Lincoln Benefit Life's

VUL Targets

Accumulation Market

By Linda Koco

Lincoln Benefit Life has decided to make variable universal life the lead product in its variable portfolio.

To this end, the Lincoln, Neb. insurer has added a brand new VUL to its roster--the Counselor VUL, for buyers with cash accumulation and retirement income needs. It joins the company's original VUL, Investors Select, which was introduced in 1994 and targets clients with death benefit needs.

The company has also unveiled two new variable annuities--Consultant I VA (a build-your-own-VA design with multiple death benefit and other options and low mortality and risk charges) and Consultant II VA (a contact with no surrender charges that aims at the asset building market). These join the company's existing Investors Select VA, which was introduced in 1994, and which, like the original VUL product, will remain on the market.

Why all the variable activity? To be able to meet specialized needs, says Thomas N. Simpson, national sales manager-variable. Also, he says, Lincoln Benefit believes demand for VUL will continue to grow--that it is, in fact, "the wave of the future"--so the insurer wants to have another VUL available to meet new needs that have been identified.

The company's original VUL and VA were "plain vanilla contracts," built for Lincoln Benefit's variable market entry, Mr. Simpson explains. But although their sales have "pleased" the marketers ($30 million in new VUL premium and $100 million in new VA premium in the first six months of 1998), the company now needs to offer more variable product choices, he says.

That's because the variable market keeps on growing, indicates Matthew A. Monson, associate actuary-product development. "Look at the recent history of personal economics. Clients increasingly demand more control over their insurance and personal investment portfolios. So insurers have become facilitators of products (through use of variable designs), rather than controlling the investment risks themselves."

The variable design allows insurers to offer death benefit protection and still be competitive with other products, he adds.

As for VUL, Mr. Monson says the new product is designed to bring Lincoln Benefit into the cash-accumulator VUL market.

"Our older VUL was built as a Jack-of-all-trades policy," so it could be used for many different market needs, he explains. It therefore contains features, like a very low minimum face amount ($50,000 at most ages) and two guaranteed minimum death benefit options (including "lifetime"), that enable it to be used for many types of buyer needs.

But the company has since discovered "there is a bigger demand than we expected" for cost-effective cash-accumulator VULs, says Mr. Simpson.

This demand is coming from today's more financially sophisticated buyers, who want VULs with "investment opportunities, tax-deferred buildup, tax-free death benefit, and the ability to provide an income stream on a potentially tax-free basis (via preferred, net-cost loans)," he says.

Lincoln Benefit's older VUL can be used for cash accumulation, Mr. Monson points out. But he says the Jack-of-all-trades approach hampers the cost efficiency of doing so, even if the company were to upgrade the product. So the company decided to "start with a clean slate," and build an all-new VUL for this market, a policy that Mr. Monson says maximizes cost efficiency by drawing on new information the insurer has acquired about VUL and mortality trends.

In short, says Mr. Simpson, "the older policy has more built-in guarantees and bells and whistles. The new one minimizes those things" and applies the savings towards cost efficiency and cash value buildup.

For instance, the new VUL uses lower current cost-of-insurance charges (the 20-year select and ultimate COI table), sets the mortality and expense risk charge to drop by one-half after 14 years, while the older VUL applies a level M&E charge in all years.

Moreover, the new VUL has a scaled-back death benefit guarantee, uses a higher minimum face amount ($100,000), applies a longer surrender charge period (14 years, as opposed to 12, in the earlier VUL), and uses a tighter definition of smoker (based on tobacco use, not "smoking").

But Consultant VUL offers several expansions, too. It has no stated maturity date, for instance. Also, it pays higher agent compensation than the older product, and allows agents to choose trailer- or heaped-commissions on a per-case basis--not on a per-contract basis, as with the older policy, Mr. Simpson says.

Furthermore, it has beefed up choice and flexibility, by offering 37 funds from eight money managers, plus a fixed account. (By contrast, the older VUL offers 18 funds from five managers plus a fixed account.)

About the new product's death benefit guarantee: It runs for a shorter period than the guarantee options in the older VUL. (If the owner meets the cumulative "safety net premium," the new policy says it will remain in force for the "safety net period"--of 10 years for issue ages zero to 70, or to age 80, for issue ages 71 and up. By contrast, the older VUL has two "guaranteed minimum death benefit" options, one of them running for a "lifetime.")

Developers did incorporate one distinct feature that is in the older VUL into the new VUL. That is a built-in "COI bailout provision." This gives owners a 60-day window during which they can surrender the policy, without penalty, if the insurer raises the current COI scale during the first five policy years. "We don't intend to change the current COI," Mr. Monson stresses, "but we do reserve the right to change it, if we need to. So, with this provision, the owner has a right against us, too-the right to bail out," without penalty, if the current COI goes up in the early years.

Looking ahead, Mr. Monson predicts VUL will grow in popularity as people re-think their financial needs and goals.

People in the 50-to-60-age range have traditionally purchased annuities to meet supplemental income needs, he explains. But, as they have aged, many have found they may no longer need the income stream, he says, "so they want to find (tax advantaged) ways to pass the money on to heirs. They wish they had a VUL."

In the future, he predicts, "I think more people will understand this (the value of VUL)"--and that will stimulate VUL sales.

Yes, VUL is an underwritten contract, Mr. Monson concedes, so some people will not be able to qualify for a policy, or will not be able to obtain a policy at a premium they want to pay. "This means there will still be a need for VAs," he says.

Even so, he predicts VUL will rise in popularity as a product for many clients with wealth transfer and supplemental retirement income needs.

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