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. And while we collect many types of information, we select a few key numeric benchmarks for publication here. This data, especially when it regards nonguaranteed (current) illustrated values, is meant to indicate how a product is designed to perform, not necessarily how it will perform.
As producers, analysts, and advisors we use what information we have available to us to compare policies, illustrated values included. However, we often lose sight of what some of this information is: Indicators of how a policy is designed to perform under a given scenario as a way of determining the right approximate course of action for a client. Nothing is set in stone if it is not guaranteed and an illustration is only as good as the consistent approach the underwriting company takes toward the policyholder going forward. So please take the timeworn reminder that illustrations are but one tool to use in your product due diligence efforts.
The first universal life release of Full Disclosure in 2010 features 101 policies, including 74 fixed policies and 27 indexed ones. There is one less fixed product, and one more indexed, than in the release of six months ago. The information excerpted here is for traditional (fixed) products only, with indexed varieties following next month.
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 third 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). Please see the footnotes for this chart for greater detail. All of the data is current for products for sale on January 1, 2010.
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 universal life plans are being illustrated on the street as a way to gauge their relative positions for our sample policyholder.
UL is an inherently flexibly policy design and as such can form a basis for different policy design objectives. We include a code appearing next to each policy name in the excerpted charts regarding what that objective may be. These codes are Guaranteed Minimum Premium/Death Benefit (GMDB), Maximum Death Benefits (DB), Maximum Accumulation Values (AV), and Flexible/General Purpose (F/G).