Our newest Full Disclosure release covering survivorship life products shows the segment with some renewed vigor, particularly where universal life plans are concerned. From a record number of policies available in the mid-2000s, the market settled down to a relatively stable number of offerings that has persisted. Some of the responsibility for this is that until recently (and it’s still not clear) no one was sure what was going to settle out of the federal estate tax debate. During this period too, companies were required to adopt the new Commissioner’s Standard Ordinary mortality tables requiring a simultaneous boost in product development investment. This created a hefty disincentive to keep more than one or a few products in each company’s portfolio.
There are six new survivorship universal life plans in this new edition of Full Disclosure from when we last compiled it at the end of last year. Changes that have been ongoing in the individual market, such as products with low cost guaranteed premiums and indexed designs, are being introduced on the survivorship space. Often times, they will have “Guaranteed” or “Protection” in their names, leaving no doubt as to their niche. Most of these new products join portfolios that already have one or more SUL products, such as Northwestern Mutual’s Survivorship Universal Life Guaranteed or Guardian’s SUL Secondary Guarantee.
Full Disclosure surveys survivorship life 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. The edition of Full Disclosure that included the information in these excerpts was released in June. Policy data is current as of May 1, 2012. While these charts are only slices of the Full Disclosure database, they will give you 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 universal life 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 of 30 years, dependent on age combination. The internal rates of return (IRR) of cash values rise over time, as the IRR for the death benefits fall. 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 each chart (SVL & SUL), 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 universal and variable life illustrations, and issue classes are likewise the same across the three policy types. The variable life illustrations are based on an 8% gross rate of return with average subaccount expenses “netted out” of the projected values.
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