Life preservers: financial advisers should take another look at guaranteed no-lapse products.

No-lapse guarantee life insurance evolved in reaction to adverse consumer experiences with policies plagued by inadequate funding, mortality increases or premium insufficiency to carry the coverage to normal life expectancy. Class-action lawsuits and customer complaints of misrepresentation escalated.

The industry's answer was the much heralded no-lapse guarantee universal life chassis. If a stipulated premium is paid within a specified time period, the premium and the death benefit are guaranteed even if the insured lives beyond age 100. This comes with stringent time limits and "catch up" provisions for payment of premium in order to protect the lifetime guarantee.

This product is designed to maximize the death benefit while providing a level, guaranteed, moderate premium. The tradeoff is that the policy has neither guaranteed nor projected cash accumulation. These products rarely have cash accumulations after the 15th or 20th policy year.

One company has a "liquidity rider," which essentially provides for a return of premium (up to 100% in some cases) after 20 years if the policy is surrendered. It must be issued before the insured turns 65; he or she must also be at least a standard risk. Unlike traditional return-of-premium riders, which substantially increase premium outlay, this product comes with an additional premium of only 5% to 15%.

For clients concerned with escaping estate taxes, life policies are often owned by an irrevocable life insurance trust, or ILIT. We've heard the objection, "Why have cash in the life policy if it is to be owned by an ILIT?" Advisers need to consider having cash values available for the trustee to address changing economic, lifestyle, business or medical conditions; charitable intent; or the simple desire to quit.

An example is an ultra-wealthy businesswoman, age 37, preferred risk, who needs $40 million of insurance for estate tax liquidity. Although she has a charitable foundation, she wants to transfer a significant part of her wealth, at her death, to her family. Here are three ways of structuring her insurance; each example uses a 10-year premium payment schedule:

* Guaranteed Universal Life: Her premiums are $301,895 per year. By year 10, the policy's projected cash value is $2.56 million; by year 20, $2.82 million; and at age 65, $2.9 million. The projected cash value reaches $40 million at age 100.

* Variable Life, guaranteed death benefit to age 64: Her premiums are $405,000 a year. Assuming 7% interest non-guaranteed, by year 10 the policy's projected cash value is $4.49 million; by year 20, $8.29 million; and at age 100, $125 million.

* Variable Life, guaranteed death benefit to age 100: Her premiums total $402,404 per year. Assuming 7% net interest non-guaranteed, by year 10 the policy's projected cash value is $4.47 million; by year 20, $7.06 million; and at age 100, $83 million.

Corporate-owned variable life products with high early cash values for a split-dollar design were considered, as were whole life and private placement alternatives.

Far too often, variable life is overlooked because of an adviser's past experience with an older design, the expense loads or the absence of guarantees. By presenting the rest of the variable life story, clients and their advisers have choices--and agents won't have their best clients complaining, "Why weren't we told about other options?"

Contributor Kay I. Dempsey is president and CEO of The Dempsey Companies, an Atlanta-based insurance brokerage and wholesale broker dealer. She can be reached at [e-mail].