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Traditional Lifes Pendulum Swings BackJust A Little

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The Dow Jones Industrial Average dropped 227 points on the day this was being written, and the NASDAQ fell by nearly 76 points.

Such swoons have become commonplace in 2001. But, to date, neither they nor todays economic slowdown have caused an all-out stampede among insurance producers toward selling traditional life products like whole life, interest-sensitive WL, WL/term blends, level term, and universal life with no-lapse guarantees.

National Underwriter interviews have found that nontraditional products (most especially variable life) still sing for some producers and some clients. So todays life sales bag is full of all sorts of products, traditional and non.

LIMRA Internationals first-quarter 2001 sales figures do show that “UL premiums grew by 15%, the first quarterly increase in UL premium in six quarters.” The volatile stock market may have nudged a move to fixed products, suggests Elaine Tumicki, assistant vice president of product and distribution research (see related story on page 35).

But thats not a sea change, say several producersnor a reason to abandon well-established sales strategies.

“This is not the late 1980s,” explains John Lefferts, regional president for AXA Advisors in Dallas. “Its an entirely different environment.”

He is alluding to how the entire life insurance industry seemed to drop VLs cold, and sometimes ULs, too, after the Black Monday stock market crashes of 1987 and 1989 triggered widespread equity- and risk avoidance. For a long while after that, the industry pushed a “back to basics” campaign, emphasizing the safety and predictability of traditional life productsa campaign that did not end until the stock market took off in the mid-to-late-1990s, giving wings to renewed buyer and seller interest in VL.

“Now, people have a taste for risk,” says Lefferts. “I dont think theyll want to go backwards,” even in a downturn. “They know they need to stay flexible.”

He concedes that he is seeing “a little more” sale of term insurance, as well as more consumer interest in bank certificates of deposit. Also, some prospects seem to be “waiting on the sidelines, looking to see which way the economy is going to go before making a money decision.”

So the economy is affecting buyers, Lefferts agrees. “But I see no flight to WL products,” he adds, contending that WL is not flexible enough for todays needs.

Reports that the “back to basics” campaign may in fact be coming backagainseem to ignite from statistics, such as LIMRAs, cited above.

Also, some people allude to scattered anecdotes that suggest a comeback is looming. For instance, Woodman Accident and Life Insurance Company, Lincoln, Neb., recently told NU that its WL sales are now “even” with UL, whereas UL was ahead two years ago. (The insurers fixed annuity sales are up, too, notes Mike Woody, director of life product development.)

And Lincoln Financial Distributors, Fairfax, Va., has seen quotes for UL with lifetime no-lapse guarantees increase “astronomically” in the first quarter of 2001, says Robert Klein, vice president and national life sales manager. “Clients who were being hammered by the stock market were asking for security and guarantees,” he explains.

Still, producers dont seem to be gearing up for a big traditional sales strategy, like the one in the late 1980s.

Those who have always favored selling traditional products still favor them (due to their guarantees and predictability); those who favor VLs still swear by them (due to their flexibility and long-term growth potential); and those who prefer selling a mix still do that.

The point, says Stevan M. Cohen, second sales vice president at Lincoln Financial Distributors in Manhattan, N.Y., is that “we dont want to sell a traditional product just because the market is down and its easier to sell.

“Instead, we want to look at the buyers needs and pick the right solution. We want to offer an array of solutions, and decide with the customer, as a team, the one(s) to select.”

Today, it is needs and suitability analysis that counts, Cohen says. Traditional productslike UL with no-lapse guaranteesmight work best for clients having a lower risk tolerance, he suggests, while a VL might be better for people with more risk tolerance and a longer time horizon and need.

But Charles Spera, an agent with New York Life in Baton Rouge, La., sees the sales scene differently: “This is a good time to re-focus on traditional products, but an even better time never to quit focusing on those products.”

Spera does sell UL and VUL, and mutual funds, too. But he says “my focus is WL. Its the best product the insurance companies have.” Why? Because of the WL guarantees, he says, and because the WL puts the clients money into the insurers general account, “which has many years to run and does not reflect individual [choice and] performance.”

Lefferts, by contrast, largely favors the VL, especially for baby boomers who have a long-term need and sufficient time horizon to benefit from its growth potential. He especially likes its flexibility. If security is a concern during a down market, he explains, clients can always change the asset allocation so more funds go into the VLs fixed or low-risk portfolios.

Even so, Lefferts agrees VL is not for everyone. “For clients with a short-term need, you should consider selling term insurance,” he says.

Still other producers put the focus on achieving balance, no matter what the product. Take Richard L. Miller, president and chief executive officer of T&M Financial Inc., Topeka, Kan.

He definitely likes WLfor its tax deferred growth, tax-free loans, and the security of its cash values. But “in any market,” he says, “people should have a balanced portfolio. They need cash, bonds, and growth and aggressive growth equities.

“You might need to shift the ratios between these positions, depending on market conditions, but you still need some of each.”

In his own practice, Miller suggests clients buy WL for the death benefit and for the cash and bond position it provides (along with other such products). After theyve done that, he recommends they also buy a low death benefit VL–to benefit from its tax-deferred long-term equity growth and the liquidity.

“Some clients scratched their heads a while back, when I suggested putting 30% to 40% of their money into WL and fixed annuities,” Miller laughs.

But now, he says, they are “very happy.” Their total portfolio may be down 10% this year, he explains, owing to the drop in the growth portion of the portfolio. But other people, who were heavily into growth and aggressive growth accounts, were “burned,” he says. Clients know that, he adds, so now theyre “more receptive” to fixed products.

But Daniel Kennedy, with First Source Financial Group in Huntington, Ind., worries about stressing the security of WL guarantees. “People go into WL for the guarantees, but the stability really doesnt exist,” he maintains. If the entire market suffers in a way that hurts all WL insurers, the companies wont be able to support those guarantees, he argues.

Kennedy doesnt think the state guaranty funds will be much help in such situations. “The guaranty funds are not like FDIC insurance,” he explains. “Theyre not government-backed. If one company goes under, the funds will assess the companies for a shortfall,” he allows. But if many insurers collapse in a worst-case scenario, he predicts “the guaranty funds wont be able to make good.”

His solution? “Dont be swayed by short-term markets. For clients with a long-term need and time horizon, sell the VL and take advantage of its flexibility.” In down markets, for instance, diversify the investments in a way that can be expected to produce a return comparable to that in a fixed product.

William J. Nelson, chief executive officer of Nelson Financial group, a Dayton, Ohio, affiliate of Washington Square Securities, is of a similar mind.

WL does offer protection with some liquidity, he allows, but “I personally dont think its a good investment.” VL is much better for the buyer who plans to hold the funds for 10 years or more, he contends, because “the equity subaccounts are wonderful” growth opportunities.

The VL leverages the protection at death and tax-deferral of life insurance with equity growth potential and the ability to supplement income via loans and withdrawals, he maintains. He says it addresses three worries of people todaydying too soon, supplementing retirement income, and dying broke.

Even so, Nelson says he will use a good WL or indexed UL for more mature buyers, say age 70 to 75, “if they have become more conservative and if they want it;” convertible term insurance for the short-term protection needs of younger buyers; and other products with a bond yield “if the customer is happy with that and wants it.”

In the end, Nelson says, voicing the prevailing mood, “you need to do what is best for your client. I dont condemn WL or VL. If used properly, theyre both great.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 20, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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