Harness the Power of Indexed Universal Life

A focus on security, flexibility and a potential to grow cash

by Tim Heslin

Mr. Heslin is Vice President, Product Strategy and Implementation, for American General Life Companies. He can be reached at [email protected] American General Life Companies, www.americangeneral.com, is the marketing name for a group of affiliated domestic life insurers.

You may have seen the numbers from LIMRA — but to be sure, they’re worth noting: based on the organization’s First Quarter 2013 Industry Briefing, sales of indexed universal life insurance (IUL) jumped a whopping 42% for October through December 2012 and were up 36% for the year. As LIMRA President Bob Kerzner articulated in the presentation, the fact “…that IUL continued to do better, even in December, would seem to indicate the market has made the change to IUL, making it the product of choice.”

Yet, there is still market share to be gained for IUL. If you’re not among the agents who have fully harnessed its potential for your clients, let’s talk about why you might want to take another look.
It comes down to the value proposition, really — and as we’ve seen over and over, what constitutes value to so many of today’s life insurance buyers is security, flexibility and the potential to grow cash value. That’s not really surprising given the economic climate of late, but it’s also not really such a tall order given the powerful features and benefits of the most attractive IUL policies on the market these days (more about that shortly).

In the meantime, consider this: in this country’s prolonged low-interest rate environment, retirement plans have been ravaged while we’re still dealing with burdensome consumer debt loads, high unemployment, record default rates on mortgages, and throngs of people working far past their planned retirement age because they don’t have enough money to live comfortably or to meet their other financial needs. It’s not a pretty scenario, even though there is some cause for cautious optimism.

Protection still critical

Protection is still critical; after all, no one wants to figure out too late in life that they can’t safeguard the estate they have worked so hard for, or cover their long-term needs or provide a legacy to their heirs. Boomers have struggled through not one but two market corrections in a dozen years, and they are rightfully uncertain about the state of our economy and also uncertain about what they will have left at the end of the day.

For that very reason — the fact that clients don’t have a crystal ball in which to see the future clearly — flexibility is highly desirable. Policies, to provide the strongest value proposition, simply have to be customizable based on individual needs as they fluctuate, especially since many Americans don’t have the savings they did in the past. To help take care of unexpected expenses, they may look toward their life insurance policy, to take a distribution from it or perhaps have the premiums adjusted.

Further, while security and optionality are foremost concerns for many people, it’s a rare client indeed who wouldn’t like to realize the potential to grow cash value. That’s the beauty of IUL: it can provide customers with the opportunity for cash accumulation as well as those other two coveted features: security and flexibility.

Cash-Value Potential

in this country’s prolonged low-interest rate environment, retirement plans have been ravaged while we’re still dealing with burdensome consumer debt loads, high unemployment, record default rates on mortgages, and throngs of people working far past their planned retirement age because they don’t have enough money

The most flexible build for this breed of product offers clients long-term guarantees in addition to the opportunity to allocate premiums to index accounts, providing the potential to grow considerable cash value. What’s more, this type of policy is structured to provide robust death benefit protection and the flexibility to customize coverage guarantees in alignment with the policyholder’s unique needs.
It’s true that non-indexed, fixed UL products are still available and that they generally require lower premiums, but the tradeoff is that they provide clients with lower cash accumulation potential — and few, if any flexible features. It’s no wonder, with the mindset of today’s clients, that so many prefer indexed UL products instead.

With IUL, clients can benefit from the best of both worlds. On one hand, they have the opportunity to realize higher returns by capitalizing on some of the equity markets’ upside potential; on the other, they can enjoy a measure of protection against negative exposure to volatility.

One especially attractive type of IUL product lets the policyholder choose from among three premium allocation choices to best suit his or her individual goals — a declared interest account, a five-year index account and a one-year index account. These interest-crediting accounts not only provide death benefit protection, they also offer the potential to accumulate cash based in part on the performance of one or more global indices, with the ability to change the allocation directions.

With the needs and goals of your clients in mind, look for the following features and benefits in an IUL policy:

  • death benefit protection, with a choice of two death benefit options (level and increasing)
  • flexible allocation choices: declared interest and/or two index interest options (allowing efficient repositioning of existing assets)
  •  five-year, point-to-point index interest crediting based partly on three global indices with automatic overweighting of the two best-performing indices
  • one-year index interest crediting based in part on the one-year, point-to-point growth of the S&P 500® with cap rate and guaranteed monthly crediting of an interest rate equivalent to .25 percent annually
  • strong cap and participation rates
  • high early cash values that allow for business applications or use for collateral purposes
  • two or more loan options, including one that allows the loan collateral to remain in the account, eligible for indexed interest crediting
  • Monthly Guarantee Premiums which establish premiums that, if paid timely, ensure the policy will not lapse within designated time frames, and
  • a variety of optional riders, including an Overloan Protection Rider that ensures the policy won’t lapse because of a large outstanding loan balance.

With features and benefits such as those described above, offering a powerful blend of security, flexibility and the potential to grow cash value, IUL can be an excellent fit for clients who want guarantees but also crave the opportunity for accumulation. It’s no wonder IUL products are looking so good — so if you haven’t looked lately, look again. Your clients will thank you.

And by the way, regarding what else is in it for you as a broker, see if you can find an IUL product with especially high rolling targets. Carrier offerings have changed of late….review them closely to identify those from which you and your business can benefit the most.