analyzing-life-insurance-products

name	analyzing-life-insurance-products
language	en
description	Evaluates life insurance product structures with cash value analysis, cost comparisons, and suitability assessment. Use when analyzing life products, comparing insurance costs, or assessing product suitability.
tags	["analysis","insurance"]
metadata	{"author":"casemark","practice_areas":["Insurance","Actuarial Science","Reinsurance"],"document_types":["Analysis Report"],"skill_modes":["Analysis"]}

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

1. 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.

2. 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.

3. 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

4. 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.

5. 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)

6. 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)

7. 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.

8. — 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]