We all know indexed universal life insurance has taken its place at the top of the leader-board as the dominate form of universal life insurance when cash accumulation is a primary consideration. It’s also the #1 growing type of life insurance in the United States and has held this title for several years. There’s a lot to like about it, but there are a lot of different forms of this product offered by several insurance companies. Just as we’ve noted about whole life insurance not all insurance contracts are created equally. So, we’ve put together a guide for best bets among the indexed universal life insurance crowd when cash accumulation is the primary objective.
Just like the whole life list we’re rolling out our top five picks for this product line. This is based on a lot of first hand experience that is further fortified by discussions with numerous agents and industry employees to identify the best of the best. Keep in mind this list is specifically focused on cash accumulation strategies, so we’re not worried about such considerations as lowest premium to endow or who has the strongest secondary guarantee.
As usual, the list is in alphabetical order and not in any sort of ranked best to worst order.
Allianz is a funny company when it comes to life insurance. Their product is definitely strongly pointed in the direction of the individual who likes to gamble a bit on results. Their indexed universal life product offers a wide array of indexing options that span a large spectrum from pretty basic and straightforward to rather exotic—and then they offer just about all of these indexing options in a second flavor that has slightly “enhanced” provisions all be it for a slightly higher internal contractual expense. It was for this reason—an overabundance of choices—that we snubbed them when it came to last year’s list…we’ve since come around.
Their back-casting numbers are intoxicatingly attractive and they do hold a rather stellar reputation for past performance. They like to make little tweaks to everything, though. And I personally find this annoying at times. They love their Barclay’s Dynamic Index option because it’s proprietary to them, but the functionality of this index option has changed more times in the last year than a teenager prepping for a date. I’d like to suggest that they keep making it better, but keeping up with who got what when they bought in can be hectic for both the client and Allianz. And of course, the more cynical among us enjoy talking about evil life insurers changing the rules in their favor. Allianz hasn’t done itself any favors in combating this generalized attack though we also can’t point to any evidence that they’ve ever actual done it.
It seems that within the industry, Lincoln has a somewhat agnostic reputation among agents/brokers. Few people seem to have a strong opinion about the company one-way or the other. They deserve a spot on our list for two distinct reasons.
First, they rolled out an updated accumulation focused indexed universal life insurance product for this year that is mostly the same as their previous model of product, but it appears to be competing quite well against others for both accumulation and income.
Second, they dominate the underwriting leniency category.
Most agents and brokers in the know will talk about Lincoln when someone is sick and willing to part with a not so insignificant sum of money to get death benefit coverage. In fact, rumor has it you can get the silhouette of Abraham Lincoln’s ears to perk up by whispering “65 year-old male with insulin dependent diabetes needs $15 million death benefit.”
But it’s not just large cases and old sick people to whom Lincoln likes to present generous offers. For anyone potentially staring down the barrel of a sub-standard risk offer, Lincoln is a top choice. Also, while I don’t understand the logic, for those who are emotionally attached to being issued preferred plus without regard to policy performance, Lincoln will generally get you there when others might not.
Minnesota Life—or Securian Life if you live in New York State—is a former mutual life insurer turned Franken Mutual and almost completely forsaken whole life insurance. Instead they prefer indexed universal life insurance and for good reason—they can compete.
Their products are pretty straightforward regarding the indexing options (like most products stick with the one year point-to-point on the S&P 500), but they have a couple of interesting contract features that could be advantageous, or slightly annoying—I’m not totally convinced yet.
They offer an interest bonus after ten years that maxes out at 1% on top of the index interest paid. Pretty nice, but the calculation that goes into determining the bonus isn’t all that user friendly and it’s guarantee is zero. This means once calculated the bonus in any given year following year 10 could be as low as zero and as high as an additional 1%–and that's pretty good all things considered. What’s cool is that 1% places their bonus among the highest available, but it comes with the understanding that unlike most other bonuses, it could also completely go away for a year or more if the calculation (which is based on the index performance over a rolling ten year period) comes out to zero bonus.
Also unique is what appears at first glance as a redundant indexed loan option. Indexing loans are sort of the non-direct recognition equivalency on the indexed universal life insurance side. What most carriers would call an indexed loan Minnesota calls a variable loan, and what Minnesota calls an indexed loan is yet again a contractual feature that could return attractive benefits, or go bust. Without diving into too much detail, it essentially sets the stage for bonus interest paid on the cash that backs the policy loan, which further enhances the spread between the loan interest rate and the credited indexed interest rate…potentially.
While most of the things that make this company's offerings potentially attractive are subject to various conditions that must go in the policyholder's favor, it's not unreasonable to point out that this is indexed life insurance at it's core (the index has to have a positive return in order for the best part of the product to be realized). And since Minnesota is laying out some generous offers, they certainly deserve a look.
Penn Mutual is the only company to make both our whole life list and our indexed universal life list. They aren’t the only carrier to manufacture both products, but they are the only carrier that manufactures both products that are worthy of being on our list. Though I’m here to say they dominate the whole life category a tad better than they do the indexed universal life category.
This isn’t to say their product is bad. If it were they wouldn’t make the list. It actually has an array of nifty tangential features that are quite unique—like paying interest for a partial indexed return when a policy is surrendered mid contract year.
There’s also their underwriting competitive edge. While not generally as lenient as Lincoln, they too can be a great option for those with less than ideal medical histories.
Also, for those who have decided that mutual life insurers are the only type of life insurers from which one should purchase life insurance, Penn is the only bona-fide mutual life insurance company (i.e. not a mutual holdings company) that we’re aware of currently manufactures an indexed universal life insurance product.
Sammons Financial is an interesting company. Privately held (an ESOP actually) and not well known for over-zealously marketing itself to the world, it happens to possess two life insurers who manufacture near identical life insurance products. And within that list of product offerings happens to be some of the best indexed universal life insurance products currently available.
The two companies are Midland National and the North American Company for Life and Health Insurance (and the winner for the most annoyingly long name goes to…). As I mentioned the products are nearly identical and there’s no point in trying to declare one better than the other here. The important contractual features are identical with both companies.
The products are pretty simple and straightforward with a few indexing options for those obsessed with variety (again one year point-to-point S&P500, I’ve been doing this a while now and have seen all of the research that attempts to find the best bet).
These products don’t make use of a lot of potential bonuses like some of the other companies on the list, but instead offer enhancements that are consistent—like interest bonuses of fixed percentage between 0.5% and 0.75% per year depending on which product you choose). They have a very generous minimum accumulation guarantee, and they have a very unique approach to policy expenses that I’d argue limits their desire to tweak expense structure within their policies.
Also, these two companies have very consistently achieved operational profitability that ranks them very high among competitors, and companies that produce profits generally produce strong cash surrender value balances.
It’s important to note, however, that these two companies have a narrow view of what they want when it comes to potential business. This is excellent for those who fit the profile, and terrible for those who don’t. Underwriting can be a tad selective, and they are not interested at all in exotic case design.
And now you have our top five picks for cash accumulation focused strategies with indexed universal life insurance. As we’ve mentioned before, there is a plan to roll out a more comprehensive review of these and other products sometimes next year, and that will give everyone a better glimpse into how we feel about these products from a sort of best to worst ranking.
Brandon launched the Insurance Pro Blog in July of 2011 as a project to de-mystify the life insurance industry. A specialist in the design and application of life insurance cash accumulation features, Brandon is one of the foremost authorities on the subject of coordinating life insurance cash values in a financial plan.