Quebec City-based Industrial Alliance Insurance and Financial Services Inc. has launched a new permanent life insurance product that combines the features of whole life and universal life (UL), in an effort to appeal to clients who want guarantees along with flexible investment options.
The new universal life product, called EquiBuild, provides policyholders with level premiums, guaranteed surrender values, an annual bonus and a variety of different investment options, including a new fund that is designed to generate stable long-term returns.
The new product comes as industry-wide sales of UL have dropped considerably in the past few years, as insurers have raised UL premiums significantly to adapt to the low-interest rate environment, and as clients have flocked towards whole life insurance for the guarantees offered by those products.
“Universal life sales were starting to be slower, and at the same time, participating whole life was getting more popular,” says Pierre Vincent, vice president, individual insurance, with Industrial Alliance. “When we looked at all of this, we wondered whether there was a way for us to create a new product that would take the best features of UL and the best features of participating whole life, and put that all in one product.”
The investment options include fixed-term guaranteed interest accounts, various index-based investments, and an investment account tied to a new low-volatility fund, called the EquiBuild Fund, managed by a team of fund managers at IA Financial Group. The fund is composed of fixed-income securities, mortgage securities, real estate assets and stocks, and the actual returns of the fund are “smoothed” over a period of years, significantly reducing the impact of market fluctuations.
“The return is stable over time,” says Vincent. “It’s really similar to what you would see in a participating whole life policy, that is used for calculating dividends.”
Clients who invest in the EquiBuild Account will earn a guaranteed return of 4.25% through 2019. Thereafter, the return will be equal to the declared return on the EquiBuild Fund, less a management expense ratio of 1.5%.
Policyholders also have the option of switching to an investment option called the Life Investment Account on the later of the tenth policy anniversary and the insured’s fortieth birthday. That account provides a fixed monthly return that can be used to offset insurance costs.
EquiBuild policyholders are also eligible to receive an annual bonus that they can use to purchase paid-up additional insurance or invest in an accumulation fund. The bonus is calculated annually based on the declared return of the EquiBuild Fund, less 3.5%. The EquiBuild Fund includes a guaranteed return of 5.5% through 2019, which means policyholders will receive a guaranteed bonus of 2% during that period.
The cost of premiums on the EquiBuild product is slightly higher compared to other UL policies, Vincent says, due to the relatively stronger guarantees that the product provides.
“Because you’re getting that guaranteed cash surrender value, it’s a bit more expensive than UL with level cost of insurance,” he says, “but it would be a lot cheaper than participating whole life.”