Hybrid ‘Term-UL’: Heart Of Life Insurers’ Debate
By Fran Lysiak | |
A.M. Best Company, Inc. |
The newer hybrid term-universal life policies sold by insurers including
Companies such as
The interpretation of this guideline allowed for less redundant reserves, said
Term-UL is filed as a UL product but doesn't have the same reserve requirements as term life. The policy automatically converts into a permanent policy down the road. Term-UL offers a secondary death benefit guarantee but no lifetime guarantee, and at the end of the term period, carriers could offer this option, LIMRA said.
UL with secondary guarantees is less expensive than whole life policies but have lower cash values. Insurers are required to maintain a shadow account in case a policyholder's cash value falls below zero.
Redundant reserves were the by-product of Regulation XXX since it was developed by the
Billions of dollars in reserves are at issue depending on the ultimate resolution of AG 38. Holding redundant reserves reduces capital, which limits funds available for share repurchase or acquisitions -- hurting earnings, said Schwartz. Term-UL results in less redundant reserves, and can be priced lower than a traditional term policy, he said.
Reserves required for XXX and AG 38 have been categorized as redundant based on their magnitude compared to reserves based on current assumptions, said Hansen.
Term-UL products are similar to UL policies with secondary guarantees, particularly with their use of "multiple shadow accounts," several experts agreed, but others maintain UL with secondary guarantees are much different than term-UL.
In an October letter to
Ohio National also wrote that current discussions on term-UL reserving practices "has spilled over into a discussion of reserving practices" of companies selling UL with secondary guarantees with multiple shadow accounts. Ohio National urged the task force to bifurcate the two issues.
"Companies selling term UL advertise it as term insurance, and it appears side-by-side with traditional term products in term comparison websites," Ohio National wrote.
In its letter to Jones, however,
In addition to
Last month, the
Life insurance trade organizations criticized the statement because they said it accuses some insurers that offer those products of exploiting regulatory loopholes to get away with holding reserves at levels that fail to meet statutory minimums. Soon after, its executive committee opted to create a joint working group comprised of members of the Life Insurance and
Some think of term-UL "as 100-year term policies," said
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