Current Assumption Whole Life (CAWL)

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Presentation transcript:

Current Assumption Whole Life (CAWL) Chapter 9 Tools & Techniques of Life Insurance Planning What is it? Hybrid of traditional whole life (WL) and universal life (UL) level and fixed premium (like WL) Unbundled interest, mortality and expense charges (like UL) Features of universal life possessed by CAWL Policy elements are “unbundled” No or low front end loads Back end surrender charges instead Death benefit options I and II Current interest crediting rate lined to a specific index (such as treasury bills)

Current Assumption Whole Life (CAWL) Chapter 9 Tools & Techniques of Life Insurance Planning What is it? Features of traditional level premium life insurance possessed by CAWL Level premium and level death benefit between each “re-determination” period Minimum interest guarantee Maximum guaranteed mortality charges Minimum guaranteed cash values Nonforfeiture values Policy loan provisions Reinstatement period and settlement options

Current Assumption Whole Life (CAWL) Chapter 9 Tools & Techniques of Life Insurance Planning What is it? Features of traditional level premium life insurance that can be obtained as options by CAWL Waiver of premium Guaranteed purchase of insurability Accidental death benefits Cost of living adjustments When is the use of this tool indicated? When a person wants a fixed premium, “forced savings” feature of traditional whole life and the potential for better investment results than those guaranteed in traditional policies

Current Assumption Whole Life (CAWL) Chapter 9 Tools & Techniques of Life Insurance Planning Advantages Premiums are level and fixed between each re-determination period Cash value interest or earnings accumulate tax-free or tax-deferred depending on whether the gains are distributed at death or during lifetime Cash values are not subject to the fluctuations in the market value characteristic of longer term municipal bonds or other long term fixed income investments, when market rates change Policy cash values can be borrowed at a low net cost Policy is “transparent” or unbundled

Current Assumption Whole Life (CAWL) Chapter 9 Tools & Techniques of Life Insurance Planning Advantages (cont'd) Cost of living riders that, without evidence of insurability, automatically increase death benefits periodically by the increase in the CPI Most of the policyowners premiums go into the policy cash values Most policies have “back-end” loads or charges Most CAWL policies permit policyowners to withdraw excess cash value accumulations without impairing the policy or changing the death benefit Disadvantages In the early years , amount of protection with CAWL is lower relative to premiums spent than with term insurance. In later years the reverse is true

Current Assumption Whole Life (CAWL) Chapter 9 Tools & Techniques of Life Insurance Planning Disadvantages (cont'd) In the early years , amount of protection with CAWL is lower relative to premiums spent than with term insurance. In later years the reverse is true Surrender of the policy in the first five to ten years might result in considerable loss