ING Inforce Illustration Is Better Than Most But Still Lacks Some Important Details
Posted at Advisors4Advisors.com on March 23, 2011
An inforce illustration, also called an inforce ledger, is a report that shows an existing life insurance policy’s future premiums, cash values and death benefits. Policyholders usually have the right to receive at least one inforce illustration without charge each year.
The information quality of inforce illustrations varies widely. Most of the time I get the feeling that no one at the insurance company is really thinking about the policyholder, and they are certainly not thinking about the advisor.
This week I saw an exceptionally useful inforce illustration from Security Life of Denver, an ING subsidiary, for a client’s ING Guaranteed Death Benefit Universal Life II policy issued in 2009. This is a no-lapse universal life policy with a hybrid design; there is a minimum monthly no-lapse premium during the first 10 years and then a shadow account (called the Lapse Protection Value) test after that.
Why am I impressed?
First, the illustration provides a premium history, showing the date and amount of every premium paid since issue. This is useful for determining the cost basis of the policy, and it is also useful if you want to model the no-lapse provisions of the contract.
In my experience, most illustrations don’t even tell you the policy’s cost basis, much less the history of premiums paid.
Second, the illustration tells you the shadow account value as of the illustration date. That is rare. A quibble: The illustration calls it the Lapse Protection Account Value, whereas the contract calls it the Lapse Protection Value. In high school I had to memorize Ralph Waldo Emerson’s remark that “a foolish consistency is the hobgoblin of little minds”; that does not apply here.
Third, the illustration provides a breakdown of policy charges, with plain-English descriptions: What You Pay In, What You Take Out, What We Deduct, What We Add, and Policy Values (end of year). The person who designed this had a working brain.
Every universal life and variable universal life illustration ought to have a clear breakdown of the debits and credits that produce the nonguaranteed account value; most do not.
Fourth, the illustration provides a basic description of how the policy works, including the no-lapse guarantees, the nonguaranteed values, the continuation of coverage provision after age 121, and income taxes. Some other illustrations do this as well, but some do not.
What is still missing?
There is nothing missing in ING’s illustration that is generally provided elsewhere, so this is just a wish list:
The illustration does not provide the current financial strength ratings from the major rating agencies, such as A.M. Best, Moody’s and S&P.
The explanation of the Lapse Protection Value test is too superficial to provide any guidance about how to take full advantage of the premium flexibility that the policy offers. You have to read the contract to learn about the 6.0% Lapse Protection Interest Rate that creates an incentive to pay more than the minimum premium, and the punitive Table LPV1 Cost of Insurance Rates that will apply if you make the mistake of letting the Policy Protection Value turn negative at the end of a policy year.
The illustration does not explain how ING determines the nonguaranteed interest rate, cost of insurance rates and other charges, what changes have been made in the past, and what changes might reasonably be expected in the future. ING already provides some information in its responses to the supplemental interrogatories of Exhibit 5 of the statutory annual statement. This is public information, so putting a condensed version in the illustration would require no release of proprietary information.
There is no commission disclosure. Yes, I know, dream on.