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Universal Life Insurance

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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. The second universal life release of 2010 features 114 policies including 82 fixed policies (up from 75 a year ago) and 32 indexed policies (up from 26 a year ago). This excerpt is for traditional products only, with one following next month for indexed varieties. In the 13 years Full Disclosure has been publishing universal life policy information, this is a record number of policies!

Of the 82 fixed policies presented here, 10 are brand-new to the market since we last updated this report six months ago. Trends we are noticing are an expansion in the number of policies that can be customized to perform one or multiple objectives, as well as an increasing number of guaranteed minimum death benefit polices (GMDB) that are also designed to generate moderate cash value accumulation. These GMDB/accumulation policies often have ‘Plus’ in the policy name but not always. Other policies in this report are designed for guaranteed death benefits with little cash value, maximum cash value accumulation, or maximum death benefits.

A few years ago, we added a code appearing next to each policy name in the excerpted charts as to what that each policy’s design objective may be. The picture is somewhat murkier as delineations between product types are blurred so we may have to add other categories to our list. For now, though, they are:

GMDB: Guaranteed Minimum Premium/Death Benefit

Policies that generate little cash value and are designed for long-term (lifetime) death benefits with a guaranteed minimum premium outlay

DB: Maximum Death Benefits

Policies that generally cost little to carry on a current basis whose primary purpose is to provide maximum death benefits for a given premium

AV: Maximum Accumulation Values

Policies designed for maximum cash value accumulation with premium going more towards building values than growing death benefits

F/G: Flexible/General Purpose

Policies constructed to achieve different aims by selecting different options, e.g., made to be a Guaranteed Minimum Premium/Death Benefit policy, or an Accumulation Policy depending on options chosen or funding level. Sometimes called a “balanced” or “all around” policy, generating cash values and death benefits in somewhat equal measure

In addition to a product’s design objective(s), policy differentiation lies in the features, options, 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 what market many of these policies are meant for. Some are built for low premiums, and others may be aimed at the business market with accounting benefit riders or high early cash values. These will help round out the codes next to the policy names and help these policies stand out in the marketplace.

There are three excerpts in this report taken from the latest Full Disclosure universal life/indexed universal life edition (the indexed universal life excerpt will be published concurrent to this one). 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 final 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. Typically we have varied the face amount when excerpting charts for this report, but increasingly policies have a minimum face amount of $1,000,000.

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 July 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, they do 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.

Current Universal Life Policy Illustrated Values

Current Universal Life Policy Retirement Income Illustrated Values

Universal Life Lifetime/Age 100 Guaranteed Minimum Premiums

Universal Life Product Design Objectives

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). Any premiums that are not level are listed in the footnote section.


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