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Ten Pay Whole Life
Carol Conger Miller, CLU
Manager,Life Product Development and SupportOctober 2009
With brief introduction of Single Pay Whole Life
For producer use only. Not for use with general public. The Guardian Life Insurance Company of America, 7 Hanover Square, NY, NY 10004
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Disclosure
The information in this presentation is designed to be general in nature and for educational purposes only. The complete text, with nothing taken out of the context, is the only manner in which it should be used. . It should never be used as an argument for the replacement of any life insurance product. The Guardian Life Insurance Company of America, its subsidiaries, agents and employees do not give tax or legal advice.
Riders may incur an additional cost
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Ten Pay Whole Life
Driving force for introducing product: Compete with New York Life’s Custom
Whole Life Compete with MassMutual’s 10 Pay
Whole Life Meet demand for guaranteed paid-up
policy Further diversify and deepen our WL
product portfolio.
For producer use only. Not for use with general public. The Guardian Life Insurance Company of America, 7 Hanover Square, NY, NY 10004
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Marketing Applications
Primary markets Supplemental retirement Gifts to juveniles Accelerated funding for executive benefits plans
Ideal clients Risk-averse individuals who want to guarantee 10
payments Clients looking for cash to supplement retirement. Clients interested in gifting life insurance Athletes, performers or investment bankers who
expect to have high income for a limited number of years.
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Marketing Applications
Selling points Guaranteed paid-up (no riders needed) Guaranteed cash value begins in year 1 High cash value IRR* Substantial cash value build up without
MEC or material change (without EPUA) Compensation – similar to blend of
L99 and EPUA*Dividends are not guaranteed. They are declared annually by Guardian's Board of Directors.
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CompetitivenessGuardian’s 10 Pay Whole Life outperforms New York Life and MassMutual – cash value and death benefit.
Company Guardian MassMutual New York LifePolicy 10 Pay WL Legacy 10 Custom WLIllustrated Dividend Scale 7.30% 7.10% 6.14%
Premium 40,870 40,360 44,560
Yr 1 CV as % of Prem 38% 38% 35%
Yr 10IRR CV 3.44% 1.84% 1.86%IRR DB 18.70% 17.23% 17.05%Yr 20IRR CV 5.09% 4.65% 4.61%IRR DB 9.04% 8.46% 8.43%
Male 45; Second Best Class; $1 Million
Source: Competitor data is taken from company illustrations. MassMutual figures assume 7.10% dividend scale; NY Life figures assume a 6.14% dividend scale. July 2009
Based on 2009 Dividend Scale, not guaranteed. Cash Value & Death Benefit are End-of-Year.
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-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
Yr 1 Yr 10 Yr 20
Guardian - 10 Pay WL
MassMutual - Legacy 10
New York Life - Custom WL
Competitiveness – Cash Value Accumulation
Male age 45, Second Best Class. Spend $40,870 all base premium. (Guardian’s initial DB, $1,000,000)
Based on 2009 Dividend Scale, not guaranteed.
End-of Year Cash Value Comparison
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-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Initial Yr 10 Yr 20
Guardian - 10 Pay WL
MassMutual - Legacy 10
New York Life - Custom WL
Competitiveness – Death BenefitMale age 45, Second Best Class. Spend $40,870 all base premium. (Guardian’s initial DB, $1,000,000)
Based on 2009 Dividend Scale, not guaranteed.
End-of Year Death Benefit Comparison
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Paid-Up Addition Rider considerations
New feature with this product – PUA Rider is called Lifetime Paid-Up Additions (LPUA). Allows PUA payments to continue after 10th year.
Base Premiums set close to the 10-year non-MEC premium
LPUA may be added without creating a MEC With Dividend Option Q large EPUA premiums can
be paid. (Option Q term rates are guaranteed for only 2 years.) Small LPUA premiums can be paid to support a
premium offset. (However $100/year for 10 years may create a MEC)
1035 Exchanges in many situations
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Paid-Up Addition Rider considerations (continued)
Without Option Q, LPUA payments beyond year 10 will always create a MEC. May be OK to have a MEC if: No loans or distributions are anticipated Policy owned by a not-for-profit organization.
Note that other taxpayers in zero percent tax bracket are still subject to 10% penalty on distributions prior to the owner’s age 59 ½.
Client understands that cash value accumulation is tax-deferred, but distributions may be taxable.
Policy gains are minimal due to client’s age. Waiver of premium
PUA Waiver (Waiver of Specified Amount) waives premiums only through year 10.
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Other New Features
GIO Rider 10 – Can be exercised one time at the end of year ten. Premium for GIO-10 is less than half the cost of
EGIO for L99. Male age 35, $100,000 -- $29 vs. $108.
Not practical to have premium paying rider after the base policy is paid-up. (Except LPUA)
Note: this may be an important consideration for juvenile policies. About half of policies at issue age 1 have a GIO rider. Some agencies almost always include it; other agencies almost never do.
For producer use only. Not for use with general public. The Guardian Life Insurance Company of America, 7 Hanover Square, NY, NY 10004
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GIO Example
Male Age 35, Second Best Class $250,000 -- Premium with GIO 7,370
Options at age 45 New Ten Pay Whole Life:
Premium of $7,370 purchases face amount of $178,317
Face amount of $250,000 costs $10,293 New L99: $250,000 costs $4,775
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GIO Example – Continue L10 premium
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65
Age
Accum Prem
Cash Value
Death Benefit
In year 11 Purchase new L10 policy – same premium. Face Amount - $178,317
Based on 2009 Dividend Scale, not guaranteed.
For producer use only. Not for use with general public. The Guardian Life Insurance Company of America, 7 Hanover Square, NY, NY 10004
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Juvenile Policies – Waiver of Premium
Waiver of premium options Regular Waiver of premium – available for juveniles age
5+. Definition of disability for a juvenile is inability to attend school full time outside the home. Will be added to rest of portfolio at a later date.
Applicant’s Waiver of Premium – on policies with insureds age 14 or younger. Covers death or disability of applicant.
Same features as “Combined Waiver” except does not automatically convert to regular waiver.
Option to convert to regular waiver. A policy cannot have both riders. PUA Waiver (Waiver of Specified Amount) is available only
if regular waiver of premium is selected. (Does not waive premiums beyond year 10)
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Other riders available
Enhanced Accelerated Benefit Rider (EABR) ABR (no chronic illness benefit) available in
states where EABR is not available. RTR-10 SIO Rider Select Security Rider Exchange of Insureds Accidental Death Benefit
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Enhanced Dividends for Paid-Up policies
Applies to 2001 CSO policies when they are fully paid-up (not reduced paid-up).
Can be illustrated now for new business and inforce cases.
Greatly improves illustrated values on Limited Pay Whole Life – and is key to 10 Pay Whole Life’s long-term performance Approximately $3 per thousand plus 20 bp for most
policies. (Varies by situation; less on rated cases) Limited Pay -- male age 35, Preferred NT, after age
65 base policy dividend is 18%-25% higher with new methodology.
Slightly improves maximum distribution solves for L99.
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How it fits in our portfolioPremium relative to Ten Pay Whole Life depends on issue age. Male age 40, second best class. $1,000,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Ten Pay Whole Life Limited Pay WholeLife
Whole Life 95 Whole Life 99 Whole Life 121
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How our portfolio meets objectives
Objective
Existing Product
L-65
Limited Pay WL
Base plus EPUA
L-10
20 Pay WL
Limited Pay WL
Base plus EPUA
0 20 25 30 35 40 45 50 55 60 65 70 75
Issue Ages
Answering field’s questions – Do we have L65? L20? Depending on the issue age, we have one or more ways to meet clients’ objectives.
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Cash Value Accumulation Break-Even Points – “Money Stages” concept
Year
Increase in CV as % of
Annual Premium
CV as % of Cum
Premium
Increase in CV as % of
Annual Premium
CV as % of Cum
Premium1 38% 38% 38% 38%2 92% 65% 97% 67%3 95% 75% 103% 79%4 99% 81% 109% 87%5 103% 85% 116% 93%6 107% 89% 127% 98%7 111% 92% 138% 104%8 115% 95% 149% 110%9 120% 98% 162% 115%
10 124% 100% 172% 121%
Guaranteed Current
Even in the early years, the cash value increase exceeds the premium, both on a guaranteed and current basis. Male age 45, second best class, $1,000,000. Base premium $40,870.
Based on 2009 Dividend Scale, not guaranteed.
Does not take into account time value of money. Premium is beginning of year; CV is end-of-year
For producer use only. Not for use with general public. The Guardian Life Insurance Company of America, 7 Hanover Square, NY, NY 10004
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Cash Value Accumulation Break-Even Points
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1 2 3 4 5 6 7 8 9 10
CumulativePremiumGuaranteedCVNet CV
Based on 2009 Dividend Scale, not guaranteed.
Does not take into account time value of money. Premium is beginning of year; CV is end-of-year
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Comparing products
Comparisons show a combination of base premium and EPUA for 10 years to match 10 Pay WL premium.
No dividend banding on 10 Pay WL. Other products (L95, L99 and L121) have higher dividends at $1 million +. 10 Pay WL compares more favorably to
Guardian’s other products at $500,000 than at $1,000,000.
NY Life’s Custom Whole Life’s highest band is $100,000
MassMutual’s highest band is $1 million
Cash Value Accumulation looks great compared to other products plus EPUAMale age 40, second best class, $1,000,000 base face amount. Spend $34,400 for 10 years
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Year 10 Year 20 Year 25 Year 30
Ten Pay Whole Life
Limited Pay Whole Life
Whole Life 95
Whole Life 99
Whole Life 121
Based on 2009 Dividend Scale, not guaranteed.
Death Benefit – Compare 10 Pay WL to other products with EPUA – DB rises more slowly
Male age 40, second best class, $1,000,000 base face amount. Spend $34,400 for 10 years.
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Initial Year 10 Year 20 Year 25 Year 30
Ten Pay Whole Life
Limited Pay Whole Life
Whole Life 95
Whole Life 99
Whole Life 121
Based on 2009 Dividend Scale, not guaranteed.
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Great vehicle to supplement retirement benefits
28,890
-
(68,384)
28,890
-
(64,832)
(80,000)
(60,000)
(40,000)
(20,000)
-
20,000
40,000
Outlay Years 1 to 10 Zero Outlay Years 11 to 30 Distribution Years 31 to 50
10 Pay WL
L99 with EPUA
Male age 35, second best class, $1,000,000 – Higher distributions when matching outlay for 10 years.
Based on 2009 Dividend Scale, not guaranteed.
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Total Guaranteed Cash Value
0
100,000
200,000
300,000
400,000
500,000
600,000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31
10 Pay Whole Life
L99 with EPUA
Male age 35, $1,000,000 second best class – Higher total guaranteed cash value when matching outlay for 10 years.
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What does $10,000 purchase?
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75
Age
Bas
e F
ace
Am
ou
nt
Male non-smoker class– Base face amount on 10 Pay WL purchased by $10,000 per year annual premium.
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What does $10,000 purchase? Base face amount on 10 Pay WL purchased by $10,000 per year annual premium. Premiums for Preferred NT and Preferred Plus NT are the same.
Male Female
Preferred NT (if available) Nonsmoker
Preferred NT (if available) Nonsmoker
5 916,667 916,667 1,084,337 1,084,337
10 762,125 762,125 903,285 903,285
15 635,022 635,022 752,852 752,852
20 569,620 537,751 667,116 630,172
25 483,163 460,894 558,061 536,295
30 408,753 395,367 466,541 455,801
35 343,869 334,121 392,701 385,965
40 288,630 279,819 331,658 325,123
45 242,826 234,320 278,952 272,727
50 205,394 193,966 233,711 226,441
55 173,745 164,070 196,312 187,927
60 147,849 139,633 167,768 158,451
65 126,179 119,177 144,147 136,139
70 108,232 102,220 123,905 117,021
75 86,760 86,760 106,223 100,314
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Juveniles – Cash Value Accumulation Comparison
Lock in guaranteed 10-pay without sacrificing cash value performance. Male age 5, match premium of $5,500 -- $500,000 base face amount
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Year 10 Year 20 Year 30 Year 40 Year 50
10 Pay Whole Life
Limited Pay WL
L95
L99
L121
Based on 2009 Dividend Scale, not guaranteed.
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Juveniles – Death Benefit Comparison
Death Benefit Male age 5, match premium of $5,500 -- $500,000 base face amount
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Year 10 Year 20 Year 30 Year 40 Year 50
10 Pay Whole Life
Limited Pay WL
L95
L99
L121
Based on 2009 Dividend Scale, not guaranteed.
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How does it compare with alternatives?
We have marketed “Life Paid-Up at Any Age” using a combination of L99 and EPUA Rider sufficient to pay up policy on a guaranteed basis.
10 Pay Whole Life is a less expensive way to guarantee a 10 pay. ($28,890 vs. $30,100 for male age 35, $1,000,000)
Much simpler for client to understand. Trade-off is less flexibility.
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Guarantee a One-Pay Using Prepaid Premiums
Lock in the interest rate and avoid a Modified Endowment Contract.
Guaranteed interest rate of 4.75% for 10 years Example:
Annual premium: $10,000.00 Total amount due: $81,876.24 Discount: $18,123.76
Favorable taxation. Discount is taxable at the time the premium is actually applied.
Cost basis is greater than the after-tax outlay: $100,000. (10 x annual premium = Outlay plus discount.)
Since money cannot be withdrawn unless policy is surrendered, agent locks in renewal compensation.
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Guarantee a One-Pay Using Prepaid Premiums
What if you’re starting with a lump sum amount rather than the premium?
How do you arrive at the annual premium?
Divide the lump sum by the factor: Total deposit: $100,000 10 year factor: 8.187624 Annual Premium: $12,213.56
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1 2 3 4 5 6 7 8 9 10
Total Cash Value – Policy Values Plus Prepayment Balance
Prepayment Value
Regular Policy Values
Prepayment value is not available for loans or withdrawals; if the policy is surrendered, the balance is subject to a penalty which is reflected above.
A single deposit of $100,000 has a short break-even point. Male age 35, second best class. Base premium $12,213.
Based on 2009 Dividend Scale, not guaranteed.
For producer use only. Not for use with general public. The Guardian Life Insurance Company of America, 7 Hanover Square, NY, NY 10004
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10 Pay WL vs. L99 with EPUA
10 Pay WL has the following advantages Guaranteed paid-up in 10 years Higher Net Cash Value Higher Total Guaranteed Cash Value
L99 with EPUA has the following advantages Flexibility to pay premiums beyond year 10. More cash available for withdrawals if
premiums continue withdrawals benefit increases faster
If waiver of premium is added: potential for premiums to be waived for longer time.
If GIO is added: more option dates
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Product Basics
Issue ages 0-75
Minimum face amount $25,000
Underwriting classes – same as other whole life Dividend Options – same as other whole life Regular series only. Pension Trust not available
at this time. Term conversions – allowed but no conversion
credits are applied. Does not replace any existing product – no formal
transition rules
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State Approvals
Approved in all jurisdictions except for Maryland
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Compensation
Comparable to a blend of L99 and EPUA FRs
Year 1 - 30.25% (22 LPCs) Supplemental comp: 13.75% for new FRs
Renewal = 70% on part A and B FTA/Broker:
Year 1 - 27.5% Years 2 to 4 - 7% Years 5 to 10 - 3%
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General information
Illustrations currently available for download in version 49.5
Only one Navigator presentation available – Prepaid Premiums
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Marketing Material
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Single Premium Whole Life
Introduced September 2009
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Introduction of Single Premium Whole Life
Ideal clients Beneficiaries exercising the DuoGuard Rider Annuity-Oriented Clients
Strong guaranteed return Strong dividend performance Same taxation as annuities on distributions;
unlike annuities, no income tax due at death. Non-profit organizations where MEC not a concern Recipients of a lump-sum payment (lottery,
inheritance, lawsuit)
Guaranteed single premium.
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General Information
Similar to PUA compensation –Agent comp: 3.25%
No marketing material being prepared.
No original age exchanges allowed to this product.
For producer use only. Not for use with general public. The Guardian Life Insurance Company of America, 7 Hanover Square, NY, NY 10004
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Questions
Contact Life Product Support at 800-871-7780, Option 2