BOLI - variable universal vs. universal?

[Guest Julian]

If a BOLI provider was designing a defined benefit plan, is there any reason to recommend the use of a variable universal policy containing fixed income investments over universal?

(Other than the carrier's universal policy is not competitively priced)

[Ron Snyder]

In favor of UL:

1. The interest guarantees are higher.

2. The current interest crediting rates are higher.

3. The client believes that the stock market is going down.

4. Policy owner passes investment risk and worries on to insurance company.

In favor of VUL:

1. Higher returns if expenses are comparable, since market returns have exceeded fixed rate returns over all 10 year + periods.

2. Generally the commission load is lower.

3. Disclosures are pursuant to securities laws and more complete.

4. Assets are kept in separate account of insurance carrier and will not be lost even if carrier folds.

5. If policy owner is sophisticated in investments he should be able to do much better than insurance carrier.

Now that I have listed both sides, my recommendation (to you and to my clients) is that the owners consider a IUL (indexed universal life) product. It has the advantages of both arrangements, without the responsibility to pick the right investment.

[Guest Mark_Gilje]

We recommend looking seriously at VUL for three significant reasons - all of which have been mentioned by vebaguru.

1. Disclosure - all expenses and policy charges are disclosed.

2. Investment choices - In addition to fixed income investment options, there are now "stable-value" type investments available inside insurance products which were designed specifically for the BOLI market. These assets allow for taking part in the market long-term, but without short-term volatility.

3. Protection of assets - The assets are not subject to the insurance carrier's creditors.

Best of luck!

Mark