GUL Products Should Be Stress Tested
Over the last 20 years, Guaranteed No-Lapse Universal Life insurance has become the most popular insurance design sold in the marketplace. Honestly, it just made things easier. All you have to do is run a spreadsheet of carriers and the cheapest price wins. But when you think about, all we’re doing is selecting the lowest bid without asking any questions. Why is XYZ carrier cheaper? What are they not telling us? Are we being penny wise and pound foolish?
As a partner with BRAMCO, we contracted with Lifetrends, a competitive intelligence services firm specializing in life insurance. We asked them to create a tool to truly compare one product to another outside of the traditional “lowest price” based spreadsheet. They found that rarely the cheapest product was the best.
Here’s how they did it:
Goal of Analysis: To focus on potential “real life" situations where a client may be at an advantage or disadvantage as it relates to how a product would perform under the specified circumstances.
- Catch-up Analysis - Producers have become more and more comfortable at illustrating and selling no-lapse guarantee products that are not guaranteed for lifetime. Often times, producers look at limiting the guarantee to age 100, 95, 90 or life expectancy + 5 years. The Catch-up Analysis looks at solving for a level premium to guarantee to age 90. Then, we calculated how much premium it would cost on an annual basis to carry/catch-up coverage from ages 91 to 100 and 101 to 121. There is considerable differences among the carriers as it relates to how much it would cost a client to continue their coverage if they live beyond age 90.
- Missed Premium Analysis - Guaranteed universal life products are only guaranteed as long as you pay the premium, on time, every time. Producers can strongly encourage their clients to pay premiums on time; however, there may be life events that prevent someone from being able to pay a premium on time or they may unintentionally miss a premium. The Missed Premium Analysis looks at periods of time when the client may miss a premium and what the affect would be on the guaranteed period. We focused on what the guarantee period would look like if a client missed a premium in year 3, missed a premium in year 6, and also what it would look like if a client missed a premium in year 11 (years missing premium are independent of one another).
- Reduced Death Benefit/Paid-Up Analysis - A concept that is thoughtful and rarely discussed is the option of having a reduced, paid-up guaranteed universal life contract. We all know that life is uncertain and a client's needs may unexpectedly change in the future. The option to stop paying premium, but continuing coverage at a reduced, guaranteed death benefit may be a great conceptual solution that could put the client at ease when positioning no-lapse guarantee products. In our analysis, we looked at the potential of a life changing event occurring in the 20th year of the contract. If the client wants or needs to stop paying premium after 20 years and have a reduced, guaranteed paid-up policy, they have that option. This is a great alternative to surrendering the contract, most likely for very little or no cash surrender value.
Through our research, we’ve found that not all products are created equal. In fact, it’s not even close! We’d love to share the research with you. As a producer with BUA, we’ll give you a complete analysis on each and every case. Let’s talk!