If you count product research an important part of your sales and due diligence activity, you know how important it is to have a solid understanding of the current product marketplace, backed by concrete data. At Full Disclosure, we cover a number of different cash-value products throughout the year, focusing on data from companies that are active in mid to upper markets. Our goal when collecting and organizing information is to show what products do well. And, as we are examining slices of data, this information is only meant to provide an idea of the general strengths each policy brings to the marketplace.
Full Disclosure surveys variable insurers twice each year and tracks illustrated values and the benefits each policy brings to the marketplace. The data in this report is excerpted from the most recent variable life data we collected. All data is current as of May 1, 2012. There are charts included for current illustrated values and a scenario with maximum retirement income — an ideal use for variable life insurance. There is also a guaranteed minimum premium excerpt for long-term (age 100 or lifetime) guaranteed premium and death benefit. To help clarify what each product in this report is designed to do best, please consult our Policy Design Objectives.
The reports can be accessed by selecting the linked portions of this article, or by selecting a link from the report index below.
Current illustrations are based on a Male Age 40 paying a $7,500 annual premium on a $1,000,000 policy. Companies were asked to employ an 8 percent gross crediting rate that is then net of average fund expenses. Fund expenses can be either arithmetic, or more likely, weighted to the largest subaccounts available in the 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. The class specified is best nonsmoker as long as the class represents at least 15 percent of the contract issued of each policy.
Internal rates of return (IRR) figures, included in the main chart, indicate which products are designed to be more efficient in producing cash values, death benefits, or are 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. Information is included to show you what the death benefits would be illustrated under an increasing death benefit option.
Variable life is also marketed as a tool to supplement retirement income. This is done by surrendering accumulation values to the contract’s cost basis and using policy loans thereafter, or increasingly, by using only loans to provide maximum income. In the retirement income table, companies were asked to illustrate policies using a $10,000 premium starting at a male’s age 40, selecting an increasing death benefit option until age 65. At retirement age 65, the death benefit type is switched to level as values are liquidated. A residual value of $100,000 was requested at the policy maturity age and companies tried to come as close to that as their illustration systems would allow. Again, certain policies are designed to do certain things and a high cash value at age 65 does not necessarily translate into high retirement income.
The guaranteed minimum premium excerpt is for long-term (age 100 or lifetime) guaranteed premium and death benefit. Whether by rider, a minimum premium level, or through a dedicated fixed account, mechanisms to include the guarantee may differ. 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.
The illustrations in this report are meant to show how individual life variable plans are being illustrated on the street as a way to gauge their relative positions for a sample policyholder. The real product differentiation is at the policy level in the features, limitations, and current and guaranteed cost structure of each. While it is tempting to try to compare products using subaccount performance, the real test of a product’s ability to create policyholder value lies with the contract, or the “wrapper” around the investment components.