One of our carriers released a document recently that summarized the dividend scale actions taken by nine major insurance companies on their participating whole life contracts over the last 31 years. While there was not one carrier that stood out above the rest and warrants specific mention, the overall trend in the data was compelling. There are six total categories, but really only three that matter: scale increases, decreases, and no change. Out of a total of 258 data points (279 less the 21 expected data points that were unavailable) we see the following:

• Scale Increases - 48 (18.60%)
• No change - 102 (39.53%)
• Scale Decreases - 108 (41.86%)

I think the message in this depends on if you are a "glass half full" or "glass half empty" person: The carrier maintained or increased their dividend almost 60% of the time, while decreasing roughly 40% of the time. Regardless of your outlook on life, there is a clear message: decreasing 40% of the time means these policies, unless the unwitting beneficiary of excellent timing, are going to underperform versus expectations. This is probably not news to most of us.

Another item that is not going to surprise any of us is the recent market volatility. We are all keenly aware of the ups and downs, and the Dow shedding some 8% in the last month has us all concerned. How is this related? Underperformance versus expectations. While the last 30 days is not something that would send me to the exits and out of the market, for a Variable Life contract, it may be the last nail in the coffin. Hopefully not, because if we get there before it is too late, we can actually take action before the policy is dead and buried.

While this strategy of moving out of underperforming Whole and Variable Life contracts is not new, the landscape of available products for us to work with has changed dramatically. One of the big objections we hear when proposing a possible replacement is the rapid cash value depletion that is inherent in most of the Guaranteed Universal Life contracts out there. Even with the underperformance of their existing contract, the fact that there is some cash there brings the client some measure of comfort, and they would almost rather simply walk with the cash than see it turn to dust when it hits the proposed new policy.

In a recent case, we had a trust owned policy, and no further premiums expected, so the "walk with the cash" option was not really going to work. The policy in question, on a male age 60, was due to lapse at age 93 even using a rather aggressive growth assumption. New underwriting took the client from a Standard to Preferred or even Super Preferred for new coverage. The kicker was that the cash value was preserved (and even continued to grow) in the new policy. Looking beyond the guaranteed forever products opened up a solution that gave guarantees to the mid-eighties along with a projected surrender value of at that age of $1.6MM.

The client was thrilled with the outcome. Their insurance would not require new premiums, the possibility of a lapse prior to death was greatly reduced and the cash value continued to grow. Of course, the agent was rather pleased with the compensation on a target premium of $85,000 and excess compensation on close to $1.1MM.

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