M&E Fees

[lprobin]

What is the purpose of mortality and expenses charges on a VUL? What is difference between that charge and the normal COIs and why is it only charged on VUL and not IUL or UL?

 

[Tahoe Ray]

M&E Fees are a sub account charge. IUL and ULs do not have sub accounts. It is typically another profit source for the carrier. The charges are normally a fixed percentage vs. COI which can vary based on the insured.

 

[Larry Tew]

The actual purpose of the M&E charge is to help the insurance company absorb the loss when an annuitant dies and the account balance is less that total contributions.

In other words, you put in 100k. The account balance drops to 90k. You die. The company pays the beneficiary 100k (90k was your money, the other 10k was the insurance company's money).

 

[lprobin]

Thank you for the info. I understand why it would be on an annuity but life insurance already calculates in those risks of early death via COIs and other costs just like all life policies. It was just that it is a unique charge on variable life.

 

[rayluk]

If I remember correctly, I ask the life product consultant the same question. The M&E for VUL is built in as a buffer for carriers to absorb loss.

I am guessing it is related to the transaction costs among different sub account funds, especially if they have built in re-re-balancing. The sub accounts (different funds) expenses are not inclusive with the M&E. You will actually not see them as a separate line items in illustration. They will however show up in the prospectus.

Hope I am correct with my information.

 

[Larry Tew]

Thank you for the info. I understand why it would be on an annuity but life insurance already calculates in those risks of early death via COIs and other costs just like all life policies. It was just that it is a unique charge on variable life.

My bad... I completely missed the "VUL" in the original post.

 

[TXRecruiter]

If I remember correctly, I ask the life product consultant the same question. The M&E for VUL is built in as a buffer for carriers to absorb loss.

I am guessing it is related to the transaction costs among different sub account funds, especially if they have built in re-re-balancing. The sub accounts (different funds) expenses are not inclusive with the M&E. You will actually not see them as a separate line items in illustration. They will however show up in the prospectus.

Hope I am correct with my information.

I believe you are correct. Also a VUL has the ability to hit negative(technically) cash value since it is "tied to the market" On the other side it has possibility of growing substantially. Both are a risk to the carriers for mortality or surrender. M&E is a good buffer for risk on the carriers part.