and Lori W. Denison
The never-ending debut of variable life, low-load, and “secondary guarantee” universal life insurance contracts continues to transform the life insurance landscape.
With computer illustration software capable of showing virtually anything, policy design is limited only by the creativity and character of the retailer delivering the product.
Sadly, although they sign a sales illustration compliant with National Association of Insurance Commissioners standardsan illustration that acknowledges the difference between guarantees and current “hoped-for” performance–few clients appreciate what lurks in the chasm between the two extremes.
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Clients can no longer bury their policy in a drawer and simply pay the premiumsunless the purchase is based solely on a contracts guarantees.
Does it make sense to rely on guarantees alone? We believe the answer, in many cases, is “yes.”
It is sophistic to assume that guarantees are important to everyone. Likewise, its inappropriate to advocate variable life as the silver bullet for every insurance need. So, which policy is “best”?
Clients tend to rely on the expertise of a trusted advisor for the answer: their CPA, financial planner, attorney, banker, or perhaps even their insurance agent.
The advisors recommendation is usually jaundiced, based on experience, background, knowledge, employer, and the number of notches in his or her own “performance disappointment” belt.
Clearly, the most objective and effective way to design, place, and administer a policy that will provide long-term client satisfaction is to engage the client as an active participant in the design process. By so doing, the client gains an appreciation for the trade-offs between low initial premiums, performance potential, and guarantees.
The end result will be a policy built around the clients feelings, priorities, fears and objectives, rather than the retailers bias.
After taking hundreds of clients on this journey, we found that conservative and sophisticated investors alike often conclude that Guaranteed Universal Life is most appropriate when lifetime death benefit is a priority. They find comfort in taking a more “hands-off” approach, and not having to worry about actively monitoring performance to measure the effects of adjustments to underlying mortality, expense and investment factors.
Unlike a whole life policy that is fully guaranteed (without a term rider, of course), UL products boasting (secondary) guarantees are not all created equally! For purposes of this article, “Guaranteed UL” product means the policy will:
–Remain in effect until death, even if the cash value is zero;