Full Disclosure covers universal life insurance products twice per year and features both fixed and indexed policies. The second universal life release of Full Disclosure this year features 95 policies, including 63 fixed policies and 32 indexed policies. All data is current as of July 1, 2012. Not all of the policies are included in the accompanying survey as some are not designed to be illustrated or fit standard criteria.
The two parts of this report each contain a chart with currently illustrated products. Internal rates of return (IRRs) figures 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.
Universal life insurance
Current illustrations are based on a male, age 40, with a best nonsmoker class (representing at least 15 percent of the contracts issued) paying a $7,500 annual premium and a $1 million 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 million.
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.
You will notice a code appearing next to each policy name in the excerpts. This is to give the casual reader an indication of what each policy’s overall design objective may be. Delineations between product types are blurred — especially now that some companies have moved to a smaller number of much more customizable policies. The codes are as follows:
GMDB (guaranteed minimum premium/death benefit): These are policies that usually generate little cash value and are designed for long-term (lifetime) death benefits with a guaranteed minimum premium outlay.
DB (maximum death benefits): These are 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): These policies are designed for maximum cash value accumulation with more of the premium going toward 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 (flexible/general purpose): A policy with a flexible/general identification may be constructed to achieve different aims by selecting different options. For example, it could be 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 call a “balanced” or “all-around” policy. That is, it generates cash values and death benefits in somewhat equal measure.
In addition to a product’s general design objective(s), as represented by the codes, 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. For traditional universal life policies, these descriptions will help round out the codes next to the policy names and add a bit more clarity to the indexed policies.
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.