Indexed Universal Life Insurance is well known for its ability to generate a retirement income stream. But how does one know if he or she is selecting a good product or a bad one? Many others have attempted to create a comparison across company products, but most have fallen prey to marketing gimmicks and failed to create a constant across carriers to really compare these products efficiently.
Where Others have Failed
The problem with most indexed universal life comparisons is too much variation is allowed across carriers. All carriers have a defaulted interest rate for their various indexing strategies and these are loosely substantiated by the current cap and participation rates currently stipulated in the policy. While this may make some intuitive sense, the logical mechanics behind indexed universal life would suggest that minus some very slight specific situations, we should assume all indexed universal life contracts are going to yield more or less the same.
Again, this doesn’t mean we should completely ignore specific variations among carriers when it comes to current cap rates (participation rates are mostly the same), we still can control a macro evaluation of expenses if we assume the same credited interest rate. Whether or not the additional cap rates justify the additional expenses is part of a fine tuning process of selecting the best contract for a given situation.
So, failure number one is the lack of a universally assumed interest rate.
Death Benefit Assumptions
While this isn’t a universal problem, it’s one that exists nonetheless. Death benefit or income comparison purposes should be solved to minimum non-MEC in compliance with DEFRA and use the Guide Line Premium Test to qualify as life insurance under DEFRA.
Some comparisons have specified premiums and solved the death benefit to the premiums “target premium”–bad idea. We want the minimum death benefit because we want to mitigate insurance costs as much as possible to build the best performing universal life contract.
Preferred Best Assumptions
This one is less about comparing companies with each other and more about what is more probable to happen for an individual who wants to apply for life insurance.
Most comparisons (including those run by the carriers themselves) always assume best case scenarios with a preferred plus (best) risk class. Truth is, most carriers issue a large portion of their policies as standard, and that’s where most assumptions should start. It is true that this life insurance as an asset class thing gets better the healthier one happens to be–longer life expectancy begets lower insurance costs–better risks classes are, again, one of the fine tuning considerations.
Our comparison takes a 40 year old male issued standard placing $10,000 annually into an indexed universal life contract for 25 years. After 25 years he begins and income stream until he reaches age 100 (years 26 to 60). We solve the death benefit for minimum non-MEC and DEFRA compliant, increasing until the year income starts at which point we switch the death benefit option to level.
The only rider we’ve elected to include is the overloan protection rider (sometimes this is not a selectable rider, and rather a built in feature, regardless it’s included with all policies compared).
We’ve sorted the results by income derived.
What the results tell us
While it’s tempting to draw definitive conclusions about who has the best product and who doesn’t, it’s important to remember that this specific situation only evaluates a very narrow circumstance. Still, the comparison helps at least get people started and pointed in the right direction.
There are certain less easily quantifiable considerations. For example, Life of the Southwest (LSW) tops the chart quite impressively, but with a disappointing Comdex and a junk bond position that totals 75% of the company’s surplus position, we remain hesitant to strongly recommend them in most cases.
It’s important to keep in mind that this is merely a starting point, and further consideration of company/contract specifics are always in order.
Some Notable Omissions
There are some companies that are missing from this list. This was due to problems with company software. We’re working on this and hope to update this once this is resolved. Those companies include: Prudential, Transamerica, PacLife and Aviva.
If you feel we’ve neglected someone, we’d be happy to to hear from you.
The Next Step
From here, it’s prudent to evaluate such specifics are: available riders, premium loads, caps, minimum guarantees, additional contract benefits/options, and company strength. Though a lot of agents skip it, there’s a lot of reasons why I would suggest paying attention to the fixed account is important.
It’s also important to keep death benefit performance in mind. This asset can be leveraged for more than just its generate-able income, so similar incomes with one company performing markedly better on death benefit could swing favor in the better performing death benefit indexed universal life insurance contract’s favor.