The BNA Tax and Accounting Center is the only planning resource to offer expert analysis and practice tools from the world's leading tax and accounting authorities along with the rest of the tax...
Guaranteed universal life insurance – also known as `secondary guarantee' universal life insurance has grown tremendously since its introduction to the market. Unlike a traditional universal life insurance policy that lapses if the policy cash value is insufficient to cover the monthly mortality and expense charge, a guaranteed universal life policy continues in force so long as the insured has continued to timely pay the premium payments as agreed to with the carrier when the policy was issued. This means policies can be structured with a pre-determined, minimum premium stream with the insured and the carrier both knowing there is a good possibility the cash value will be zero during the coverage period and the insured knowing that, despite that fact, coverage will continue.
One reason for the product's popularity is its estate planning appeal, especially for older insureds. Older insureds tend to be less concerned with cash values than younger insureds who may feel a need to retain the flexibility to access cash value in later years either for retirement needs or to exchange the policy for a different carriers/policy type should circumstances change. Not only do older insureds have more defined estate goals, they also appreciate that, due to health reasons alone, they may not have the flexibility of moving to a different product/carrier in the future.
Another possible reason for the popularity of guaranteed universal life is favorable pricing – pricing that looked more and more favorable as the economy went through its slide in the last few years and the stability of a guaranteed product became much more attractive than a performance based product that either required additional premium contributions or lapsed.
However, as insurance carriers watched the value of their portfolios decline without a concurrent decline in their ultimate death benefit liabilities or any possibility of an increased premium stream due to the guaranteed nature of the product, they have begun to wonder if the product pricing might, in fact, be `too good to be true.' Over the last year, multiple household name carriers have either repriced their product, limited the amount of coverage they will issue in a given case, or pulled the product off the market entirely – some only to have the product reappear with a new pricing/underwriting approach and once again pull the product off of the shelf.
What does this mean to the potential purchaser of a guaranteed universal life insurance product? There may be no clear cut answer to the question. At a minimum, it means buyers should act now if they and their advisors have determined that a guaranteed universal life policy fits their needs. Will the product disappear from the life insurance shelves forever? Unlikely – it has too many features that work well for high net worth estate planning clients. But we should expect continued availability/unavailability vacillation, and, when the dust finally settles, a higher premium structure for future purchasers.
For more information, in the Tax Management Portfolios, see Lee and Wilkey, 827 T.M., Life Insurance — A Practical Guide for Evaluating Policies, and in Tax Practice Series, see ¶6240, Life Insurance.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)