Every year I rate all the Equity Indexed Universal Life products on the market. It seems each year there are a few more to look at. Last year the total EIUL sales increased 40%. This is a product that has come of age and is growing in popularity. However, there are relatively few changes to the top 5 year to year. Two companies that have a relatively long history with the product remain at the top; Minnesota Life and North American.
My analysis concentrates on 5 areas:
- Financial Strength of the Company
- Historical Performance
- Analysis of Current Product Structure
- How policy owner friendly is the company?
- Predicted Performance Based on Historical Data
My #1 rated EIUL remains Minnesota Life Eclipse. There were two changes to the product this year. They removed one of the index options and added a replacement. They did this because of the expense of hedging the removed index option was to high and would have forced a much lower cap, which in their estimation would have lowered the predicted performance, making it unacceptable. They added an index option that given historic data would have produced good results.
Here are the historic 20 year returns for the various index options:
- Blended [35% S&P 500, 35% Barclay Aggregate Bond, 20% Eurostoxx50, 10% Russell 2000] -8.9%
- Eurostoxx50- 8.89%
- S&P 500- 7.55%
- S&P 500 140% participation 3 year- 7.38%
- S&P 500 140% participation annual- 7.05%
Generally, I suggest the blended option, but some people want to mix it up so they add in the other options at various percentages depending on how they feel. Options can be changed every year [with the exception of the 3-year option]. I don’t want people to get in the prediction business and make constant changes to their options, so I advise picking one of the top 3 [or all of the top 3] and sticking with it until something fundamentally changes.
The second change to the ML product is they now have a variable loan cap. They did this smarter than the other products with a variable loan cap because they made it relative rather than fixed. The ML variable loan cap is 1% point over what they pay out on their fixed rate option, currently at 3.5%. Don’t let that number fool you, interest rates are low and the average rate over the last 30 years is 4.5%. That means if you take out a variable loan your cap would be 4.5% today, average 5.5% over the longer time period and the max since the life of the product is 7.5%. ML also allows moving from a fixed rate loan to variable and vice versa once per year, so you would never get stuck in a variable loan if interest rates were to spike up significantly.
Suffice it to say, that the ML product is now better than last year and remains my #1 on the market. One part that does not often get discussed is how policy owner friendly the companies are. ML rates really high on that from a policy structure view, an underwriting view and a claims view. That is why, even though North American has an equally good product, I push most of my business to ML.