Post-Crisis Innovation

The Next Generation of Life Insurance

Whole Life or Indexed UL… Why not ask Coke or Pepsi?

by Frank Chechel, FSA

Mr. Chechel is a 2nd Vice President at The Guardian Life Insurance Company, leading the Individual Life Product Management team. This team’s responsibilities include life product strategy, competitive intelligence, new product development and life product support. Visit

Whole Life or Indexed Universal Life? That is one of the first questions that comes to mind when I think about the life insurance marketplace in 2015.

Let me explain why. Whole Life continues to be the top selling life insurance product by premium, as it has been for many years. However, Indexed UL has experienced explosive sales growth since the 2008 financial crisis and now stands as the next most popular life insurance product after Whole Life1.

Both products are generally sold for death benefit protection today with potential for cash value accumulation and retirement income down the road. Whole Life touts robust death benefit, premium and cash value guarantees along with steady dividend2 performance, while Indexed UL touts equity linked upside performance combined with some level of downside protection.

Both products resonate

As the sales numbers demonstrate, both products resonate with a broad cross-section of insurance consumers. However, despite the overwhelming popularity of both products, I have rarely met an insurance agent that sells both product types.

Agents generally live in one camp or the other, presenting only Whole LIfe or only Indexed UL to the vast majority of their clients. Asking the question “Whole Life or Indexed UL” to an agent in 2015 amounts to asking them whether they like “Coke or Pepsi”.

But why do agents, and ultimately clients, need to settle for either/or? Isn’t there a way for carriers to offer agents and clients a better solution, combining the best of both worlds?

Interestingly, carriers have been experimenting with this notion for some time, going back to the 1990’s. Generally, the concept has been to create a new variation of Whole Life paid-up additions (PUA’s).3 The dividend performance of traditional PUA’s would be replaced by the performance of the S&P 500 or another popular equity market index.

At least one carrier developed a “variable paid- up addition” for their Whole Life contract in the late 1990’s, tying the cash value performance of the variable PUA to the movement of the S&P 500 equity index. Unfortunately, sales of this product were hampered by the “dot com bust” and the unlimited downside risk inherent with this design.

But why do agents, and ultimately clients, need to settle for either/or? Isn’t there a way for carriers to offer agents and clients a better solution, combining the best of both worlds?

Oftentimes, an innovation fails or succeeds, not based on the idea itself, but based on entering the marketplace at the appropriate time. As consumers, agents and carriers emerge from the 2008 crisis and have become familiar with the concept of “indexed” insurance products, we believe that now may be the perfect time to reimagine a new type of WL PUA – an “indexed PUA”.

This innovation would work as follows:

  • Indexed PUA’s would receive a positive or negative adjustment to the traditional dividend based on the performance of the S&P 500 index, subject to a cap and floor.
  • This adjustment would only be available on PUA’s, thus ensuring that the base Whole Life policy guarantees4 are not impacted by equity market volatility.
  • Clients would have the ability to adjust their allocation between traditional and indexed PUA’s over time as their needs change.

To be fair, this solution may not necessarily work for all clients. There will be many clients that will still prefer a traditional WL product or traditional Indexed UL.

However, given the significant size of the Whole Life and Indexed UL marketplaces, we believe the time is ripe for carriers and agents to begin offering a “best of both worlds” indexed PUA solution to their clients. This concept could be attractive to many of today’s insurance buyers, providing attractive Whole Life guarantees along with the opportunity for index linked upside potential.




1 Based on 2014 LIMRA life insurance sales data.
2Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors.
3Paid-up Additions (PUA) are purchases of additional insurance (death benefit) that have a cash value. These purchases are made with dividends and/or a rider that allows the policyholder to pay an additional premium over and above the base premium. This creates the growth of death benefit and cash values in a participating whole life policy. Adding large amounts of paid-up additions may create a Modified Endowment Contract (MEC). A MEC is a type of life insurance contract that is subject to last-in-first-out (LIFO) ordinary income tax treatment, similar to distributions from an annuity. The distribution may also be subject to a 10% federal tax penalty on the gain portion of the policy if the owner is under age 59 ½. The death benefit is generally income tax free.
4All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.
2015-14412 Exp. 11/17