Full Disclosure's Participating Whole Life Report
Not for any lack of irony, premium volume for participating whole life continues to climb, while the number of companies selling it continues to shrink. Demutualization and the overall trend towards variable life over the last few years have dictated product development even as customers seek the safety and guarantees associated with dividend paying participating products.
At a recent industry conference I attended nearly every company still selling whole life was enthusiastic about their sales results in light of continued struggles in equity sectors. Others, out of the whole life market, were focusing on secondary guarantees on premiums and death benefits–hallmarks of whole life–that are becoming increasingly popular in universal and variable product types.
There are three parts to this report excerpted from the latest edition of Full Disclosure. Charts contain current illustrated values and historical performance on a dividends-to-paid-up-additions (PUA) basis.
Another section covers strengths attributable to each plan as outlined by the companies reporting their whole life information. Current values cover policies on the street today, while the histories review the historical performance on leading plans of 10 and 20 years ago. Twenty-one contracts are covered on a current basis with nine reporting actual results.
All data is current as of Feb. 1, 2002, by which date many insurers declared their dividend scales for 2002.
Illustrated values are based on a Male Age 40 paying 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. Illustrations are divided between all base (100% whole life coverage) and policies blended with 50% term. Blending policies in this fashion allows a lower premium outlay while retaining a responsible level of all base coverage to cushion any adverse changes in dividend scales. There is more risk to the level death benefit and premiums that are guaranteed in all base policies, but the upside is a more affordable premium.
We use the internal rate of return method to examine prospective as well as historical performance. The IRR is applied to current cash values and death benefits measured at a policy duration of 30 years.
IRR figures in the early years of a policy would be negative until sufficient policy values existed. This gives the impression that the policyholder is "losing money," which isnt exactly true because he is paying in the meantime for something for which a benefit is derived: the death benefit.
