Typically you have two options when you run an illustration for a client or consumer: Guideline Premium Test (GPT) or Cash Value Accumulation Test (CVAT). So which one should you use? And when comparing them, are you looking at apples to apples or apples to oranges?
Chris Korfe of North American joined us for Round 4 of our five-part series on “Grow Your Business with IUL.” In this week’s discussion, he identified the differences between GPT and CVAT versions of illustrations. He also explained key components your illustrations must have and a common mistake illustrations often make.
Here are links to the other parts of this webinar series:
- Part I: IUL Mechanics
- Part II: How Insurance Companies Cover Indexed Credits
- Part III: Compelling Features
- Part IV: Illustration Tips (you're here now)
- Part V: How to Sell IUL
Here are a few takeaways from Chris's presentation:
What’s the Difference between GPT and CVAT?
According to Chris, most illustrations are run as Guideline Premium Tests. Assuming your client’s top priority is protection, you should run your North American illustration as a GPT to solve for level premiums.
The CVAT version monitors the death benefit size relative to the account value. Your client’s premiums and account value are closely monitored for maintenance to keep the remaining cash value non-taxable during distribution (aka, to keep it a Modified Endowment Contract, or, MEC).
In the end, the main objective is always meeting cash accumulation needs first with protection seen as secondary.
What Your Illustration Must Have
An Adequate Face Amount: IULS are great products for cash accumulation, loans and withdrawals, and supplementing retirement income. But underwriters still look at the death benefit. Ensure your client’s needs are being met fully.
Leave Room for Premium Growth: Most clients will want disposable income once they’re older. If you run an illustration at the minimum death benefit to see maximum cash value, there’s little room for additional premium. North American software allows you to show increasing premiums down the road.
Duration of Income Stream: North American runs all income streams to age 100, but, you can design an illustration that matches the goals and objectives of your client’s situation.
North American Illustration Specifics
Historical Look Back: NA uses a 30-year look back to get a fuller and more accurate picture of what the market and that policy are likely to offer the client. The default is the S&P annual point to point currently at 2.2 percent.
Learn more about the design elements of IUL illustrations, as well product comparisons (in terms of illustrations) by registering. Doing so will give you access to all past webinars in this series. Or simply check out the recaps by following the links directly below.