Full Disclosure’s editors 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 2009 features 104 policies, including 78 fixed policies and 26 indexed policies. This excerpt is for traditional products only, with one following next month for indexed varieties.
Of the 78 traditional UL policies, all of which utilize the new 2001 CSO mortality tables, 22 are brand new. Over the last few years new product introductions have reinvented the industry’s UL portfolio. This is due not only to the new tables but is also a delayed effect of company consolidation. Companies have maintained separate product lines for multiple companies that had merged into one much earlier. The re-pricing required by the new table, along with ongoing competitive pressures, created a simultaneous period of retiring old products and introducing newer, yet fewer, new ones.
UL is an inherently flexible policy design. A policy can be customized in many instances to meet various policyholder needs. Products can be modified via options (such as adding a long-term guarantee) or riders, but a primary design objective, one that each policy is particularly suited for, is increasingly likely. In the last release of Full Disclosure covering UL products we added a code appearing next to each policy name in the excerpted charts as to what that objective may be. These codes are:
–GMDB (Guaranteed Minimum Premium/Death Benefit). These are policies that generate little cash value and are designed for long-term (lifetime) death benefits with a guaranteed minimum premium outlay.
DB (Maximum Death Benefits). These are policies that generally cost little to carry on a current basis and whose primary purpose is to provide maximum death benefits for a given premium.
AV (Maximum Accumulation Values). These policies are designed for maximum cash value accumulation with more of the premium going toward building values as opposed to growing death benefits. They usually are also designed for maximum retirement or other income and may feature “zero-cost” policy loans to do so.
F/G (Flexible/General Purpose). A policy with a F/G identification may be constructed to achieve different goals by selecting different options. For example, it could be either made to be a Guaranteed Minimum Premium/Death Benefit policy, or an Accumulation Policy depending on options chosen or funding level. An F/G designation could also mean it is what is sometimes called a “balanced” or “all around” policy. That is, it generates cash values and death benefits in somewhat equal measure.
S (Specialty). These are policies that do not fit in the above categories. For example, there is one policy listed in this report that is not medically underwritten.
These identifications are designed to help fairly compare policies that share common designs. We’ll be adding codes to other editions of Full Disclosure as warranted if they benefit from this type of clarification.
There are 3 excerpts in this report. 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 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).
The guaranteed minimum premium excerpt is for long-term (age 100, age 121, 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 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).
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 what market many of these policies are meant for. Some are built for low premiums, and others may be aimed at the business market with accounting benefit riders or high early cash values. These will help round out the new codes next to the policy names.