirement.
As you can tell from some of the values, the income and accumulation values based on our parameters are somewhat uneven. Full Disclosure’s editors have verified them and they are correct.
The retirement income illustrations are based on Male Age 40 Best Nonsmoker with a guideline minimum death benefit at the beginning of the contract period (as long as it not a modified endowment contract). One of our new objectives in trying to get some kind of “apples-to-apples” illustrations was that the companies use either their lowest variable or fixed loan rate to produce the highest income stream at Age 65 using either surrenders to basis then policy loans, or straight policy loans. Limitation in companies’ illustration systems accounts for some of the disparity in values. The rest of the parameters we outlined to the companies during the data collection process accompany the chart.
With indexed universal life products, 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 while promoting products, while ignoring other elements that may place them on a more level playing field with competing contracts. A “whole contract” policy analysis shows how the puzzle pieces of indexing option, crediting method, participation rate, and caps on gains fit together.
In addition to the retirement income excerpt, there are 3 others 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 is a listing or product design objectives as stated by participating companies. This excerpt from Full Disclosure is for indexed products only. The portion featuring traditional UL varieties was published in the Sept. 29 issue of NU.
Current illustrations are based on a Male Age 40 with a best nonsmoker class (representing at least 15% of the contracts issued) paying a $7,500 annual premium and a $1,000,000 policy. 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. 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). Please see the footnotes for this chart for greater detail. All of the data is current for products for sale on July 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.