This report features charts and information on 27 policies. All of them are participating (dividend-paying) with the exception of 3 all-guaranteed policies. The 4 parts of this excerpt are from the newest whole life edition of the Full Disclosure software series. As in past reports, there are sections covering current and guaranteed illustrated values, the industry’s only actual historical performance analysis, policy retirement income illustrations, and a narrative detailing what each policy’s fundamental design objectives are.
All data is current as of February 1, 2009, a period by which most insurers have declared their current dividend scales for the year. Current illustrated values are based on a $250,000 policy for a Male Age 40. The class specified is best nonsmoker as long as the class represents at least 15% of issued policies. Illustrations are divided between all base (100% whole life coverage) and policies blended with 50% term. Blending policies in this fashion allows a lower premium outlay while retaining a responsible level of all base coverage to cushion any adverse changes in dividend scales. It can also provide a level of flexibility regarding additional paid-up additions if required.
All policies in the newest release now utilize the new 2001 mortality table. This change is important as the lower mortality costs allow insurers to lower premiums and/or increase policy performance. Previously there was a mix of 1984 and 2001 priced policies, but now they are all on the same footing.
The Internal Rate of Return is applied to current cash values and death benefits measured at 30 years. The IRR of the death benefit in the early years of a policy is very high because of the few premiums paid. The IRR of cash values rise over time, as the IRR for the death benefit falls. A careful analysis of the IRR measurements indicates which policies are designed (in an illustration at least) to build current cash values, guaranteed cash values, or death benefits. It is good way to measure policies that have dissimilar annual premiums, but its downside is that it favors policies with large premiums due to economies of scale. Pay careful attention to the footnotes for this section as not all policies are participating nor have a long premium paying period.
The historical performance charts are based upon a Male, age 55 (we chose age 45 for the last whole life excerpt) who purchased a participating policy 10 or 20 years ago. We look at the illustrated and actual performance two ways. The first basis shows policy dividends measured as cash out of the policy. Here the interest adjusted payment and cost indices are applied on the actual performance of the policy and on the cash values illustrated 10 and 20 years ago. The indices show how plans with dissimilar premiums actually performed versus how they were initially illustrated. A lower number index is better, but beware of how much premium each policy commands annually as policies with higher premiums tend to have better performance.
In reality, policies are usually not illustrated with cash dividends being paid to the policyholder, but with dividends going to paid-up additions, little slices of whole life that in turn develop their own dividends thus enhancing policy values and death benefits. Here again we use IRR measurements on these values to accommodate both the additional paid-up amounts as well as dissimilar premiums between policies.
The parameters of the new retirement income section feature a policy that is heavily funded ($10,000 annually) that switches to a paid-up dividend option at retirement age, thereby producing a maximum income stream. Twenty-five premiums are made by a 40-year-old insured until age 65. A maximum income stream up to age is paid for 20 years through the insured’s 84th year. A low residual value is calculated at age 100. The list is shorter than that for current values as some companies cannot illustrate to Full Disclosure’s specifications, and others are not meant for retirement income. Retirement income is a great use for whole life but the product is not often thought of in this way.
Whole life is a pretty straightforward product, but there are policies in this excerpt that are meant to serve niche marketplace needs (high early cash values, for example). To help clarify what each product in this report is designed to do best, we have included information under the Product Design Objectives section.