The strong sales run by Guaranteed No-Lapse Universal Life (GUL products) over the past ten years or so (which crashed in the past six months) can be heavily linked to lifetime death benefit guarantees. The sales mantra was simple – "if you pay this premium, you will have guaranteed death protection for the rest of your life, no matter what" (barring policy loans and withdrawals, of course). But revisions to GUL reserving (AG 38) and low interest rates have made highly-competitive lifetime guaranteed premiums difficult to maintain. The result? Some insurers have left the GUL market because they believe that agents and policyholders will not accept competitive GUL premiums that only guarantee death benefit coverage to age 100 or 95 rather than to age 121.
This could very well be an instance where actuarial theory and agent training and pre-conceptions differ from real consumer attitudes. The average consumer does not expect to live to age 100 (or even age 95 in most cases). Not even one-tenth of 1% of the population lives to age 100, and although that percentage is growing, the typical buyer sees survival beyond age 90 as a "bonus" and would welcome the purchase of a reasonably priced GUL that guarantees coverage to 95. The fact that reserves (and therefore prices) are considerably higher for a full lifetime guarantee versus an age 90 to 100 guarantee led some insurers and agents to leave or de-emphasize GUL. That may be at odds with real consumer needs and might be an instance of in our industry reacting too abruptly.
Is there a lesson in this?