Criticisms of Variable Universal Life
Some general Criticisms
- Potentially higher costs - VUL policies may be more expensive than other types of permanent insurance, such as Whole Life and traditional Universal Life. Volatility of cash surrender values, especially at late duration, can cause a "reverse dollar cost averaging" effect that results in higher costs of insurance charges. Proper funding of a contract may reduce this risk, but it cannot be completely eliminated.
- Some older VUL policies have limited sub-account choices. This issue has been greatly corrected with the current generation of policies having 50 or more sub-accounts that cover all the major asset classes, with more than one sub-account manager.
- Policy administrative expenses and costs of insurance may increase at the company's whim, subject to a contractual maximum.
- VUL is relatively complex compared to traditional Whole Life or Term Life.
Some criticism is not about the product, but rather the sales tactics used by some insurance agents.
- Projecting the maximum illustrated assumed interest rates (generally, 12%), using current (or assumed) administrative expenses and current costs of insurance, without showing the prospective client several other assumed rates of return, creating a Blue Sky problem.
Some regulators deserve criticism:
- Securities regulators (the U.S. Financial Industry Regulatory Authority (FINRA)) refuse to allow insurance companies to illustrate VUL policies using a stochastic projection (commonly called a 'Monte Carlo Simulation' or MCS), forcing agents to use archaic, antiquated, and deceptive deterministic projections ('straight line' or constant interest assumptions) that are far removed from reality. Illustration software with MCS capability has been available since the mid-1990s, but FINRA has forced the life insurance industry into a corner that virtually guarantees litigation.
Read more about this topic: Variable Universal Life Insurance
Famous quotes containing the words criticisms of, criticisms, variable, universal and/or life:
“I have no concern with any economic criticisms of the communist system; I cannot enquire into whether the abolition of private property is expedient or advantageous. But I am able to recognize that the psychological premises on which the system is based are an untenable illusion. In abolishing private property we deprive the human love of aggression of one of its instruments ... but we have in no way altered the differences in power and influence which are misused by aggressiveness.”
—Sigmund Freud (1856–1939)
“The sway of alcohol over mankind is unquestionably due to its power to stimulate the mystical faculties of human nature, usually crushed to earth by the cold facts and dry criticisms of the sober hour. Sobriety diminishes, discriminates, and says no; drunkenness expands, unites, and says yes.”
—William James (1842–1910)
“Walked forth to ease my pain
Along the shore of silver streaming Thames,
Whose rutty bank, the which his river hems,
Was painted all with variable flowers,”
—Edmund Spenser (1552?–1599)
“To revolutionize, at one effort, the universal world of human thought, human opinion, and human sentiment.... All that he has to do is to write and publish a very little book. Its title should be simple—a few plain words—”My Heart Laid Bare.” But—this little book must be true to its title.”
—Edgar Allan Poe (1809–1849)
“If you were to destroy the belief in immortality in mankind, not only love but every living force on which the continuation of all life in the world depended, would dry up at once.”
—Feodor Dostoyevsky (1821–1881)