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Selling More VUL: Challenging Times Can Create Opportunities

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“When troubles come, they come not in single spies but in battalions.” Shakespeares line aptly describes the situation with variable universal life sales this year.

The business has been hit by a triple-whammy: uncertainty about split-dollar plans, the phase-out of the estate tax, and a volatile stock market.

But these challenges arent insurmountable. Insurers and financial professionals who work in partnership can help clients look past the short-term noise, allay anxiety, and find solutions to long-term needs using VUL. Here are some ideas on how.

Split-dollar uncertainty.

In January 2001, the Internal Revenue Service issued a notice providing interim guidance on taxation of split-dollar plans. The notice allows two tax alternatives for individuals and businesses with such arrangements. Neither method will spell the end of the plans; the tax benefits would be reconfigured, but not eliminated.

Split-dollar plans are still a good solution for executives who want to boost their retirement benefits and for companies that want to offer a benefit that helps retain top talent. Since VUL can be a good funding vehicle for split-dollar, knowledgeable professionals have a great opportunity to guide their clients past the confusion.

Where Teaming Helps: Given the complexities involved, brokers need technical assistance from company experts who provide tax-planning scenarios and help in closing sales.

Demise Of Estate Tax?

The confusing new estate-tax law gradually phases out the estate tax, ultimately abolishing it in 2010. In 2011, the new law sunsets, and the 2001 law, which exempts the first $675,000 of assets from estate taxes, becomes effective again.

With the nations new need to fund the fight against terrorism and beef up the military, its hardly a lock that the law wont be changed. Even if the law does stand as written, that does not lessen the estate planning need. If anything, it increases it. Large estates will still generate big estate taxesunless the owner knows he/she will die in 2010.

For most people, income tax is the biggest death tax, because income taxes deferred during a persons lifetime often come due at death. IRD, or income in respect of a decedent, can be substantial for people who have saved a lot of money in 401(k)s, IRAs and similar plans. Life insurance can provide liquidity to pay these taxes.

Where Teaming Helps: Insurers and financial advisors should continue educating the public about the continuing need for estate planning and the value of insurance.

Volatile Market

While its easier to sell VUL in a bull market, the policy shines in volatile markets because its so flexible.

Todays better VULs are like a Swiss army knife: In addition to providing insurance protection, they have a wide variety of underlying funds (from aggressive-growth stock funds to bond funds) plus a fixed-rate account. In addition, VUL policyholders can easily readjust their investments according to changing needs, without worrying about taxes.

Where Teaming Helps: Insurers and brokers should continue educating the public that VUL isnt a short-term solution. Point out that it addresses long-term planning needs, and its suitability doesnt fluctuate day by day.

In todays challenging sales environment, brokers need more extensive support from insurers than ever, especially in these areas:

1) Product innovation. Insurers should develop new products and add features to existing productse.g., new investment options like defensive funds designed to perform well in down markets.

But brokers need to provide feedback on these innovations, so companies can be assured the products are meeting real needs of customers. Brokers, in turn, need companies to supply educational materials and sales ideas that help properly position the products with clients.

Also: When possible, make product improvements retroactive so current policyholders can benefit from them, too. Fair treatment for all helps build good will for the broker.

2) Top-notch wholesalers. These specialists provide product and market knowledge and bring a companys vast internal resources to brokers. They should work in partnership with producers to help make more sales, sharing sales ideas and really listening to broker concerns and ideas.

They need broad expertise in conceptual selling, and their staff should include attorneys and CPAs. When a big sale is on the line, a knowledgeable wholesaler should be available to meet with the customer or the companys CFO, CEO or board of directors, answer questions, and help nail down the sale.

3) Extensive internal support. The insurer should provide the latest illustration software and other automated planning tools through CD-ROM disks and on the web. Advanced sales specialists should be readily available, too; it shouldnt take an act of Congress for a broker to reach one on the phone.

4) Responsive, broker-friendly underwriting. Provide status reports via a secure website and/or e-mail. In large cases, underwriting horsepower is particularly crucial (the underwriters should have solid experience in reinsurance negotiation and know about the financial complexities of large cases). Also, it helps to have guaranteed-issue available for multi-life cases, using regular VULs with just minor adjustments.

5) A full partnership. Product providers need broker feedback. For instance, they need to know whether their products are hitting the mark with customers. They also need to know if their wholesalers are hitting the marki.e., delivering the marketing tools, product information and assistance producers need to smooth the processing of business.

, CLU, ChFC, is vice president-brokerage life sales, NFS Distributors, Inc., the sales division of Nationwide Financial, Columbus, Ohio. His email: [email protected].

Reproduced from National Underwriter Life & Health/Financial Services Edition, December 17, 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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