Dial a death benefit guarantee wreaks havoc with GUL spreadsheets
By Steve Savant
Ash Brokerage Corporation
After reviewing the latest guaranteed universal life product releases for the summer, I was looking forward to analyzing the industry spreadsheets to separate the players from the pretenders.
For more than 20 years, I’ve subscribed to several product due diligence services who publish competitive premium grids, GUL being just one of many. And much to my surprise I began to realize just how convoluted and worthless these premium grids were because of the varying guaranteed death benefit periods and maturity dates consolidated on one grid.
The latest GUL spreadsheet ranked the premium winners top to bottom, but had 15-, 20- and 30-year guarantees on the same grid with guaranteed premiums to age 90, 95, 100, 105, 111, 120 and 121. It took me two hours to separate the grids by guaranteed periods and maturity dates. I was left with 10 grids from one spreadsheet. It was the only way to create an apple to apple comparison.
I was going to post my spreadsheets on several industry Internet outlets and highlight the results on my daily Internet talk show. But the caveats, disclosures, disclaimers and “CYA” asterisks were larger than the spreadsheet itself.
Then the real shocker.
As a national wholesale distributor of life insurance, we run thousands of proposals a week. GUL is hotter than ever, with almost half of all permanent life proposals with some form of guaranteed coverage. I began noticing a trend back in April. Proposal requests illustrating the three preferred health categories with life expectancy projections exceeding the guaranteed period.
It’s bad enough that the Society of Actuaries 2008 Valuation Based Tables have standard issued insureds projected beyond to the 2001 CSO mortality tables, which are used for pricing. But now the VBT preferred numbers — which I haven’t seen, but by extrapolation — probably blow by the “dial your own death benefit” coverage up to five years!
In the middle of the greatest mortality revolution in the modern history, the sales field force is shortening the guarantees to win the premium wars. Back in the day, back filling premiums on minimum pay scenarios were scary. Now consider how you’ll need up to four times the guaranteed premium to keep the contract in force. And remember the greater culpability here: the carriers who invented all this in the first place.