1. Jason Watt CD CLU RHU
    CFP and CLU Instructor

    Richard, good use of math to support your argument. However, based on what I know anecdotally, I don’t support this statement: “Most issued Universal Life YRT COI have a variable Net Amount at Risk which means that the Cash value of the policy is not paid out on death in addition to the initial face amount.” Do you have some data to back this up? I have seen hundreds of UL policies or policy illustrations, and I rarely see a level death benefit (or what you refer to as variable risk).

    I find it most interesting that the impact on Whole Life cannot be foreseen at this time. I had the same thought when I read the ETP changes.

  2. Richard Proteau
    Insurance specialist, Insurance evaluator, Insurance fraud investigator, Insurance consumer Advocate, Columnist

    Jason, tks for your comment. I am however a bit surprised by your comment regarding that you disagree with my statement that for YRT policies, the structure selected is that the cash value is not paid on death. In my 25 years of career, in the thousands and thousands of cases I have worked on, I have never seen an agent selling a UL with a YRT where the Net Amount at Risk is constant because the cash value is paid on death. If an insurance agent was to sell that type of policy to a client he would be guilty of gross negligence unless the agent is certain the client will die early. It’s really simple math. Just looking at mortality table explains that statement. If a client lives to age 90, the YRT COI would be 18% of the initial face amount. For $100,000 policy this is $18,000 and if the client lives to age 100, the YRT COI would be about 50%. So the math is simple. To keep a Net Amount at Risk constant at $100,000 from age 90 to 100, the insurer would deduct a total of YRT COI of about $250,000 out of the cash value over that period. Would you pay and lose $250,000 to get $100,000? This is why for a UL YRT, by age 85, the client has to be self insured where the amount at risk is 0 for the policy to be sustainable. Now it will be age 90.This is why by the way insurer have never sold a whole life where cash value is paid on death…It can’t be priced…

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