Full Disclosure's Variable Life Report

The newest variable life excerpt from the Full Disclosure software series features 40 policies, including 12 brand new ones. Although it is interesting to note that 25% of the policies featured are new since we surveyed companies in the fall, the overall number of available policies for sale since then has declined from 52.

This big decrease is due to companies with several products paring the number available coincident with the required adoption of the new 2001 CSO mortality tables.

Compounding this trend is that companies that have merged relatively recently now had a good opportunity to focus on the strongest products resulting from the mergers. We now have fewer products that are more modern in design and cheaper from a mortality cost standpoint.

Of course, VL sales were particularly hard hit coming into 2009 as equity values plunged. For product development teams looking for time to more fully develop products with new pricing, this is an ideal time to take it. According to LIMRA International’s U.S. Individual Life Insurance Sales report, premium from individual life insurance sales declined 26% in the first quarter of 2009. Amid this decline, variable life products were hardest hit. No company increased their variable sales and VL premium slid 61%.

Full Disclosure surveys variable insurers twice each year and tracks illustrated values and the benefits each brings to the marketplace. In addition to the contractual and qualitative data on each policy collected, we also look at how they are illustrating their products in the field (current as of May 1, 2009). There are charts for current illustrated values and a scenario with maximum retirement income–an ideal use for VL insurance. There is also a guaranteed minimum premium excerpt for long-term (age 100 or lifetime) guaranteed premium and death benefit.

Current illustrations are based on a male age 40 paying a $7,500 annual premium and a $1 million policy. Companies were asked to employ an 8% gross crediting rate (down from 10% in our last installment on VL) that is then net of average fund expenses. Fund expenses can be either arithmetic, or more likely, weighted to the largest subaccounts available in the policy. Details are available in the software release of Full Disclosure, as are the number of issue classes available for each 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. The class specified is best nonsmoker as long as the class represents at least 15% of the contracts issued of each policy.

Internal rates of return (IRR) figures, included in the main chart, indicate which products are designed to be more efficient in producing cash values, death benefits, or are 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. Information is included to show what the death benefits would be illustrated under an increasing death benefit option.

Variable life is also marketed as a tool to supplement retirement income. This is done by surrendering accumulation values to the contract’s cost basis and using policy loans thereafter, or increasingly, by using only loans to provide maximum income. In the accompanying retirement income table, companies were asked to illustrate policies using a $10,000 premium starting at a male’s age 40, selecting an increasing death benefit option until age 65. At retirement age 65, the death benefit type is switched to level as values are liquidated. A residual value of $100,000 was requested at the policy maturity age and companies tried to come as close to that as their illustration systems would allow. Again, certain policies are designed to do certain things and a high cash value at age 65 does not necessarily translate into high retirement income.

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 through a dedicated fixed account, mechanisms to include the guarantee may differ. 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.

The illustrations in this report are meant to show how individual life variable plans are being illustrated on the street as a way to gauge their relative positions for a sample policyholder. The real product differentiation is at the policy level in the features, limitations, current and guaranteed cost structure of each. While it is tempting to try to compare products using subaccount performance, the real test of a product’s ability to create policyholder value lies with the contract, or the “wrapper” around the investment components. To help clarify what each product in this report is designed for, we have included information under Product Design Objectives.

Variable Life Policy Design Objectives

American General Life Income Advantage Select

Maximum Income; No M&E Charges After Year 10; High Early Cash Surrender Values; Overloan Protection; No Tobacco Use Incentive; Guaranteed Minimum Withdrawal Benefit

American General Life Protection Advantage Select

Flexible Death Benefit Guarantee to Lifetime; Low Premium to Endow; GMDB Automatic Adjustment Feature; Rolling Targets; GMDB Rider; No Tobacco Use Incentive

Ameritas Life (A UNIFI Co) Excel Performance VUL

Cash Value Accumulation; Maximum Retirement Income; Low Expenses; Return of Premium Option; Term-Blending

AXA Equitable Life Incentive Life Legacy

Flexible Death Benefit Guarantee; Low Minimum Premium to Endow; Accumulation Values; Maximum Income; Overloan Protection; Living Benefits

AXA Equitable Life Incentive Life Optimixer

Flexibility; Cash Value Accumulation; Maximum Retirement Income; Riders/Features; Loan Extension Protection

Guardian Life Flexible Solutions VUL 2008

Accumulation Sales; Business Applications; Long Term Values; Policy Exchange

Hartford Life Leaders VUL Legacy

Maximum Death Benefits; Business Applications

Hartford Life Leaders VUL Liberty

Maximum Income; Riders

ING “Security Life of Denver” ING VUL-ECV

High Early Cash Surrender Values; No Surrender Charges; 20-Year or Lifetime Death Benefit Guarantee; Third Death Benefit Option

ING “Security Life of Denver” ING VUL-CV

Maximum Retirement Income; Cash Value Accumulation; No M&E Charges (current); Rolling Targets; Overloan Protection Rider

Jackson National Life Advisor VUL

High Early Cash Values; Long-Term Accumulation; Advisor (Fee) Withdrawals; No Sales Charges; Maximum Retirement Income; Passive Disciplined Subaccounts Available; 1035 Exchanges With Loans

Jackson National Life Ultimate Investor VUL

No Surrender Charges; Smoothed Compensation with Trails; Maximum Retirement Income; Long-Term Accumulation; 1035 Exchanges with Loans

Jackson National Life Perspective Investor VUL

Traditional Compensation; Passive Disciplined Subaccounts; Maximum Retirement Income; Long-Term Accumulation; 1035 Exchanges with Loans

John Hancock Life Protection VUL

Flexible Death Benefit Guarantees; Premium Solves; LifeCare Benefit

John Hancock Life Accumulation VUL

Flexible Death Benefit Options; Business Applications; LifeCare Benefit and Overloan Protection Riders

Lincoln National Life AssetEdge VUL

Accumulation Sales; Maximum Income

Lincoln Benefit Life TotalAccumulator