Although policyowners may change the plan of insurance, AL is essentially a traditional fixed premium, fixed benefit policy at any given point in time. Some of the key considerations are: the policy loan provisions; the policy loan interest rate; whether or not the company uses a direct recognition method to determine the dividend paid on policies with policy loans; the dividend interest rate (the rate that must be earned on the company’s investments to justify the projected dividends); the current crediting rate; the method used to determine the amount of investment income allocable to the policy (portfolio method, new money method, or some weighted average); and, of course, the financial stability and strength of the company.
The items of special importance when evaluating AL policies are the adjustment provisions and the commonly offered guaranteed insurability options. Look for policies with more liberal adjustment provisions. All else being equal, prospective insureds probably should favor policies that permit more frequent changes in the plan of insurance and that permit them sooner after the policy issue date. Similarly, they should prefer policies that permit larger and more frequent face amount increases without evidence of insurability. However, all else is never quite equal. More liberal adjustment provisions may involve higher expense charges. More liberal guaranteed insurability provisions generally will require higher premium charges.
Another key consideration is the quality of service. Changes in the plan of insurance require re-computation of the premium payment plan, cash value schedules, and projected dividend schedules and may involve a new underwriting evaluation if the company requires evidence of insurability. This service generally comes from a combination of the insurer and the agent. If either the agent or the insurer is slow to perform his or its part, desired changes may not take effect for months.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM