If You Provide Choices To Clients, The Hottest Product Shouldn’t Matter

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The life insurance industry has a long history of hot product offerings. It makes you wonder, what will be the next hot product?

To probe that question, lets review the hot product history of the past several decades.

First, the hot products were whole life and term. Then, in the 1970s, universal life rocketed onto the scene with a plan from E.F. Hutton Life. (Remember them?)

Then, there was the advent of insurance illustrations run off a personal computer. That prompted many customers to snap up ULs (often replacing existing WLs) for the illusion of earning 15% to 16% compound interest crediting rates. (And who, back then, didnt believe short-term rates would continue to stay that high? After all, mortgage rates were never going to drop below 10%, were they?)

But, interest rates suddenly did plummet, in the late 1980s. That gave way to a new “produit de choix”–variable universal life. The stock market was in a Bull Run that seemed to have no end, so the major concern of most clients became whether to invest in “value,” “balanced,” “growth,” or “aggressive” insurance protection. They wanted to reap market returns within a life policy, and those 12% annual illustrated returns sure looked good. The VUL euphoria was so overwhelming that many industry observers started forecasting the end of products such as WL.

That was before. This year, its a different story. According to LIMRAs second quarter 2001 U.S. Individual Life Insurance Sales report, “two products are showing improvements in sales–universal life and whole life. Annualized premiums for these products are up 10% and 2%, respectively, compared to second quarter 2000.”

So the question once again is: whats going to be the next “hot” product? In 2002, what will be the new UL or VUL twist? The new too-good-to-pass-up opportunity for life insurance buyers?

My take is, no new product chassis will be developed next year. This may be inside the box thinking, but it would seem that term, WL, UL, and VUL variations pretty thoroughly and adequately cover the entire basis.

If that is true, and if there is no new permutation on the horizon, which chassis will be most successful in 2002?

It depends on a number of factors: stock-market performance, interest rate levels, consumer confidence, and more importantly, consumer education.

The fact of the matter is, there is a place for all types of permanent protection productsWL, UL, and VUL. No one product provides a magic bullet for the industry or a particular company. I predict that final industry and company sales results for 2001 will bear that out.

If the economy stays as it is now (low interest rates with a level or slight change in the stock market, up or down) the focus will continue to be on guarantees–guaranteed premium and guaranteed death benefits. As a result, WLs or ULs providing no-lapse guarantee coverage (where premium outlay is guaranteed to age 99 or 100, with death benefit coverage guaranteed forever) will be “the” products for 2002.

If the stock market shows a tremendous gain, VUL sales will regain some market share, though as is generally the case, with a three- to six-month market lag. And consumer confidence? The more confident customers are in the economy, the more theyll lean towards VUL.

The most important factor, however, continues to be consumer education. Too many times, customers buy the product they are shown. But how often are customers shown a variety of different products along with a discussion of true guarantees, illustrated values, and market risk inherent in each product?

If marketers were to provide the full breadth of options to clients, they could guarantee that the “right” product would be selected, not merely that the “hot” product was sold.

So, how to position yourself for 2002? Dont fall into the trap of only selling one type of product.

A few years ago, a producer told me that VUL is the product for all situations; he said he would never consider selling any other life product. In todays environment, such individuals believe that selling a 100% fixed account allocation within a VUL is okay. I think thats a big mistake.

As for companies that have built their marketing and product development around one particular product: Its a bigger mistake. Unless the companys board of directors likes roller coaster sales fluctuations, its never a good idea to place huge corporate bets on a single insurance solution.

Next year, the successful agents and companies will be those who understand and offer a broad selection of life products. These will be able to provide value to customers by explaining the different risk/reward possibilities of various products.

By contrast, selling illustrated (no, illusionary) numbers off an illustration could be your ticket to a lawsuit.

Concentrate on educating clients on the risk/return trade-off and youll have a terrific 2002, no matter what happens in the economy. And, youll put your competition to shame. Because if there is one thing that events of the past few months have taught us, it is that people need more life insurance.

Michael S. Pinkans, CFA, CFP, CLU, ChFC, is a registered representative and investment advisor with Equity Services, Inc. and vice president of product marketing at National Life Insurance Company, Montpelier, Vt. His email is. Mpinkans@nationallife.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 10, 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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