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).
GMDB policies generate little cash value and are designed for long-term (lifetime) death benefits with a guaranteed minimum premium outlay.
DB policies generally cost little to carry on a current basis. Their primary purpose is to provide maximum death benefits for a given premium.
AV policies are designed for maximum cash value accumulation with more of the premium going towards 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 policies may be constructed to achieve different results 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 that it is what is sometimes called a “balanced” or “all around” policy. It generates cash values and death benefits in somewhat equal measure.
These identifications are designed to help you fairly compare policies that share common designs. 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 for what market many of these policies are meant. Some are built for low premiums, while others may be aimed at the business market with accounting benefit riders or high early cash values.