Variable products are generally designed to generate maximum accumulation values through investments in numerous subaccounts varying in risk level and investment objectives of the policyholder.
But investment returns and risk are only part of the story. Not all products are designed the same way and each should be evaluated at the contract level to gauge its ultimate design objectives beyond simply accumulating cash. For example, some policies are designed for maximum death benefits while others may feature zero net cost loans and decreasing M&E charges for maximum retirement income. Additional policy features are designed to cushion the risk associated with a variable product such as guaranteed income and/or guaranteed death benefit options.
Full Disclosure surveys variable insurers twice each year and tracks illustrated values and 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 (current as of Sept. 1, 2007). There are charts presented for current illustrated values and a scenario with maximum retirement income–an ideal use for variable life insurance. There is also a separate guaranteed minimum premium excerpt for long-term (age 100 or lifetime) guaranteed premium and death benefit. While very popular with traditional universal life plans, guarantees on premiums and death benefits are increasingly found as an option in VL.
Current illustrations are based on a Male Age 40 paying a $7,500 annual premium and a $1,000,000 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% of the contract issued of each policy. Companies were asked to employ a 10% gross crediting rate that is then net of average fund expenses.
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 what the death benefits would be when illustrated under an increasing death benefit option.
