Nontraditional Life Insurance Products

1
Nontraditional Life Insurance Products

• Problems with Traditional Products
• Variable Life Insurance
• Universal Life Insurance
• Flexible Premium - Variable Life Insurance
  (FPVLI) or Variable Universal Life Insurance

2
Problems with Traditional Life Insurance Products

• The Impact of Inflation on a Fixed Face Amount
• Investment Performance (when sold as an
  investment contract)
• Trend toward buy term and invest the difference
  strategy
• criticism cash value and face amount not paid at
  death with cash value life insurance

3
Variable Life Insurance

• First New product designed to deal with
  inflation eroding the face amount - Agents need
  an SEC License to sell this
• Fixed premium with guaranteed death benefits
• Cash value goes into portfolio of investments and
  value based upon performance
• Death benefits increase with cash value
• Policy owner determines s in fund and can
  switch
• Loans limited to about 75 of cash value

4
Variable Life Insurance - Cash Value Accounts
Gross Premiums
Premium Loading or Charges
Cash Value Accounts
Money Market
Multiple Invest
Intern. Fund
Other
Stocks
Bonds
5
Variable Life Insurance - Graph
Death Benefit
Dollars
Cash Value
Min. Death Benefit
0
35
Age of Insured
100
6
Universal Life Insurance - 1979

• Separated investment from life Insurance
• Flexibility in the amount timing of premium
  payments
• Agent compensation schedules started to change
• Advantage in calculating Federal Tax liabilities

7
Universal Life Insurance - Basic Features - 1

• Transparent - cash value, interest, investments,
  expenses
• Cash value schedule not predetermined - function
  of premium payments and investment performance
• Premium - minimum initial premium future C.V.
  must be enough to cover mortality expenses
• C.V. goes below expenses - 90 day grace period
  then policy lapses
• Maximum premium payments - IRS Guideline

8
Universal Life Insurance - Basic Features - 2

• Expenses - policy origination fee plus 5 - 10 of
  each premium Front-end loaded
• Guaranteed plus excess interest paid on cash
  value
• Cost of Insurance - monthly deductions based on
  amount of term insurance (pattern of face amount
  selected)

9
Basic Features - ULI
Premium Payments
Premium Loads
Guaranteed and Excess Interest
Cash Value
Monthly Cost of Insurance
Partial or Full Surrender and Surrender Charges
10
ULI - Level Death BenefitPlan A
Dollars
Death Benefit
corridor
Specified Amount
Term Insurance
Cash Value
0
35
Age of Insured
100
11
ULI - Variable Death BenefitPlan B
Death Benefit
Dollars
Term Insurance
Specified Amount
Cash Value
0
35
Age of Insured
100
12
Cash Value Accumulation Test 7-pay test
1,000
PVFB
Net Single Premium Line
Dollars
Cash Value
0
Age of Insured
100
35
13
Cash Value Corridor Test Multiples
Age Multiple 0 - 40 250 45 215 50
185 55 150 60 130 65 120 70 115 75-90 10
5 95 and Over 100 Ex Age 60 Cash value x 1.30
gt Death Benefit gtgt fails
14
ULI - Other Features

• Switching between two options limited
• Increase face amount with evidence of
  insurability
• Withdraw cash values - not a loan Loans are
  available
• Accelerated Death Benefits, Guaranteed
  Insurability Option, Waiver of Premium Rider are
  all available

15
Variable - Universal Lifeor FPVLI

• A Universal Life Insurance Contract
• Plus policy owner allowed to pick portfolios like
  VLI

16
Variable - UniversalFixed Death Benefit
Death Benefit
Specified Amount.
corridor
dollars
Term Ins.
Cash Value
0
35
100
Age of Insured
17
Variable - UniversalVariable Death Benefit
Death Benefit
Dollars
Cash Value
Specified Amount
0
35
Age of Insured
100