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Frequently Asked Questions

What is the difference between Institutional and Retail Pricing?

Institutional pricing: Policies identified as "Institutional" are designed to include volume discounts and economies of scale available to large individual transactions and/or large groups of policies. As such, "Institutional" policies are characterized by high minimum policy face amounts and/or high minimum premium requirements, and offer low and/or levelized Premium Loads, and/or low Cash-Value-Based "wrap fees", and/or low or no Termination Fees (i.e., Surrender Charges), and/or low Fixed Administration Expenses, and/or low Cost of Insurance (COI) Charges. Depending upon the administrative requirements and/or underwriting concessions (e.g., Guaranteed Standard Issue or GSI arrangement in corporate benefits settings) for a given policy/group of policies, "Institutional" policies can include higher Fixed Administration Expenses, and/or higher Cost of Insurance (COI) Charges than "Retail" policies, so long as the total overall cost remains less than "Retail" policies.

Retail pricing: The Policies identified as "Retail" are designed to be available to the broadest possible market, and are priced for large, non-selective risk-pools of individual policyholders that rely on the "Law of Large Numbers" to provide the insurer with the greatest predictability in claims experience, but at the expense of averaging claims costs for high- and low-risk segments of the pool as well as higher operating expenses per policy. As such, "Retail" policies are characterized by low minimum policy face amounts and/or low minimum premium requirements, and high Cost of Insurance (COI) Charges, and/or high Fixed Administration Expenses, and/ or high Premium Loads, and/or high Cash-Value-Based "wrap fees", and/or high Termination Fees (i.e., Surrender Charges).

Institutional and Retail Pricing are determined by a variety of pricing factors, the two most notable are lower cost of insurance and/or lower expenses. Examples of Institutionally priced policies:

i. The Society of Actuaries (SOA) tracks policies with face amounts of $1,000,000 and more separately because the mortality rates for those policies are lower than that for policies with lower face amounts.

ii. Corporate Owned Life Insurance (COLI) policies tend to have lower cost structures that are spread out over time.

When is a policy considered “experience-rated”?
Veralytic Reports consider a policy to be experience-rated and indicate so in the Pricing Style Box in the upper left hand corner of the Analysis page when the product is NOT generally available and thus is based on the experience of a particular segment of the total risk pool. Examples of experience-rated products would be proprietary products and/or private placement products. In both cases, such products are often marketed for their lower costs, but there have been occasions where initially lower costs ended up being higher costs because bad experience in the segregated pool. The Pricing Style Box gives the advisor the ability to talk about both the pros (e.g., potentially lower costs) and the cons (e.g., a potentially greater risk that costs could be increased) of such proprietary and/or private placement products.
What does the Veralytic Star Rating mean?
Our star rating is designed to help you match the individual measures of qualitative and quantitative attributes for each of the five (5) major factors of suitability to client needs and objectives. The distribution of star ratings does NOT follow a bell-curve pattern like some ratings systems because each of the five (5) stars separately measures the qualitative and quantitative attributes for each of the five (5) major factors of suitability. As such, Veralytic Star Ratings under 3 stars do not necessarily indicate that a policy should be replaced (e.g., the qualitative and quantitative attributes of a 3-star policy could match client needs/objectives) nor does a policy rated higher than 3 stars necessarily indicate that a policy should be maintained (e.g., any more than a 5-star emerging markets fund would be suitable for a conservative investor). One might observe that policies rated 3-stars or better are generally less likely to be replaced and policies rated less than 3-stars are generally more likely to be replaced. The above distinction is necessary because it is important to focus on both the overall star rating AND then also discuss and match the individual measures of qualitative and quantitative attributes for each of the 5 major factors of suitability to client needs/objectives.
What is the difference between a TOLI TPA and Veralytic?

Third-Party Administrators (TPAs) provide a VERY valuable service to/for ILIT Trustees in the form of record-keeping and administration support. Because trust accounting systems cannot handle all the data elements of a life insurance policy holding (i.e., trust accounting systems do not generally have fields for death benefits nor cash values that differ from account value), and because there is no electronic source of information to pull pertinent data for inforce policy holdings (like their trust accounting systems can do for investment holdings), these TPAs are essential vendors to many ILIT Trustees for collecting pertinent policy data and storing it in the TPA record-keeping system that the ILIT trustee can then access over the web. These are essential functions in support of the trustee’s duty to monitor policy holdings. In addition to monitoring, the Prudent Investor Act prescribes two other duties for managing trust assets, those being the duty to investigate suitability and the duty to use the information gathered in the monitoring and investigation phases to manage TOLI holdings in a manner that minimizes costs and maximizes benefits relative to acceptable risk. So while TPAs provide essential support for monitoring policy holdings Veralytic provides essential support for investigating suitability.

Why not use the 2001 CSO Mortality Table as a COI benchmark?

Because the 2001 CSO Mortality Table does NOT represent a competitive COI rate, and instead represents the maximum amount that insurers are permitted to charge for cost of insurance charges (COIs).

How do I request a Veralytic Report?

Veralytic Report requests and corresponding required data are submitted to either to reports@veralytic.com or via toll-free confidential fax server at 1-800-409-3222. Submission requirements consist of the completed Veralytic Report Cover Page and an inforce OR new business illustration of hypothetical policy values for the policy under evaluation. If Universal Life or Variable Universal Life then the illustration must include detailed expense pages. If Whole Life, then the illustration/submission must include the dividend interest crediting rate. If an insurer says in writing they cannot produce detailed expense pages then instead submit a copy of policy contract and the most recent annual statement. Either way, only submit the one illustration that most closely corresponds to client expectations.

Is there away to compare the current policy with a product that may be recommended?

Yes, but not within the individual Veralytic Reports for a given holding. FINRA Rules prohibit side-by-side comparisons at least of VUL products. One of the advantages of Veralytic Reports over all other so-called “policy review” reports is that Veralytic Reports has been reviewed by FINRA and found to be compliant with their Rules. This is in contrast to other “policy review” reports which present their findings in a way that FINRA prohibits because they consider it “misleading”. As such, you do not want Veralytic Reports to compare the results of 2 policies side-by-side so that the service you use meets FINRA standards for fair and adequate disclosure whereas another service is considered “misleading” and therefore is more likely to lead to incorrect conclusions.

Is there a way to summarize multiple Veralytic Reports?

While not an automated, online product of Veralytic, we have developed in cooperation with our subscribers several of 1-page summaries of Veralytic Report finding for multiple policies. Please contact us to request a summary.

What is the relevance of comparing the pricing of an inforce policy to benchmarks for institutional and retail pricing when a new policy is being proposed?

Without the benchmarks indicating the representative average pricing and performance of an institutional and/or retail policy, there is no way to know if the new policy being proposed is just better or among best-available rates and terms. Clients DON’T just want better; they want products that are among best of class. Other policy review reports show an inforce policy compared to ONE other product. On the other hand, the Veralytic Benchmarks reveal just how competitively-priced or poorly-priced a product is, and how much opportunity there is for improvement. For instance, if a mutual fund is up 25%, is that good or bad? Of course, the answer is “it depends”. If the S&P 500 for instance is up 50%, then the fund that is up only 25% is NOT very good even though it may be better than some other fund.

Is the Veralytic Research Platform limited to policies that mature at age 100 or younger?

Veralytic Reports are NOT limited to policies that mature at age 100. Veralytic Reports are designed/intended to measure pricing and performance for ALL policies. The overwhelming majority of ALL policies in existence (both inforce policies and new products available for sale) are priced with cost of insurance charges (COIs) that collect all expected mortality by age 100. For instance, even some new products issued under the age 121 mortality table still collect all mortality by age 100 and continue coverage to age 121 without charging COIs after age 100. As such, benchmark Cost of Insurance charges (COIs) in the Veralytic Research Platform likewise collect all expected mortality by age 100. We have on our list of enhancements for future development to extend the measurement period all the way out to age 121 (albeit while maintaining benchmark COIs to collect all mortality by age 100). We recognize that measuring pricing to age 100 may give new policies that amortize mortality all the way to age 121 a relative advantage and may thus look particularly competitive in a Veralytic® Report, but thus far we have not seen a material difference in pricing in the aggregate for all age 100 versus age 121 products in our database.

Does the illustration submitted for evaluation have to show endowment at age 100?

The illustration that most closely corresponds to client expectation should be submitted for evaluation. In other words, if the client expects permanent coverage and the policy contract defines permanence as cash values endowing for the face amount at maturity age 100, then yes do submit an illustration showing endowment at age 100. However, if the client expects permanent coverage but the policy contract defines permanence as having $1 in cash values at maturity age 100, then submit an illustration showing $1 of cash value at age 100 and the death benefit continuing on thereafter. Lastly, if the client expects coverage to last only to age 90 (e.g., they have had a change in health and do not want to fund to age 100 or age 121), then submit an illustration showing coverage lapsing at age 90. In all cases, the standard objective is for the Veralytic Report to EXACTLY match premiums and death benefits and measure the pricing and performance of a given policy as it relates to the plan design that most closely corresponds to client objectives.

What is the impact on the evaluation of a policy endows at age 121?

Veralytic Reports calculate costs for all policies as the present value of all Cost of Insurance charges (COIs) and expenses to age 100 plus the present value of cash values also at age 100 (which reduce the net amount at risk and thus also reduce COIs and therefore must be considered to consistently calculate costs in both policies with and without cash values). Veralytic Reports currently measure costs to age 100. As such, the policy funded to endow at age 121 will have lower cash values at age 100 than the policy funded to endow at age 100, but a higher net amount at risk and higher COIs than the policy funded to endow at age 100. In most instances in the database, this trade-off does not seem to result in a categorical advantage or disadvantage of products funded to endow at age 121 versus those that endow at age 100 because the present value of higher/lower COIs to age 100 seems offset by the present value of lower/higher cash values at age 100 for age 121/100 products respectively.

What is the impact of a policy with a secondary death benefit guarantee (i.e. No Lapse Guarantee (NLG) with little or no cash value accumulation)?

Veralytic Reports calculate costs for NLG policies the same as all other policies EXCEPT that Cost of Insurance charges (COIs) and expenses are capped by the secondary guarantees that limit what the client must pay to maintain coverage.

What is the impact of an indexed universal life (IUL) contract with unrealistic assumptions as to policy earnings?

Veralytic reports on the reasonableness of assumed policy interest crediting rates in 3 ways: 1) because actual performance of the indexed policy crediting rate is directly related to the amount of options that can be purchased on the corresponding index, and because the amount of options that can be purchased on the index is directly related to the actual performance of the underlying General Account, Veralytic® Reports measure the actual historical performance of the General Account in star #5, 2) because a high assumed policy interest crediting rate often disguises high policy costs, Veralytic Reports measure actual policy costs in star #2, and 3) Veralytic reports on the assumed policy interest crediting rate in relation to the actual historical performance of the asset classes for invest assets underlying policy cash values in star #3. As such, an IUL product that illustrates an unrealistically high policy interest crediting rate could be rated as low as 2-stars.

Can a Veralytic Report be run on a “Private Pension” type illustration?

Yes, Veralytic Reports measure pricing competitiveness as to cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based “wrap fees” (e.g., VUL M&Es and the loan spread under this design), and premium loads and historical performance of invested assets underlying policy cash values for a “Private Pension” type illustration just the way it does for any other plan design.

How are Veralytic Benchmarks better than policy comparison systems?

The Veralytic Research Platform compares any given life insurance product holding to its peer group. To know how one particular product compares to another, you would simply request a Veralytic Report on each product. While there are many policy comparison/evaluation/audit systems available from distributors trying to sell some limited number of products, comparing only 2 products only tells you which of just those 2 are more competitive, but fails to help you choose a better product for the client from the entire universe of available products. Only by measuring pricing and performance against benchmark averages for peer-group products can you know just how competitive a particular product is in a particular client situation.

What can I do when the insurer will not disclose what they expect to credit in the way of dividends and/or the dividend interest crediting rate?

The insurer is the only source for what they plan to charge and what they expect to pay in dividends. When an insurer refuses to provide this info, the question begs to be asked as to why. While Veralytic Reports are necessary in order to know the competitiveness of what clients are charged and/or what they can expect in performance, the inability to get needed info from the insurer is almost as telling about its suitability (unless the client is comfortable “flying blind”).