lev-os Analyzing Life Insurance Products
Evaluates life insurance product structures including term, whole life, universal life (UL), indexed UL, and variable UL, with cash value projections, cost-of-insurance analysis, and suitability assessment relative to client objectives.
When To Use
- Comparing product structures across carriers or product types for a specific client profile
- Evaluating in-force policy performance against original illustrations
- Assessing cash value accumulation efficiency and cost-of-insurance trends
- Reviewing product suitability for estate planning, income replacement, or wealth transfer
- Analyzing policy replacement proposals (1035 exchange scenarios)
- Auditing illustration assumptions (credited rates, persistency, lapse risk)
Inputs To Gather
- Policy documents: Illustration ledgers, in-force summaries, policy contracts, riders
- Client profile: Age, health classification (preferred/standard/rated), gender, tobacco status, state of issue
- Objective: Death benefit need, cash accumulation target, premium budget, planning horizon
- Existing coverage: Current policies, surrender values, outstanding loans, cost basis
- Carrier data: Financial strength ratings (AM Best, S&P, Moody's), general account allocation, crediting rate history
- Benchmarks: Comparable products or industry cost indices (e.g., Belth method, surrender cost index, net payment cost index)
Workflow
Classify the product type — Identify whether term, whole life, UL, IUL, VUL, or hybrid (e.g., life/LTC combo). Note guaranteed vs. non-guaranteed elements and the general account vs. separate account structure.
Extract cost-of-insurance (COI) charges — Pull COI rates from the contract or illustration. Compare current COI charges against guaranteed maximums. Flag products where current rates are close to guaranteed ceilings. [VERIFY] COI rate schedules vary by carrier and may be subject to periodic adjustment.
Analyze cash value projections — Run or review illustrations at multiple crediting rate assumptions:
- Guaranteed minimum rate
- Current declared/credited rate
- Midpoint scenario
- For IUL: floor, cap, participation rate, and historical back-tested returns
- Identify the crossover year where cash value exceeds cumulative premiums
Evaluate premium structure — Determine whether the product is funded at target, minimum, or maximum non-MEC levels. Assess MEC risk under IRC §7702A. Calculate the spread between minimum premium to maintain coverage and the planned premium.
Compare costs across products — Use standardized cost indices:
- Surrender cost index: Net cost per $1,000 of coverage if policy is surrendered at benchmark durations (10, 20, 30 years)
- Net payment cost index: Net cost per $1,000 if held to death at benchmark durations
- Belth yearly rate of return method: Isolates the implied cost of insurance per year
- Normalize for differences in death benefit design (level vs. increasing)
Assess suitability — Match product features against client needs:
- Income replacement → level term or guaranteed UL with secondary guarantees
- Estate liquidity → survivorship (second-to-die) whole life or guaranteed UL
- Cash accumulation → overfunded IUL or VUL (assess cap/floor trade-offs)
- Business succession → key person term or whole life with split-dollar arrangement
- [VERIFY] State-specific suitability requirements and replacement regulations (e.g., NAIC Model Replacement Regulation)
Review carrier financial strength — Confirm AM Best rating (A or better typical threshold), surplus growth, RBC ratio, and general account investment quality. For products with long-duration guarantees, carrier stability is critical.
Flag risks and assumptions — Document sensitivity to interest rate changes, COI increases, policy loan arbitrage assumptions, and lapse-supported pricing. Identify any illustration assumptions that diverge from historical norms.
Output
Structure the analysis report with:
- Executive summary: Product recommendation or comparison verdict in 2-3 sentences
- Product comparison table: Side-by-side matrix of premiums, death benefits, cash values at years 10/20/30, cost indices, and carrier ratings
- Cash value projection chart: Guaranteed vs. current vs. midpoint scenarios over the planning horizon
- COI analysis: Current vs. guaranteed rate trajectory with breakeven assessment
- Suitability finding: How each product aligns with stated client objectives
- Risk factors: Interest rate sensitivity, carrier risk, lapse risk, MEC risk
- Recommendation: Preferred product with rationale, or conditions under which each option is superior
Quality Checks
- Verify all illustration ledger values tie to the carrier-provided documents — do not interpolate missing years
- Confirm premium mode (annual/semi/quarterly/monthly) is consistent across comparisons
- Ensure cost indices use the same benchmark durations and discount rates
- Validate that non-guaranteed elements are clearly labeled and separated from guarantees
- Check that MEC status is correctly determined under IRC §7702A seven-pay test
- Confirm carrier ratings are current (ratings change; mark with [VERIFY] if older than 12 months)
- Flag any illustration that assumes crediting rates materially above the carrier's 10-year historical average
- Note all state-specific regulatory requirements that may affect replacement or suitability determinations [VERIFY]