Full Disclosure's Universal Life Report

There are two main parts to this report: current illustrated values and illustrations designed to show heavily funded policy performance when providing retirement income streams.

The regular illustrations are based on a male age 55 paying a $5,000 annual premium on a $250,000 policy. The class specified is best nonsmoker as long as the class represents at least 15% of the contract issued of each policy. The death benefit type is level; however, a column is included with a true increasing death benefit for each policy. Accumulation values under an increasing death benefit option would be less, but some policies are designed to generate increasing death benefits and it would be unfair to compare them under a level death benefit only.

In the retirement income table, companies were asked to run illustrations that, at retirement, surrender accumulation values to the contracts cost basis and use policy loans thereafter to maximize income. Our samples use a $10,000 premium starting at a males age 40 and an increasing death benefit 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.

The death benefit was requested to be the guideline minimum at the $10,000 premium level as the goal of funding a policy for income places a high death benefit secondary in importance. However, other factors may influence performance, and a high cash value at age 65 does not necessarily translate into high retirement income.

A comprehensive approach can lead you to the true nature and architecture of the contract. We recommend a policy analysis approach based on illustrations, current and guaranteed (contractual) costs, features (and their costs), as well as knowledge of what each product was designed to do.

While it may be designed with strengths at higher or lower ages or face amounts, a policy may be intended for a purpose/market as remote from illustrations as you can imagine. For example, it may have broad underwriting classes so more policies are issued preferred, or may be designed for the substandard market.

Use the figures in this report as a snapshot of how policies are illustrated on the street currently, but remember each policys value is built on the economy and quality of individual attributes that are often not apparent through any illustration. Only a comprehensive analysis can reveal its true nature.

Reproduced from National Underwriter Life & Health/Financial Services Edition, March 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.