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Life Health > Life Insurance

Full Disclosure Survivorship Life Report

By Roger L. Blease

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Our last survivorship life report (see NU, Feb. 2, 2009) revealed that the number of survivorship life products in the marketplace had decreased dramatically towards the end of 2008. We anticipated that the universe of available products would improve somewhat and it has. (See below for charts)

The biggest factor in the decline was the 2009 deadline for companies to adopt the new 2001 CSO mortality table. Some companies had not brought out new or repriced versions yet, but were planning on doing so in the future. Due to the change, some insurers eliminated policies that overlapped others in their portfolios.

Variable life sales were particularly hard hit coming into 2009 as equity values plunged. As you can see by the graph on this page, the number of variable survivorship products available has literally been cut in half. Some of this may be due to the fact that most insurers implemented the new mortality table for variable products very close to the deadline. Whatever the reason, if product development teams were looking for time to more fully develop products with new pricing, this spring was an ideal time to take it.

Full Disclosure surveys survivorship life insurers twice yearly and tracks illustrated values and the benefits each brings to the marketplace. In addition to the contractual and qualitative data collected on each policy, we also look at how they are illustrating their products in the field. The edition of Full Disclosure featured in this issue contains policy data current as of May 1, 2009. While these charts are only slices of the Full Disclosure database, they give an idea of how these products perform on a prospective basis.

Three main charts feature illustrated values for whole, universal, indexed universal, and variable life survivorship products. These illustrated values are based on current interest or dividend crediting, expenses, and in the case of variable designs, a predetermined crediting rate. In addition to the main illustration tables, there is a chart featuring premiums for UL minimum long-term guarantee products. This increasingly popular use for flexible premium survivorship life insurance provides minimum annual premiums to age 121 with little or no cash value at maturity, but with low guaranteed annual premiums.

Full Disclosure applies the internal rate of return method to current illustrated accumulation values and current death benefits measured at policy durations 30 years dependent on age combination. The IRR of cash values rise over time, as the IRR for the death benefits 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.

You will notice at the end of the SVL and SUL charts that there are columns showing how the policy would have performed under an increasing death benefit option. The cash value of an increasing death benefit policy, while not listed, would be lower because of the added costs of insurance. The whole life policies have naturally rising death benefits due to the paid-up additions dividend option.

Standardized annual premiums are the same between UL and VL illustrations, and issue classes are likewise the same across the three policy types. The VL illustrations are based on an 8% (down from the 10% we specified earlier) gross rate of return with average subaccount expenses “netted out” of the projected values.

Full Disclosure not only examines premiums and illustrated values, but also gets to the heart of what each policy is designed to do best. Because survivorship life products are designed for certain objectives, whether maximum cash accumulation or none at all, for example, we have summarized what each is designed for. Some have simplified underwriting, short-term values, living benefit riders, or many others. The full picture of a product’s strengths, weaknesses, and its fundamental design objective can only by realized by examining its complete policy specifications and features, current and guaranteed costs and expenses, and a wide sampling of illustrations.

Please see the footnotes at the bottom of each table that may reveal important differences between products, or in ways that they were illustrated by insurers. As mentioned earlier, some of the policies in this report are not designed for cash value accumulation, but for minimum long-term guaranteed premiums. It is on that basis primarily that any comparison to other products should be done.

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