New hybrid life policies tackle VUL problems.

Bicycle purists say a hybrid bicycle underperforms a mountain bike oft road and a road bike on paved surfaces. But a new kind of hybrid life insurance policy may actually perform better than the sum of its component parts, says Hartford Life Insurance Co.

Hartford's new product, Quantum Life, provides a no-lapse guaranteed death benefit by investing a minimum required amount in a fixed bucket that works like a universal life policy. Policyholders then can invest additional money in a variable component that does not add to the death benefit and therefore does not incur any insurance charges.

The hybrid, then, provides not only a sure-fire death benefit, but also a chance for significant contract growth without the kind of worry in a variable universal life policy that negative returns could cause the policy to lapse without infusion of more premium. Tim Fitch, director of individual life product development, said the variable element actually is the equivalent of a Roth IRA in that a contract owner could access the cash value tax-free through loans. In some respects, said Fitch, it is better: An owner could withdraw cash value before age 59 1/2 without the IRS' 10% tax penalty; wealthy individuals can invest, which they can't in a Roth IRA; and an owner's investment would be limited by the IRS' modified endowment contract regulation rather than Roth annual contribution limits.

Fitch's example: A 50-year-old male buys a $1 million death benefit with a fixed premium of $12,000 a year. He then could add $50,000 into the contract's variable account without violating the MEC limit. And if he doesn't fully fund the contract one year, he could catch up in ensuing years, Fitch pointed out. Owners also may purchase a principal guarantee through Hartford's Principal First rider developed for its variable annuities.

Hartford's product seems similar to MassMutual Financial Group's VUL Guard, first offered in 2003, which it calls the "next generation" of life insurance. "The problem with every variable lift" product on the market today is that the agent and client can't know how much money they are safely able to pull out of a policy," said Roland Fawthrop, second vice president and actuary. "With VUL Guard, you can withdraw every penny from the variable side."

The new product has at least stabilized the fall in VUL sales that Mass-Mutual (and the industry) has experienced since the bear market, said Fawthrop. "It is one of the fastest-selling new products we've ever offered," he said. "It's providing a niche we needed in our portfolio."

MassMutual is seeking a patent on the product, and Fawthrop said other companies are working on their own versions.