A variable universal life insurance product that includes a death
benefit and associated investment vehicles is selectively offered.
A life insurance policy chassis is provided by an insurance company
to an asset manager. The asset manager combines the life insurance
policy chassis with one or more associated investment vehicles managed
by the asset manager to form a variable universal life insurance
product. The asset manager selectively makes the insurance product
available to respective clients of the asset manager. The insurance
company providing service for the death benefit and the asset manager
providing service for the associated investment vehicles.
What is claimed is:
1. A method of offering a variable universal life insurance product
that includes a death benefit and associated investment vehicles,
comprising: combining a life insurance policy chassis from an insurance
company with one or more associated investment vehicles to be managed
by an asset manager to form a variable universal life insurance
product; and making the insurance product available to clients of
the asset manager; the insurance company being prepared to provide
service for the death benefit and associated investment vehicles
in the variable universal life insurance product.
2. The method of claim 1, wherein the death benefit is funded by
the associated investment vehicles.
3. The method of claim 1, further comprising the asset manager
selectively making the insurance product to a restricted group of
the clients of the asset manager.
4. The method of claim 1, further comprising making the insurance
product available to respective clients selected in accordance with
at least one criterion based on the client's assets.
5. The method of claim 1, further comprising the asset manager
establishing a plurality of sub-accounts for the associated investment
6. The method of claim 5, further comprising the asset manager
selecting the associated investment vehicles available in the insurance
product and the asset manager allocating a client premium for the
insurance product amongst the associated investment vehicles.
7. The method of claim 5, further comprising the client allocating
a premium for the insurance product amongst the associated investment
8. The method of claim 1, further comprising compensating the insurance
company with a fee funded solely from the associated investment
9. The method of claim 8, wherein the fee is a percentage of the
10. The method of claim 9, wherein the fee is a guaranteed percentage
based on factors.
11. A life insurance product offered by the method recited in claim
12. The life insurance product of claim 11, wherein the investment
vehicles are proprietary to the asset manager.
13. The life insurance product of claim 11, wherein the insurance
charges for the death benefit are based on the value of the investment
14. The life insurance product of claim 13, wherein the insurance
charges for the death benefit are a fixed percentage of the value
of the investment assets.
15. The life insurance product of claim 14, wherein the fixed percentage
is guaranteed not to change.
16. The life insurance product of claim 14, wherein the fixed percentage
is paid to the insurance company out of the investment assets managed
by the asset manager.
17. The life insurance product of claim 16, wherein the fixed percentage
is the only recurring charge paid to the insurance company.
18. The life insurance product of claim 11, wherein the death benefit
is a variable death benefit.
19. The life insurance product of claim 18, wherein the death benefit
varies in accordance with the value of the investment assets.
20. The life insurance product of claim 19, wherein the death benefit
is the minimum necessary to maintain the insurance product as tax
21. A system for servicing insurance products offered to clients
of an asset manager, said insurance products including a death benefit
from an insurance policy provided by an insurance company and investment
vehicles associated with the death benefit, said system comprising:
a computer system adapted to administer client accounts managed
by the asset manager, said client accounts including accounts in
said insurance products managed by said asset manager; and a client
interface configured to make available to said clients of the asset
manager purchasing the insurance products, information relating
to the client accounts administered by the computer system, including
the accounts of the insurance product managed by the asset manager.
22. The system of claim 21, wherein the client interface is accessible
via a communications network.
23. The system of claim 22, wherein the computer system is further
configured to exchange information with the insurance company related
to said death benefit.
24. The system of claim 23, wherein the computer system forwards
a fee to the insurance company related to said death benefit.
25. The system of claim 24, wherein the accounts of the insurance
product managed by the asset manager comprise sub-accounts and the
fee is determined in accordance with the value of the sub-accounts.
26. The system of claim 21, wherein the client interface makes
available the information relating to the accounts of the insurance
product managed by the asset manager and information relating to
the death benefit of the insurance product.
27. The system of claim 21, wherein the computer system administers
the accounts of the insurance product of a client managed by the
28. A method of developing an insurance product that includes a
death benefit and associated investment vehicles co-sponsored by
an insurance company and an asset manager, said method comprising:
registering the asset manager as a representative of the insurance
company; executing a participation agreement that appoints the asset
manager's fund management as managers of the investment vehicles;
providing a life insurance policy chassis, and accompanying licenses
and permissions to the asset manager; and establishing mechanisms
for the reporting of assets under management by the asset manager,
the assessment of fees, and transfer of funds from the asset manager
to the insurance company.
29. The method of claim 28, wherein the insurance company administers
and services the death benefit in the insurance product and the
asset manager separately manages, administers and services the investment
vehicles in the insurance product.
30. The method of claim 29, wherein the insurance company and the
asset manager provide separate client access.
31. A method of insuring a customer through a variable life insurance
policy having a death benefit and investment assets, the method
comprising: allocating the investment assets of the variable life
insurance policy to at least one investment fund or at least one
investment sub account; charging the customer cost of insurance
fees, the cost of insurance fees being guaranteed for the life of
the insurance policy; and providing a variable death benefit associated
with the policy value upon the death of the customer, the variable
death benefit varying in accordance with the value of the investment
32. The method of claim 31, wherein the suitable customers are
identified by an asset manager currently managing the customer's
assets according to criteria.
33. The method of claim 32, wherein the criteria comprises the
age of the customers.
34. The method of claim 32, wherein the criteria comprises the
amount of assets of the customers.
35. The method of claim 32, wherein the criteria comprises financial
indicators of the customers.
36. The method of claim 31, wherein the asset manager allocates
the life insurance policy assets to the at least one investment
fund or at least one investment sub account managed by the asset
manager; and the asset manager controls the life insurance policy
37. The method of claim 31, wherein the guaranteed cost of insurance
fees charged to the customer is a fixed percentage of the value
of the life insurance policy.
38. The method of claim 37, wherein the guaranteed cost of insurance
fees charged to the customer is predetermined by an algorithm.
39. The method of claim 31, wherein the variable death benefit
is the minimum necessary to maintain the insurance policy as a tax
advantaged insurance policy.
40. A method of providing a variable life insurance contract that
includes a death benefit funded from associated investment assets,
comprising: making available to respective clients of a plurality
of investment fund managers a variable life insurance contract which
provides that the client's investment fund manager manages the associated
investment assets which fund the death benefit of the respective
contract; for each contract entered into by a client of an investment
fund manager, a death benefit insurer providing the death benefit
and the respective investment fund manager managing the associated
investment assets and compensating the death benefit insurer from
at least one of: return on the associated investment assets or the
associated investment assets.
41. The method of claim 40, further comprising: a death benefit
insurer making available the variable life insurance contract.
42. The method of claim 40, further comprising: the respective
investment fund managers making available the variable life insurance
43. The method of claim 40, further comprising making the variable
life insurance contract available to respective clients selected
in accordance with at least one criterion based on the client's
44. The method of claim 40, further comprising investing the associated
investment assets in at least one investment fund or at least one
investment sub account.
45. The method of claim 44, further comprising the respective investment
fund manager selecting the at least one investment fund or at least
one investment sub account in which to invest the associated investment
46. The method of claim 44, further comprising the respective client
selecting the at least one investment fund or at least one investment
sub account in which to invest the associated investment assets.
47. The method of claim 40, further comprising compensating the
death benefit insurer a guaranteed fee from return on the associated
investment assets and/or from the associated investment assets.
48. The method of claim 47, further comprising fixing the guaranteed
fee to a percentage of the account value.
49. The method of claim 48, further obtaining guaranteed percentage
based on factors.
50. A system for offering a variable life insurance contract that
includes a death benefit funded from associated investment assets,
comprising: an investment fund manager interface configured for
use by an investment fund manager to make available to respective
clients of the investment fund manager a variable life insurance
contract, and manage the associated investment assets which fund
the death benefit of the respective contract; and a death benefit
insurer interface configured for use by a death benefit insurer
to provide the death benefit for each respective contract, determine
a fixed compensation fee to provide the death benefit, and obtain
the fixed compensation fee from the investment fund manager; wherein
the investment fund manager interface and the death benefit insurer
interface are connected over a communication network.
 A portion of this patent document contains material that
is subject to copyright protection. The copyright owner has no objection
to the facsimile reproduction by anyone of the patent document,
as it appears in the Patent and Trademark Office patent files or
records, but otherwise reserves all copyright rights whatsoever.
 The invention relates generally to products involving insurance,
e.g., life insurance, and investments, and to methods of offering
and/or providing such products with the participation of an insurance
company and an asset manager. More particularly, the invention relates
to variable universal life insurance products having a death benefit
and investments, and to methods of offering and providing such products
with the participation of an insurance company and an asset manager.
 The invention provides products involving insurance, e.g.,
life insurance, and investments, and methods of offering and/or
providing such products with the participation of an insurance company
and an asset manager. "Offering" is used herein in a broad
sense and may encompass activities such as making available, introducing,
marketing, advertising and sponsoring. Similarly, "providing"
is used herein in a broad sense and may encompasses activities such
structuring, managing, servicing and administering.
 Preferred embodiments of the invention provide variable
universal life insurance products having a death benefit and investments,
and methods of offering and providing such products with the participation
of an insurance company and an asset manager. In a preferred embodiment,
the asset manager is not part of the insurance company; and the
products are offered and/or provided to existing or new clients
or customers of the asset manager. In this embodiment, the insurance
company and the asset manager may be thought of as co-sponsoring
 In a preferred embodiment of the invention, the products
are offered and/or provided with a cost of insurance fee that is
fixed for the life of the product and/or is a single fee. A fixed
fee may be a percentage, fixed for the life of the product, of a
variable criterion or criteria used to set the insurance cost or
costs. For example, the cost of insurance fee may be the only recurring
charge paid to the insurance company.
 In the preferred embodiments, insurance aspects of the products,
e.g., a death benefit, and asset management aspects of the product
are separated and are provided, administered, etc., by different
companies. The insurance company, e.g., manages the insurance aspect,
and the asset manager, e.g., manages the investment aspect. From
the prospective of purchasers of such products, this arrangement
permits clients of an asset manager to obtain an insurance-related
product that provides for management of associated assets by the
same asset manager managing other assets of the client. From the
prospective of asset managers, this arrangement encourages asset
managers to offer such products to their clients because the asset
managers will continue to manage the assets of the client associated
with an insurance-related product.
BRIEF DESCRIPTION OF THE DRAWINGS
 The invention is illustrated in the figures of the accompanying
drawings which are meant to be exemplary and not limiting, in which
like references are intended to refer to like or corresponding parts,
and in which:
 FIG. 1 is an illustration of a method of offering a life
insurance product according to a preferred embodiment of the invention.
 FIG. 2 is an illustration of an embodiment in which an insurance
company offers a life insurance policy chassis to multiple asset
 FIGS. 3A-3S are parts of an exemplary variable life insurance
policy which may be the basis of the life insurance product which
offered according to a preferred embodiment of the invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
 The preferred embodiments of the invention provide an insurance
product that permits an individual to invest and manage his or her
money more effectively. They need not choose between an insurance
policy that offers tax deferral but not management by professional
asset managers, or investments that are not taxed deferred. An individual
utilizing the insurance product according to the preferred embodiment
can thus choose how they want the assets allocated among different
investment vehicles and still have the investments tax deferred
and professionally managed by a single asset manager (such as, for
example, a bank, "wrap" manager, trust department, money
manager, or "wire house"). The insurance company and asset
manager are each positioned to do what they do best, but can combine
their strengths to be a "manufacturing partner" of a unique
insurance product which still has the advantage of tax deferral.
The asset manager manages more money without becoming an insurance
company and the insurance gains an important competitive advantage
in offering life insurance without having to become an asset manager.
More money under management of a professional asset manager leads
to more fee income for the asset manager.
 The preferred embodiments include "performance-driven"
pricing of the insurance product. The charges assessed are guaranteed
for life as a function of the assets in the product, not the death
benefit. In this way, the death benefit automatically adjusts to
the fund value and the policy is never under-funded. Conventionally,
illustrations are provided when policies are sold to show an expected
return on the policy after payment of charges. Such illustrations
can be confusing and misleading because the charges can change significantly
from that assumed in the illustration. The preferred embodiments
eliminate the potential for confusion because of such illustrations.
 Preferably, the products offered and/or provided by preferred
embodiments of the invention provide for a single fixed fee to be
charged for the insurance costs associated with the product for
the life of the product. In a preferred embodiment, the fixed fee
is expressed as a fixed percentage of assets under management that
may vary over the life of the product.
 A preferred embodiment of the present invention is the method
of offering a variable life insurance product shown in FIG. 1. It
includes various transactions between insurance company 100, asset
manager 200, and clientele 300 of asset manager 200. Insurance company
100 prepares a life insurance policy 101 and files the policy with
the appropriate state regulation agencies as necessary to obtain
approval of the policy. The life insurance policy has characteristics,
described below, which make it well suited for the offering method
according to the preferred embodiment. The policy is preferably
a private placement variable universal life insurance policy or
other universal life insurance policy, but it may be any type of
life insurance policy that employs any of the characteristics described
 Conventionally, life insurance companies and other insurers
have offered variable universal life insurance policies as a stand-alone
product directly to their own customers through insurance agents
and brokers. The individual pays to the insurer a single premium,
periodic premium or combination thereof to fund the insurance policy.
The assets of the policy are invested into at least one investment
vehicle selected by the individual from among a group of investment
vehicles chosen for the policy by the insurer. The investment vehicles
for the policy are typically sponsored by a variety of different
respective money managers. However, those money managers compete
with each other for the insured's investment assets in a very direct
manner. This competition among money mangers may reduce the incentive
of the money managers to offer high quality investment vehicles
for the policy.
 In providing insurance products to individuals, insurers
reach out to the individuals and compete with other companies offering
financial products to individuals. In particular, life insurance
is viewed as competing with the financial services and products
of asset managers because the payment of life insurance premiums
reduces the amount of money remaining available to the policyholder
for investment. For these reasons and others, life insurance companies
traditionally have different distribution channels (insurance agents,
etc.) than asset managers. Given the amount of information associated
with each financial product or life insurance policy, for example,
the investment options, premium payments, fees to the asset manager,
individuals may require coaxing to purchase a particular financial
product or life insurance policy, which increases the effort sellers
must expend on each individual. In addition, it is inefficient for
the insurance product provider or life insurance policy provider
to identify appropriate individuals with whom they have had no prior
relationship for a particular financial product or life insurance
policy. This makes the process more costly, makes it difficult to
obtain access to select clientele and adhesion of clientele.
 In the preferred embodiment of FIG. 1, insurance company
100 maintains a computer system (not shown) for servicing its various
life insurance policies, including life insurance policy 101. This
computer system, for example, determines and applies various fees
and charges associated with insurance policies, and calculates the
account value of each individual policy. The computer system preferably
provides policyholders with secure, web-enabled access to policy
information. Insurance company 100 adapts its computer system to
be capable of servicing life insurance policy 101. Specifically,
the computer system is programmed or otherwise adapted to be efficient
in administering and servicing a life insurance policy utilizing
a plug and play chassis and/or having the characteristics described
 The efficient administration and servicing of life insurance
requires an appropriately programmed computer system. Appropriate
software is commercially available, such as the VANTAGE-ONE.RTM.
series of software available from Computer Sciences Corporation.
However, the VANTAGE-ONE.RTM. software is not well suited for administering
and servicing a life insurance policy utilizing a plug and play
chassis and/or having the characteristics below. The plug and play
chassis permits assets managers to customize the policy and offer
a respective customized insurance product to their clientele utilizing
their own investment vehicles. The VANTAGE-ONE.RTM. software requires
that all information be entered and set up for each insurance policy.
This information includes information, such as the basic payment
mechanism (i.e., single premium, annual premiums, variable or fixed
premiums, etc.), product options and rules (loans, etc), plan of
insurance, and investment vehicles. In the preferred embodiments
of the invention utilizing a plug and play chassis, the great majority
of this information remains the same for the respective insurance
product sponsored by different asset managers and only the investment
vehicles vary from insurance product to insurance product. Nevertheless,
the conventional software requires insurance company 100 to reenter
and setup policy information for each respective insurance product
even though that policy information remains the same.
 In one aspect of the invention, the administrative computer
system of insurance company 100 does not execute conventional software
requiring that the policy information is reentered and set up each
time a new insurance product is created. Instead, the administrative
computer system of insurance company 100 executes software that
is well suited for the plug and play chassis where the policy information
remains the same but different respective insurance products built
on the plug and play chassis have different investment vehicles
offered by the respective sponsoring asset manager. The software
may be a modification of the VANTAGE-ONE.RTM. software or other
software similar in functionality to the VANTAGE-ONE.RTM. software.
This software preferably provides appropriate interfaces permitting
personnel of insurance company 100 to reuse basic policy information
for the respective insurance products of different asset managers
while entering the investment vehicles unique to that asset manager.
The software may also implement any other unique aspects of the
insurance policy or product embodiments described in this application.
For example, the software may implement a unique test to ensure
that any policy premium is administered in a manner that ensures
that the policy complies with death benefit guidelines necessary
to obtain tax preferred treatment of the insurance policy. In order
for the features and advantages of the preferred embodiments of
the invention to be fully realized, it is preferable that the software
executed by the administrative computer system of insurance company
100 is modified or that other software is installed or executed
to implement those features and advantages in the administrative
computer system accordingly.
 Insurance company 100 provides the life insurance policy
101 to asset manager 200. It should be understood that the policy
provided to asset manager 200 is not the insurance product ultimately
offered to clientele 300, but rather serves as a "plug and
play" chassis underlying the insurance product. The plug and
play chassis allows insurance company 100 to offer a product that
the asset manager may sponsor and make proprietary. The investment
assets remain under investor control in coordination with insurance
company 100, and it is the investor who selects their participation
in the various investment vehicles of the asset manager.
 Asset manager 200 is permitted and licensed to supplement
the policy with a dedicated pool of investment vehicles in order
to assemble the end insurance product. In this regard, it should
be understood that the "transferred" life insurance policy
is not a specific written document that must be signed by each or
any one of the clientele purchasing the end insurance product, but
may be electronic information sent to asset manager 200 to be used
in assembling the end insurance product pursuant to the accompanying
permissions and licenses. The life insurance policy may be transferred
through any suitable communications network, including the Internet.
 Asset manager 200 develops an insurance product 201 based
on the universal life insurance chassis 101. For that purpose, asset
manager selects a plurality of different investment vehicles IV(1)
to IV(n) to include in the insurance product and serve as sub-accounts
for the transferred life insurance policy. The investment vehicles
may be chosen at the discretion of, or according to the criteria
of, asset manager 200. Asset manager 200 preferably maintains a
computer system (not shown) for servicing its various investment
vehicles and client accounts, including investment vehicles IV(1)
to IV(n). This computer system, for example, determines and applies
various fees and charges associated with the investment vehicles,
and regularly calculates and reports the account value of each client.
The investment vehicles may be offered by asset manager 200 independently
of the end insurance product, and thus asset manager 200 preferably
needs to make minimal adaptations to its computer system for it
to provide information for servicing the investment vehicles when
bundled with the universal life insurance policy 101 in an end insurance
product 201 to insurance company 100. It should be understood from
the following discussion that asset manager 200 is only responsible
for managing the investment of the funds and reporting the accounts
for the investment vehicles for the insurance product 201 and is
not responsible for servicing the insurance policy underlying insurance
 Insurance product 201 is preferably offered and marketed
as a private placement to clientele 300 of asset manager 200 rather
than to the general market. In particular, the offering is not made
through the typical distribution channels of insurance company 100
(i.e., insurance brokers, agents, etc.) or through any of the other
traditional distribution channels of life insurance companies. The
selection and/or targeting of potential clients (e.g., high net
worth individuals) is at the discretion of asset manager 200 and
is made through the distribution channels of asset manager 200.
Preferably, it is offered to sophisticated buyers and other clientele
300 in order to aid in the funding of their financial planning needs.
Of course, agents may be selected by asset manager 200 or insurance
company 100 to target and offer the insurance product to potential
clients on their behalf.
 Clientele 300 purchasing the insurance products thereafter
contact the insurance company 100 with respect to servicing of the
life insurance policy, including the death benefit payment. Preferably,
insurance company 100 provides electronic access, such as web-enabled
access or toll free automated interactive voice response (IVR) systems,
to their policyholders. Although both parties may utilize the same
communications network 400 and access methods, as shown by the separate
dashed lines in FIG. 4, clientele 300 has independent access and
contacts with the parties.
 The relationship of the insurance company and the asset
manager is developed as follows. Preferably, asset manager 200 owns
or utilizes a registered representative under contract to insurance
company 100. The manner of the offering, in terms of solicitation
and advertising, will adhere to Rule 502(c) as listed under the
General Rules and Regulations Promulgated under the Securities Act
of 1933. The asset manager determines which funds it wishes to select
as dedicated sub-accounts to be offered within the insurance product.
The funds may be proprietary funds or 3.sup.rd party funds. The
insurance company and the asset manager draft a "participation
agreement" which appoints the asset manager's fund management
as sub-account managers and sets forth mutual covenants, duties,
responsibilities and rights. This also includes definition of any
liquidity restrictions that may be required by the asset manager.
The insurance company files the "Policy Offering Memorandum"
which creates an exclusive version of the S-P VLI product for the
asset manager's customers. The insurance company and the asset manager
installation teams collaborate on mechanisms for transfers of fund,
assessment of fees, reporting of NAVs/AUM by the asset manager to
the insurance company. There may be a Letter of Intent/reciprocal
non-disclosure agreement, and an engagement fee. The asset manager
decides how to distribute the product. It may be distributed by
the insurance company network of broker-dealers, but preferably
it is distributed by the asset manager's selected advisors (possibly
with training by the insurance company) or the asset manager's exclusive
distributor of S-P VLI negotiates any necessary distribution agreements
with the insurance company regarding issues such as licensing, training,
soliciting, selling, processing and servicing. In any case, the
distribution is subject to using registered representatives in accordance
with any applicable regulatory requirements. The insurance company,
asset manager, and the exclusive distributor determine means for
policyholder access to sub-account information and policy values,
use of web-sites, IVR systems, toll free telephone line response
team, etc., and distribution assessment, taking into account insurance
 In a private placement product incorporating a variable
life insurance policy, the product is offered to a select group
of individuals pursuant to the Securities Act of 1933 which grants
a private placement exemption and standards for separate accounts.
The Investment Company Act of 1940 grants an exemption of the registration
of investment vehicles for investors meeting certain criteria: 1)
3c(1) funds (products) with less than 100 "accredited"
investors defined as: Individuals with more than $1 million net
worth or $200,000 of net income in each of last 2 years and expectation
of same continuing income; entities with more than $5 million gross
assets; and certain regulated entities (b-ds, insurance companies);
and 2) 3c(7) exception for funds/products of unlimited "Qualified
Purchasers" defined as: a natural person with $5 million in
investments; an entity with $25 million in investments; and certain
other regulated high-net-worth institutions (insurance companies,
employee benefit plans, banks). Normal State Insurance Department
 FIG. 2 illustrates an alternative embodiment in which a
life insurance company provides the same common life insurance policy
chassis 101 to multiple asset managers 200-1 to 200-N. Each one
of multiple asset managers 200-1 to 200-N provides its respective
sponsored insurance product 201-1 to 201-N to its own clientele
300-1 to 300-N, perhaps but not necessarily through unique distribution
channels. Each life insurance product 201-1 to 201-N is based on
the common life insurance policy chassis 101 but is otherwise unique
and proprietary. Each such insurance product 201-1 to 201-N may
be distinguished by the investment vehicles made available for use
with the product, or by any other criteria or terms chosen by the
respective asset manager. Similar to the previous embodiment, the
clients separately contact the insurance company.
 The life insurance product 201 developed utilizing the process
described in this application and based on the universal life insurance
chassis 101 will preferably have the following characteristics.
First, the insurance product 201 is made available and sold only
to a restricted group of investors and the issuance of a policy
is subject to underwriting approval. Preferably, Insurance Company
100 relies upon the Regulation D exemption and Section 4(2) of the
Securities Act of 1933. The group consists of qualified investors
who satisfy certain suitability requirements and are required to
represent that they are a qualified purchaser or accredited investor,
as defined by Regulation D under the 1933 Act pursuant to the exceptions
under the Investment Company Act of 1940 sections 3c(1) and 3c(7).
Second, the investment vehicles associated with the insurance product
are made available as "Plug and Play" investment sub-accounts
by the sponsoring asset manager. The investments are independently
managed by the asset manager. The asset manager will not utilize
policy illustrations at the point of selling the insurance product.
The illustrations are not necessary because, as described elsewhere
in this application, the insurance charges are fixed percentage
of the account value and thus do not threaten to mislead the insured
when the policy is issued. The Net Amount at Risk is determined
periodically on the basis of 1) account value and 2) attained age
of the insured and the required corridor of insurance under IRC
Section 7702. Product information, including current value of the
investments, net amount at risk, and risk-class appropriate "Monte
Carlo simulation" data will be provided via secure, Web-enabled
access for clients and their advisors.
 Preferably, the life insurance policy 101 which serves as
the chassis for insurance product 201 has the following characteristics
(in addition to the characteristics set forth above for the insurance
product 201). First, the charges are guaranteed based on account
value. Based on factors such as gender, age, and medical underwriting,
issued policies will bear a single charge, guaranteed to be based
on a percentage of account value, and calculated and assessed daily.
There are no fund charges or other assessments except a one-time
underwriting fee and a pass-through of state premium and federal
DAC taxes. Consequently, as the policy matures, the insurance charges
will not become disproportionately large compared with the account
value of the investments.
 In fixed universal life insurance policies, the insurance
company manages the portfolio of investment vehicles. In variable
universal life insurance policies, the policyholder "manages"
those, if any, portfolios of investment vehicles underlying the
policy that belong to the policyholder after payment of various
insurance charges. There can be multiple layers of insurance charges,
such as M&E, cost of insurance (COI), commissions (concessions
made in policy design), fund fees paid to the insurance carrier,
loads, premium tax, and surrender charges, the cumulative amount
of which can be substantial. Furthermore, the insurer typically
reserves the right to increase COIs and other charges. Just as auto/homeowners
insurance rates will change with experience and the carrier's need
for ROE, so too will life insurance charges change in the future.
As the policy matures, the cost of insurance for the death benefit
increases to the extent that it substantially decreases or even
eliminates the fund value entirely. Constant return illustrations
typically made by insurance agents, etc., as part of the conventional
offering method for the policy create the potential for confusion
and consequent liability for all parties. Market volatility and
its impact is not easily demonstrated in these illustrations and
few customers comprehend the difference between the illustrations
and the policy guarantees. The drop in market value as the policy
matures increases the risk substantially. There is thus a substantial
risk of and/or potential for under-funding and early lapse of the
variable universal life insurance policies.
 There are no commission concessions accommodated in the
policy chassis. However, this does not preclude asset managers,
advisors or other distributors from charging their clients a fee
for placement of the insurance product 201 and/or asset management.
The product is preferably funded with a single premium, and hence
is a Modified Endowment Contract (MEC). However, a term rider can
be provided for those insureds wishing to pay periodic premiums
and maintain a death benefit-to-cash value ratio sufficient to qualify
as Non-MEC. Policy illustrations will not accompany the policy at
the point-of-sale unless required by state regulators. Policy information,
such as death benefit information, insurance charges, etc., will
be provided via secure, Web-enabled access for policy owners and
 The preferred policy form is a Private Placement Variable
Universal Life (PPVUL) policy having the characteristics described
above as well as the characteristics described below with reference
to the policy form shown in FIGS. 3A-3T. However, different policy
forms may be developed and utilized in the invention. Specifically,
policy forms may be developed and utilized which extend beyond the
PPVUL and UL forms, and are nevertheless part of the invention if
any of the major characteristics described above are employed.
 The preferred policy is a sponsor proprietary Private Placement
Modified Single Premium Variable Life to Age 100 Plan. The issue
ages for the policy are ages 40 to 85. The policy will not be illustrated
at the time of sale. There is an initial single premium. After deductions
for taxes and a policy fee, the remaining amount of the premium
may be allocated to one or more sub-accounts of a Separate Account
managed by the Asset Manager. The policy allows for the election
of additional premium payments during the first policy year. Additional
premiums are accepted within one year from the policy date, provided
the Insurance Company is notified of the amount(s) at the time of
 In general, variable universal life insurance policies have
an advantage over many financial products since the accumulated
earnings on the investments are tax-deferred until distributed.
They also have a potential advantage over other tax-deferred investment
vehicles available to individuals, such as real estate and stocks,
which inherently lack professional management and diversification.
However, the tax treatment of variable universal life insurance
products can be complicated. Internal Revenue Code .sctn. 7702 sets
forth a cash value accumulation "CVA" test for a minimum
death benefit payment requirement as a percentage of the account
value in order to qualify a life insurance product for tax-preferred
treatment. This section also limits the ability of the policyholder
to pay certain high levels of premiums or when any material change
is made to the policy.
 If a policyholder's cumulative premium payments during the
first seven years exceed the limit specified in the Internal Revenue
Code, known as the "7-Pay Limit", the life insurance policy
becomes what is known as a "Modified Endowment Contract"
(MEC). The 7-Pay Limit depends in part on the amount of the policy's
death benefit and the age of the insured. At any point in time during
the first seven policy years, premiums paid cannot exceed the sum
of the annual 7-pay limits or the policy will become a MEC. This
means that the total limit will increase each of the first seven
policy years. After seven years, MEC testing will not apply unless
at any point in time "a material change" requires your
policy to start a new 7-pay testing period with new 7-pay limits.
Whenever there is a "material change" under a policy,
the policy will generally be (a) treated as a new contract for purposes
of determining whether the policy is a Modified Endowment Contract
and (b) subjected to a new 7-pay period and new 7-pay limit. Material
changes include: a face amount increase, the addition of a rider
or an increase in its amount, a reduction in rating, a change to
non-smoker status or substitution of insured and all could result
in a loss of "grandfathered" status. There are also changes
considered reductions in benefits during a 7-pay test period that
trigger a retroactive recalculation and testing of premiums. A reduction
in benefits during a 7-pay test period causes the policy to be retested
as if the policy had been issued at the reduced level of benefits.
This could cause the policy to become a Modified Endowment Contract
based upon premiums paid prior to the reduction in benefits.
 If a life insurance policy becomes an MEC, any death benefit
provided under the contract will still qualify for income tax free
treatment. However, there may be additional taxes and penalties
on any loans, distributions or withdrawals from the policy during
the life of the insured. Any distribution from a policy that is
a MEC will be taxed on an "income-first" basis. Distributions
for this purpose include a loan (including any increase in the loan
amount to pay interest on an existing loan or an assignment or a
pledge to secure a loan) or withdrawal. Any such distributions will
be considered taxable income to the extent there is gain in the
account value of the policy at the time of distribution. A 10% penalty
tax will apply to the taxable portion of most distributions and
withdrawals made by the policyholder prior to age 591/2.
 The policy in the preferred embodiments of the invention
does not carry a minimum guaranteed death benefit. The death benefit
will vary according to investment performance. The death benefit
is the fund value on the date of death multiplied by the applicable
death benefit percentage. The death benefit percentages are determined
according to the Cash Value Accumulation (CVA) Test. The death benefit
percentages vary by attained age, gender, and tobacco use status
of the insured. The factors for obtaining the fixed charge for standard
class applicants include for example age, underwriting class, or
gender. Factors considered in sub-standard case applicants additionally
include medical condition, impairments, or smoking status. The CVA
Test death benefit percentages are equal to the reciprocal of the
net single premium that funds $1 of future coverage and endows for
one dollar when the insured attains age 100 assuming a 4.0% interest
rate and the 1980 CSO Age Last Birthday Mortality Tables as applicable.
An example table of CVA Test death benefit percentages is shown
in FIG. 3E. Preferably, the death benefit is at least the minimum
to comply with Section 7702.
 The policy does not have a guaranteed fund value. The fund
value will vary according to investment performance. A fund table
is maintained for each policy. The find value is the value of all
units held in the Variable Account plus the value of the Loan Account.
Borrowed funds will be credited with a guaranteed minimum rate of
4.0% annually. There are no cost of insurance charges. The premium
load is 1.25% plus an amount equal to the applicable state premium
tax rate. At issue, a $500 policy fee will be assessed. Mortality
& Expense risk charges will vary by sex, smoking status, and
issue age will be deducted from the fund value. The policy provides
a guaranteed a maximum annual M&E charge.
 Cash value is the fund value less any debt. There are no
surrender charges. The policy has a variable account divided into
one or more sub-accounts. The asset manager selects funds and the
customer chooses its selection. The sub-accounts correspond respectively
to the variable investment vehicles made available by the asset
manager through the insurance product. See the brackets placed around
the Variable Account Section in FIG. 3F. The sub-accounts are entirely
and exclusively managed by the asset manager and, if desired, its
corporate siblings. The asset manager must establish, by legal regulations,
portfolios dedicated solely to the funding of sub-accounts of insurance
product 201 and which do not contain funds from investors "outside"
the dedicated insurance product sub-accounts. This avoids "investor
control" issues addressed in a recent IRS Private Letter Ruling.
Also, should an asset manager's investor choose to transfer amounts
from any of the publicly available funds managed by the asset manager
to sub-accounts within the life insurance product, such mutual fund(s)
must be sold for cash and any gain or loss is immediately recognizable
for tax purposes.
 The policy has a loan provision. A loan may be taken any
time a policy has a positive Cash Value. The maximum amount that
can be borrowed at any time is 90% of the Cash Value, less any Outstanding
Debt including a provision for loan interest due through to the
next anniversary. Loan interest is payable in arrears on each policy
anniversary at an annual rate which varies by duration. The loan
interest rate is 5.25% in all years.
 When a loan is taken an amount equal to the loan is transferred
out of the Fund Value in the sub-accounts into the Loan Account
to secure the loan. The Loan Account is a pat of the Company's General
Account. Amounts held in the Loan Account are credited monthly with
a fixed rate of interest equal to an annualized rate of 4%. Interest
in excess of 4.0% may be applied as determined by the Insurance
 A policy owner may surrender the policy at any time during
the life of the insured. The amount received in the event of a surrender
is the Cash Value. A partial surrender may be made at any time after
the second policy anniversary. A partial surrender must be at least
$5,000, and the Cash Value after the Partial Surrender must be at
least $100,000. As of the effective date of any partial surrender,
the Fund Value will be reduced by the amount surrendered. There
is no fee associated with partial surrenders. No partial surrenders
will be permitted during the first policy year.
 The date at which the policy matures is the policy anniversary
after the insured's age 100, at which time the cash value is payable
as the maturity benefit. The policyholder may extend coverage beyond
the Maturity Age. Election may be made to defer the payment of the
maturity benefit to the date of the insured's death.
 Since the policy's death benefit is defined such that the
fund value is equal to the 7702 Cash Value Accumulation Test net
single premium, and that there are no surrender charge, compliance
with The Standard Non-Forfeiture Law (SNFL) is assured. The reserves
are CRVM reserves based on 1980 Commissioners Standard Ordinary
Age Last Birthday Mortality Tables, and a valuation interest rate
of 4.5%. In no event will these reserves be less than the cash value
of the policy.
 The policy has advantages for the asset manager. It complements
and augments, rather than competes with, the goal of the asset manager
to increase the amount of assets under management. Eligible clientele
of the asset manager may choose to move assets not currently managed
by the asset manager into the policy. Assets with the sub-accounts
are likely to be more "adhesive" as a result of the tax
favored treatment of life insurance in general and the particularly
competitive cost for the life insurance death benefit. Furthermore,
the offering of the policy does not divert asserts under the asset
manager's management and does not dilute any of the asset manager's
fee revenue, such as by reduction or sharing of its investment management
 The policy also has advantages for the asset manager's clients.
All insurance charges for the basic policy are guaranteed at policy
issue, and do not increase as the insured ages, and can never be
increased by the asset manager. The sum of any and all charges paid
by the policy holder for the inherent tax advantages and death protection
provided by the policy is less than typical. The policy is simple
since the number and types of charges assessed within this policy
are very few and very straightforward. In fact, the policyholder
can understand and hypothesize their death benefits and values without
the assistance of a sales illustration. The first product offered
is a single premium design intended for tax-advantaged "wealth
transfer" to the next generation. Accumulations grow tax-deferred
and death benefits are paid income tax free.
 The policy has the following specifications. Of course,
these specifications are merely exemplary and may be changed if
and as necessary to conform to any state insurance department regulations:
 Issue Ages: 40-85 (younger issue ages with prior insurer
 Death Benefit: Minimum required under IRC Sec. 7702, CVAT
 Minimum Premium: $1 million (but will consider $500,000
based on firm's clientele)
 Underwriting fee: $500
 Premium Taxes: Actual charge assessed by each state: 0.80%
in New York, average of 2.00% elsewhere
 Federal DAC Charge: 1.25%
 M&E Charge: Varies by issue age bracket, gender and
smoking status, GUARANTEED at issue for life
 Sales Load: None
 COI Charges: None, GUARANTEED for life
 Surrender Charges: None, GUARANTEED for life
 Other Charges: None retained by insurer, GUARANTEED for
life (sponsoring firm assesses its portfolio management fees as
a deduction from the funds under its management)
 Withdrawals: Unlimited number of withdrawals permitted,
$5,000 minimum withdrawal amount
 Withdrawal Charge: None, GUARANTEED for life
 Transfers: Unlimited
 Transfer Fees: None, GUARANTEED for life
 Policy Loans: 5.25% interest charged, with 4% credited back
to policy Fund Value, GUARANTEED for life
 Maturity Extension: Continues the death benefit at age 100
without further M&E charges thereafter, GUARANTEED
 A further important consideration is an MEC. The initial
offering--SPVUL--is a single premium life insurance product designed
for tax-advantaged wealth transfer to the next generation. The policy
is classified as a "MEC" under IRS rules and therefore
will not enjoy the tax advantaged access to policy values, including
certain surrenders and withdrawals as well as policy loans and other
collateralized borrowing, accorded non-MEC policies. Planned future
product offerings will focus on long-term cash accumulation and
lifetime income distribution and will be structured so as to avoid
MEC classification and provide tax advantaged access to policy values.
 The financial strength of the insurance company backs the
insurance guarantees. Preferably, the insurance company and its
subsidiaries have a combined risk-based capital well in excess of
the National Association of Insurance Commissioners company action
level. In addition, the insurance company may have a large amount
of available cash and access to additional money via the securitization
of certain assets
 The process results in a life insurance product with the
following attributes. It makes "tax efficient" that portion
of an individual's investment portfolio that would otherwise incur
unanticipated current income taxes. Ongoing expense charges--covering
mortality, expenses, and profits to the insurer are composited and
expressed as a guaranteed Mortality & Expense charge and are
assessed on the account value of the policy rather than on the Net
Amount at Risk (the difference between the face amount and cash
value). The underlying life insurance policy does not define the
policy's death benefit as equal to the stipulated death benefit,
but rather is the account value plus the necessary "net amount
at risk" required to qualify as Life Insurance for the insured's
attained age at death. The number of charges is kept to a minimum
as compared to other product forms and all charges assessable in
the policy by the insurance company are expressed and guaranteed.
The product developed using the process separates the risk element
from the underlying investment or reserve element and allows different
financial institutions to manage those elements.
 While the invention has been described and illustrated in
connection with preferred embodiments, many variations and modifications
as will be evident to those skilled in this art may be made without
departing from the spirit and scope of the invention, and the invention
is thus not to be limited to the precise details of methodology
or construction set forth above as such variations and modification
are intended to be included within the scope of the invention.