Comparing PUA vs Enhanced insurance dividend options

With this dividend option, any dividends credited to the policy are used to purchase paid-up additional insurance. This paid-up additional insurance is added to the guaranteed base insurance amount, creating another layer of permanent protection. This paid-up additional insurance layer is also eligible to receive dividends, resulting in a compounding effect of dividend earning potential.

Things to know:

• The paid-up additional insurance has a cash value which accumulates over time on a tax-preferred basis.
• The paid-up additional insurance, purchased by policyholder dividends, provides an increase in the death benefit without the need to provide more underwriting or extra out-of-pocket costs.

Enhanced insurance (ENH) dividend option:

This dividend option helps Clients set up a participating whole life policy in a cost-effective way. When the Client selects the ENH dividend option, their guaranteed death benefit is made up of the base insurance amount and an enhanced insurance amount. At issue, the enhanced insurance amount consists entirely of yearly renewable term insurance. On each policy anniversary, any policyholder dividends credited are first used to pay for the yearly term insurance premiums. Since the yearly term insurance premiums are usually less than the dividends credited, any leftover dividends are used to purchase PUA insurance. When this occurs, we replace a part of the yearly term insurance with the permanent PUA insurance purchased, such that the combined amount of yearly term insurance and PUA insurance equals the enhanced insurance amount the Client chose at issue. The dividend crossover point occurs when all the yearly term insurance is replaced by PUA insurance. Once the policy reaches the dividend crossover point, the dividend option switches to PUA. Any future policyholder dividends credited to the policy are used to purchase PUA insurance. At this point, the total death benefit begins to grow.

Things to know:

• The enhanced insurance amount chosen at issue can be anywhere between $1,000 up to the maximum that we set. We base the maximum on criteria such as the product selected, the base insurance amount, the coverage type, the premium payment period and the insured’s age, sex, smoking status, and mortality rating.
• The ENH dividend option includes a lifetime guarantee. This means the base insurance amount plus the enhanced insurance amount selected at issue is guaranteed for the life of the policy regardless of how the future policyholder dividends perform. The guarantee would be forfeited if the Client makes any changes to the policy after issue, like a partial surrender or going on premium offset.
• Clients with the ENH dividend option may also convert their policy’s yearly term insurance to a new permanent life insurance policy, without having to provide new underwriting. Once the yearly term insurance is partially or fully converted to a new policy, the dividend option on the original policy changes to PUA and any remaining yearly term insurance is cancelled.

Next, let’s consider the Client’s needs to decide the best dividend option for them…

When deciding which dividend option to recommend to the Client, consider the following:

• What are their initial insurance amount needs?
• Is budget a determining factor?
• How important is short-term access to cash values?
• How important is immediate growth in their plans?

The following chart summarizes some of the most popular Client needs. It also outlines the differences between the PUA and ENH dividend options when it comes to addressing those needs.

Now let’s look at some scenarios to show how the PUA and ENH dividend options may help meet different Client needs…

Case study 1 – Focus on affordability

For Clients looking for participating whole life insurance protection, the ENH dividend option offers a more affordable solution for the same initial guaranteed insurance amount compared to other dividend options. Consider a Client with a $500,000 permanent insurance need who is interested in the Sun Par Protector II Life pay product. The chart below compares the annual premiums required for $500,000 of initial guaranteed insurance amount with the PUA dividend option versus the ENH dividend option using maximum enhancement. The premiums are for standard

Premiums for a participating whole life plan with the ENH dividend option are cheaper for the same guaranteed insurance amount. This is because the premium is based on the base insurance amount only, not the total initial guaranteed insurance amount. Dividends are used every year to pay for the policy’s yearly term insurance. This means there is no extra premium charged to the Client for the yearly term insurance.

Case study 2 – Focus on the earliest premium offset

How a policy is structured will impact the earliest premium offset date with PUA and ENH dividend options. By using the PUA dividend option, Clients will qualify for premium offset earlier than they would by using the ENH dividend option. This is true for policies that use no PPB and for policies that use maximum PPB. For Clients who like the ENH dividend option, they can speed up their premium offset eligibility by using the PPB.

Let’s look at an example where the maximum PPB is used:

Plans using the ENH dividend option take longer to qualify for premium offset. This means the Client will have to pay more premium using the ENH dividend option than if they chose the PUA dividend option. The ENH values are also higher since when the Client pays longer, their cash values and death benefits are typically higher.

Case study 3 – Matching base premium and solving for coverage amount

Let’s consider a female, age 50, non-smoker with $50,000 to spend each year for 20 years. Her advisor recommends the Sun Par Protector II product to help with her estate planning needs. She likes the idea of the guaranteed 20 pay option. She does not plan on using the Plus premium benefit (PPB) to make additional payments into the plan.