ReVving Up: Another Look at Guaranteed VULs
Guaranteed variable universal life (GVUL) and traditional guaranteed universal life (GUL) products can seem like very different vehicles. After all, they look and feel like very different sets of wheels with their own individual styles, target audiences, and requirements, but under the hood, the same engine that brings them to life is the secondary-guarantee. GVULs have been in the market for some time now, and they are certainly worth another look, especially given increased LifeTrends partner interest and feedback on the topic. While traditional GUL still adds a lot of value, that market has seen greater pressure on interest rates this year. In the second quarter alone, 70% of all GULs had pricing increases – and most of those were substantial. GVULs also saw a couple of these revisions but managed to hold on to very competitive levels. While not every client would benefit from the GVUL proposition, there are clearly certain places where they speed past the competition. We examined all six products in guaranteed variable universal life at $1 million in death benefit with three guarantee durations (lifetime, age 100, and age 90) to find out exactly where and how competitive they are when compared with the broader guaranteed space.
The Who
Historically, Lincoln Financial’s VULone was one of the original trailblazers as an aggressive variable product with a dialable guarantee. For a few years, it maintained a lofty status as one of the lowest priced offerings to beat in the no-lapse space (if not the lowest). Much has happened since that time. This includes the continued and seemingly endless low interest rates out of the Federal Reserve, innovation across the spectrum of life insurance markets, the new mortality tables and reserving regulations inaugurated early this year, and rising competition in variable guaranteed arena. Today, there are six companies comprising the GVUL domain – Prudential, Securian Financial, Lincoln Financial, American General, Nationwide, and Pacific Life. Of these, the first four in the list predominantly carry on the GVUL torch by offering specific clientele some of the best guaranteed premiums in the industry.
The Where
To those familiar with this market, it probably comes as no surprise that these products are most dominant as either 1035 exchanges or single-premium paid-up insurance with longer guarantee durations. Insureds looking towards a one and done lump sum payment with an age 100 or lifetime guarantee will find at least three or four GVULs within the five best guaranteed premiums in the broader marketplace.¹ Almost anyone under this lens could benefit from another look towards the variable alternative as this level of strength is not restricted by either age or underwriting class. For those desiring a slightly longer payment (such as 10-pay), the choice of an aggressively priced GVUL is somewhat more limited. Only Prudential and Securian remain very strong here, however, they frequently show up as the client’s lowest and number two premium options. VULs occasionally do well with a full-pay, but they are mostly outside their territory here. The better choice for insureds who pay for the long-term mostly resides within traditional GUL. The story is similar when looking at a lower guarantee duration such as to age 90. While a GVUL may grant a lower premium choice here and there, most would see more benefit in other vehicles.
Other (Cash) Value
One of the value propositions inherent to variable universal life is the ability to build cash value. In the past, there have been restrictions on certain funds that potentially limited the cash accumulation with guarantee riders, but most carriers seem to have loosened up a bit on this these days. Viewed under their best lens as a single-premium option, the average GVUL can return 1.5 times the net premiums in year 20. This could be a potentially useful exit strategy based solely upon the accumulation potential on the variable chassis over the traditional one. In contrast, there is very little cash value available today on traditional GULs as most have brought assumptions down to the guaranteed level. Many now offer the premium refund or guaranteed refund options, but almost all of these have a very short window for the insured to exercise the rider (and the maximum he or she can get back is the premium outlay).
A secondary guarantee is like an engine. While there may be different bodies and styles like current assumption, indexed, or variable, each with their own value propositions and quirks, under the hood is the dialable guarantee. Specifically, variable universal life may have a few more moving parts such as the securities license requirement and dealing with market risk on investments. However, with the guaranteed aspect, they function much same way as a traditional GUL to provide the client a contractually guaranteed premium. Given how competitive these offerings are, perhaps it is time to take another look at guaranteed VULs to see how they might best fit the needs of your clients. For those who are LifeTrends’ partners, we have a very fast and effective method to do just this with the Multiple Benchmark comparison.
1 Most of the time, the four carriers mentioned above are the primary candidates.