Universal life insurance
When Universal Life Insurance is a flexible form of life insurance that is imaged by a transparent account structure. The underlying product concept comes from the USA and has been widespread there since its introduction in the mid-1980s. Similar to a capital-forming life insurance, the Universal Life consists of a provision component for individual capital accumulation and is usually combined with a separately managed risk component that covers the death of the policyholder . Both components are shown transparently and can be adapted to the life circumstances of the policyholder during the term of the contract.
Characteristics of Universal Life
The specialty of the Universal Life insurance lies in its high flexibility, which enables it to be adapted to different life situations of the policyholder. In contrast to classic life insurance products, the policyholder also has various options for structuring the contributions and benefits during the term of the contract.
Universal Life products are set up in the form of a contract account, with the help of which the policyholder can see the development of his insurance cover transparently.
Contract account
Universal Life is based on a contract account that shows all payments relevant to the underlying contract. In addition to the premium payments, the monthly interest is credited to the contract account. On the other hand, the accruing risk , administration and sales costs are shown, which are deducted from the contract. The policyholder can see the contract account and thus also the account movements mentioned.
The open, monthly update ensures the ongoing review of interest and cost developments and enables the policyholder to understand what proportion of his premiums are spent on risk protection and on the administration, sales and marketing of the contract. This ensures a high level of transparency for the insured. The policyholder can find out about his current contract status at any time and has an overview of his current balance and the amount of the payout in the event of death.
The contract account can also be used as an online platform , which makes it easier for the customer to communicate with the insurer and the broker and, if necessary, even enables contractual adjustments.
Flexible premiums
When taking out universal life insurance, there is no contractual stipulation of fixed or regular premium payments. The policyholder is therefore flexible with regard to the amount of his premium payments. The only requirement is a contract credit that has a positive balance at all times . Otherwise no insurance cover can be guaranteed. As long as the contract credit is above the limit at which the costs for the agreed risk protection and administration are just covered, the policyholder can freely decide on the amount of his premium payments up to a specified maximum amount. In addition to adjusting the premium, you can also make one-off payments and withdrawals. Here, too, minimum and maximum amounts must be observed. Under certain conditions, it may also be possible to suspend payment of contributions.
Flexible services
It is also conceivable to expand to include additional risk components. Universal life insurance can also cover additional risks, such as long-term care, occupational disability or accident risks. This means that the insured can be offered a kind of all-round protection with a single policy .
Implementation in the USA
The idea of Universal Life Insurance developed in the late 1970s against the backdrop of bullish stock markets. Rising returns on the capital market made Whole Life Insurances comparatively unattractive and new, more flexible forms of insurance had to be developed that combine adequate protection against death with interest rates close to the capital market. The interest rate that is close to the capital market moves more into focus with Variable Universal Life than with classic Universal Life Insurance. In addition to the classic components of Universal Life, this includes an additional investment component. Another form of Universal Life that can be found on the American market is Indexed Universal Life, in which the interest rate is based on the development of an index .
In the USA, the Universal Life Insurance product concept is one of the three most important forms of life insurance, alongside Term Life Insurance and Whole Life Insurance. The market share of Universal Life products in the entire life insurance market in the USA has remained relatively constant at around 40% in recent years.
Similar to Whole Life Insurance, Universal Life Insurance, as offered on the American market, consists of a risk component and a provision component. The risk component is comparable to German term life insurance and covers the financial risk of the policyholder's death. If the monthly premium exceeds the contributions required for risk protection, the excess goes into the pension component, with which the insured person accumulates additional capital. This savings component earns monthly interest and the costs incurred. Incoming and outgoing items are shown on a monthly basis, which makes the development of the credit balance and the costs incurred for the policyholder transparent and Universal Life maintains its typical account structure.
In contrast to conventional life insurance products, the amount of the premium is not fixed over the term of the contract, but can be flexibly adjusted within certain limits. The premium payment is limited below by a minimum amount, which results from the costs incurred for the insurance company. Insurance cover can only be guaranteed if these are covered by the premiums within a certain period of time. Depending on the contract design, there are also maximum amounts that may not be exceeded within certain periods of time. Withdrawals from the pension account are also possible , provided that sufficient funds are available to cover the costs.
In addition to the premiums, the insurance benefits can also be adjusted to the changing circumstances of the policyholder during the term of the contract. An expansion of the services is accompanied by a higher premium and vice versa. You can also switch between the risk and the provision component of the premium if the personal coverage requirement has changed. The minimum amount required to cover the costs and possible maximum amounts are also restrictions.
Market development in Germany
The first attempts to establish life insurances based on the Universal Life Insurance concept from the USA in Germany were made in the mid-1990s. At this point in time, however, the concept could not prevail, particularly due to the tax treatment. Until 2004, policyholders in Germany were able to benefit from the tax advantages of capital-forming life insurance policies. The tax benefits of the contracts were tied to certain conditions and thus provided a fixed framework for the products of the life insurance companies. With the entry into force of the Retirement Income Act on January 1, 2005, this tax privilege was repealed. As a result, capital life insurance initially lost its overall attractiveness; on the other hand, the providers were no longer bound by the requirements of tax incentives and gained more leeway to design their products individually. Against this background, products were again offered in Germany in 2005 that were based on the universal life insurance concept of the American market.
In 2005, AachenMünchener launched a product that offered a flexible form of old-age provision through the possibility of adjusting premiums and benefits during the term . The product found sales on the German market, but also repeatedly made negative headlines. After a few renaming, the product is now known as “Strategy No. 1 ”on the German market.
For some years now, the German life insurance market has been particularly confronted with the challenge of the very low interest rate level . Also in response, many of the providers have developed various new life insurance products. Once again, regulatory framework conditions play an important role in their design. With the Life Insurance Reform Act (LVRG for short), which came into force on January 1, 2015, the legislature lowered the maximum zillmer rate for accounting for acquisition costs from 40 ‰ to 25 ‰. The aim is to achieve a reduction in acquisition costs, which results in higher surrender values for the policyholder . In addition, the Insurance Distribution Directive (IDD for short), which must be implemented in Germany by 2018, requires disclosure of remuneration. Adjustments to life insurance products are also necessary due to increasing customer requirements in terms of transparency, flexibility and digital processes. Against this background, an environment was created in Germany that provides optimal conditions for flexible and transparent life insurance products based on the Universal Life principle.
The first policy that fulfills both flexibility and the characteristics of the contract account and thus transparency has been offered by Ideal Versicherung on the German market since October 2015 .
Implementation of the Universal Life product concept in Germany
The products of AachenMünchener and Gothaer Versicherung can be counted as the first attempts on the German market . Both providers allow the customer a comparatively high level of flexibility in terms of contributions and services. The only Universal Life Policy i. e. S. is currently offered by Ideal Versicherung in Germany .
Product components
The compulsory core product of Universal Life is pension insurance , which initially does not stipulate a fixed contribution to be paid and which can also be adjusted with regard to the target pension. The flexibility of the contributions and benefits is the main difference to conventional pension insurance . The pension receipt is divided into two phases. In the first retirement phase, the insured person has various options with regard to the structuring of premiums and benefits. With the beginning of the second retirement phase, which is characterized by a lifelong pension, the insured person has fewer options available to preserve the tax incentives.
The pension insurance benefits consist of the guaranteed interest rate, which is declared at the end of each year for the following year. In addition there is the participation in surplus and the participation in the valuation reserves . The customer either receives the surpluses when the insured event occurs on the benefit or they are added to the pension payments at the start of the pension.
In addition to the pension insurance, optional additional components can be taken out by the policyholder. These do not have to be specified when the contract is concluded, but can also be booked individually later. The flexibility when booking additional modules can be designed differently. Under certain circumstances, the addition of the components may only be possible under the precondition of the occurrence of a certain life event (such as birth or marriage) or only at certain times.
An important additional component is death protection, which can be included by including term life insurance . Various design options are conceivable for term life insurance. In particular, Ideal UniversalLife enables the insured to adjust the sum insured by allowing the customer to choose between three types of death protection. With the more cost-effective “Starter” variant, a simplified health check is carried out with which only a lower sum insured can be agreed. With the more powerful “Universal” variant, a higher sum insured can be concluded, which can also be dynamic (increasing versus decreasing death benefit). There is also the possibility of a pure death benefit insurance (“ estate ”).
In addition to protection in the event of death, it is possible to cover other biometric risks by including long-term care insurance or disability insurance . These additional components are already included in different versions in the policies of various insurers, which can be classified as forerunners of Universal Life policies in Germany. For example, the policyholder of a Gothaer VarioTime policy is free to take out an additional education insurance, which can be used to save money to support the education of the beneficiary child. Strategy No. 1 of the AachenMünchener , which includes the protection of the workforce in the form of an occupational disability insurance as well as the care case and the disability of a child. The classic Universal Life Policy in Germany, the Ideal UniversalLife, contains the optional additional modules care case protection and contract protection. Nursing care protection is also possible in the "Starter" and "Universal" versions. The lifelong carer’s pension can be structured by the insured within certain limits. The “contract protection” component takes effect if the insured person is no longer able to pay the contributions through selected product components due to an occupational disability.
Separate accident insurance has not yet been included in the products on the German market.
Contract account
A transparent contract account on which the insured can track the development of his contract is the second criterion for the classification of universal life insurance. In addition to the insured person, the intermediary and the insurer can access this contract account. In the course of the sales process, the contract is adapted to the customer's wishes and the account is thus individually designed. Adjustments relate in particular to payment and service planning. During the term of the contract, all contractual matters can be processed via this portal or other digital forms of communication, and explanatory videos and information brochures are also available for download. The insured also has the opportunity to track the savings process, the selected risk coverage and the cost burden on a daily basis. In addition, adjustments in the future such as B. Changes in contributions, additional payments, withdrawals, the selection and deselection of product modules or the time of the start of the pension can be simulated. The amount of the payments in the event of death and termination is always listed. So far, Ideal Versicherung is the only provider that offers such an account structure with its Universal Life insurance.
With Universal Life insurance, there is typically no commission, the agent only receives a regular brokerage fee , depending on the amount of the contributions and the accumulated reserve . In addition, an account setup fee can be agreed. This type of ongoing payment particularly favors the high flexibility of the product.
Flexibility of premiums and benefits
The services of Universal Life differ depending on the choice of optional product components, which means that various biometric risks can be flexibly protected. Pension insurance is initially compulsory, but it can be customized. For example, the insured person can adjust the start of retirement and decide whether, in the event of survival, a lifelong pension, a full lump-sum settlement or a mixed form should be paid. With the other product modules, too, the performance levels can be designed within certain minimum and maximum amounts.
There are no fixed regular contributions, so that the premium payment can be adjusted to the respective life situation using various options. In doing so, minimum and maximum contributions must be taken into account within defined time periods. In addition, one-off payments and withdrawals are possible within certain limits. With Universal Life policies, premium breaks and exemptions are always possible and in the amount if the premiums for the risk components can still be financed from the existing credit. In defined cases, it is usually possible to finance the premiums for the risk components from the accumulated surpluses or to continue the risk components without the pension insurance.
In addition, a dynamic increase in contributions and benefits can be set when the contract is concluded.
Individual evidence
- ↑ Life Insurance Buyer's Guide. Retrieved March 29, 2017 .
- ^ Christian DesRochers: Life Insurance & Modified Endowments . S. 193 .
- ^ Comparing Life Insurance Policies. Retrieved March 29, 2017 .
- ↑ Individual Life Sales Trends. (No longer available online.) Archived from the original on March 30, 2017 ; accessed on March 29, 2017 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
