Category: cash value life insurance

Prudential’s new Indexed Universal Life (IUL) is now available in many states.  PruLife® Index Advantage UL a very straightforward Indexed UL product.  The index is the S & P 500 annual point to point with a 10.75% current cap and a guaranteed 0% floor.  The fixed account, called the Basic Indexed Account, is guaranteed to never earn less than 2.00% which is very competitive.   Illustrations assume at most a 6.83% average return which is based on a 25 year look back on the S & P 500 with a 10.75% cap and a 0% floor.  It is commendable for Prudential to illustrate returns at 6.83% tops.  Other carriers illustrate the S & P in the upper 7% to lower 8% range based on different assumptions including a more favorable 30 year look back.  It’s advisable to review illustrations with even lower assumptions, 5% or 6%, to not oversell expectations, and it’s a helpful reminder in any thorough comparison analysis that Prudential model is more conservative.

For Prudential to establish a 10.75% cap rate, below other carriers, is also of note.  Higher caps rates may look attractive, but carriers tend to build in higher cost of insurance rates to cover the additional expense.  Cost of insurance charges are likely more evident if an illustration is run with minimal premium, solving $1 to age 100, or minimal returns, as in assuming .01% return on the indexed account.

To judge how an Indexed UL product compares with competitors is not cut and dry.  There are many variations of age, gender, health rate class, goals and premium targets.  I initially ran Prudential’s IUL assuming a maximum cash accumulation, increasing face amount, tax free loan for retirement income for a male in his mid 30’s against top performers, including Lincoln and Penn Mutual, and within those parameters, I did not find Prudential competitive. Prudential indicates their competitiveness is in minimum premium, solving for lifetime coverage, scenarios and with longer no lapse guarantees.  In fairness to Prudential the scope and extent to their competitiveness will require multiple comparative tests to see how premiums and policy values compare depending on the particulars of the client.

Looking at Prudential’s illustration and trying to decipher exactly how the policy charges to the Basic Interest Account are credited was very difficult.  Prudential requires a minimum of a year’s worth of charges be held in the basic interest account.  It’s still early in the product’s release, and undoubtedly agents will be provided explanations in product guides and other training avenues.