No-Lapse Premium-Guarantee Policies: A Perspective

Katt, Peter C.
July 2003
Journal of Financial Planning;Jul2003, Vol. 16 Issue 7, p26
Academic Journal
The article discusses the so-called no-lapse premium-guarantee (NLPG) policies which have become a hot concept with many agents promising rock-solid, unconditional guaranteed premiums. NLPGs are impressing agents, insurance buyers and their advisors. NLPGs have very limited uses, and when they are an appropriate option, agents need to clearly advise clients that they have one potential advantage, two potential disadvantages and one potential disaster. NLPG guaranteed premiums are severely lower than conventional guarantees. NLPGs have a much smaller margin for error than conventionally set guarantees. NLPGs could end up under-reserved and seized by regulators. Agents doubting the dangers of setting guarantees too aggressively should do a little research on the failures of Baldwin United (annuities). NLPGs use the universal life form of insurance. NLPG policies have very low to zero guaranteed cash values with higher-illustrated current cash values. The NLPG premium is by definition guaranteed whole life current premium supports a level-to-maturity $1 million death benefit based on current dividends remaining the same. Now NLPGs are making underfunding an official strategy using static-priced policies. NLPGs have relatively small or no cash values.


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