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Life Health > Life Insurance

Life Guarantees Heat Up

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Many people have never heard about whole life insurance or its guarantees, says Bruce Schlappi, president of Renaissance Financial Group, Blue Springs, Mo.

To them, guaranteed long-term life insurance protection is a “brand new concept.” But its a concept many people like, once they learn about it, he says.

So, the question life marketers are asking today is how to bring consumers up to speed on life policy guarantees, be they traditional WL guarantees or the newer guarantees in universal life and variable universal life policies.

They are asking, because the marketplace mood has been changing. “Before year 2000, most industry attention focused on the new Triple-X regulations and the resulting flight to longevity, at least for level term insurance,” recalls Robert A. Miller, vice president-MGA distribution at CNA, Nashville, Tenn.

Meanwhile, most UL marketers focused on cash value buildup, he says.

But now, say industry sources, recession and a new war have caused the industry to make a sharp U-turn, as more and more consumers seek “safe money solutions.” Listen:

  • “Definitely, the demand is up for guarantees in life policies,” says Lawrence Tronek, president of W. T. Scott Company, a Coral Gables, Fla. brokerage general agency of Principal Financial Group.
  • “Absolutely, weve seen increased interest in life products with guarantees,” says Mark Hoelfer, executive vice president of Brokers Clearing House, LTD, West Des Moines, Iowa.
  • “People may not always use the word guarantee when they talk to us about what they want, but they definitely are asking for relative stability,” says Thomas Endersbe, a senior advisor with American Express Financial Advisors, Minneapolis.

Company executives see the change, too. Take Patrick McCormick, the senior vice president of sales and distribution for SAFECO Life & Investments, Redmond, Wash. “Weve noticed a huge shift away from getting a return on principle,” he says. “Now, people want a return of their principle. They want security.”

As a result, marketers are not only dusting off their guarantee products and/or upgrading them; many are also exploring how to work with guarantees, both in the field and at the home office.

That last mission is critical, say some executives, because not only are many consumers uninformed about guarantees, as Schlappi says, but so are many insurance professionals. Some practitioners have, in fact, never before sold products with guarantees. Others have done so, but only sporadically. And still others have never worked with the newer types of guarantees (such as lifetime death benefit guarantees in certain ULs).

So, then, what to do?

Agents need to build good solid relationships with their customers, contends Schlappi, because the agent is the one “who sits there, and walks the client through the stressful issues that have made them want safe-money options. Agents need to be able to run the bases with clients on this.”

A whole generation of people–those now in their 40s to 60–were raised on “buy term and invest the rest,” Schlappi points out. But relatively few did that, he says, and those who did and who invested consistently have now learned “there are periods when investment values dont hold up.”

These individuals are now looking for a safety net, he says. So he presents WL, with dividends and paid up additions, as the safe-money optionin fact, as the foundation of their long-term financial plan.

He does point out that dividends can and do fluctuate, but he also illustrates various scenarios to show the effects of different dividends. When clients see there is a solid cash build up, even on a conservative basis, with the death benefit guarantee and waiver of premium, Schlappi says they are impressed.

Home offices, as well as producers, have a responsibility to see to it that guarantees are understood clearly, says Gregory Linde, vice president–product management and service at Principal Financial Group, Des Moines, Iowa.

For instance, the home office should see to it that product materials clearly explain the features and provide full disclosure, he says. And producers should be sure the buyer understands clearly.

Needs-based selling and reliance on the “trusted advisor” concept go a long way towards helping that happen, he maintains. For that reason, Principal favors a “consultative” approach, with advisors talking to clients about needs, goals and options and doing updates as circumstances change.

This is especially important when working with UL products that offer flexible guarantee options, Linde maintains. He cites his companys new Principal Universal Life policy as an example.

This UL offers not only a five-year built-in no-lapse guarantee, but also an optional 20-year death benefit guarantee and an optional death benefit guarantee to age 100 or policy maturity (which, when combined with the built-in extended coverage rider, makes lifetime no-lapse protection possible). It also lets buyers who dont pay the premium for one of the longer guarantees to “catch up” later on, by paying the extra premium plus 4% interest.

Such designs enable buyers to have both guarantees and choice, Linde says, observing that research shows this is what consumers want. But this also means marketers have a responsibility to design, distribute and explain the features in a way customers can understand, he says, adding he is confident this is happening.

CNA, which also has a UL with a flexible death benefit guarantee, believes producers can easily explain the design.

“In our product, you can buy a death benefit guarantee for anywhere from 10 years to 100 years, depending on how much premium you want to pay,” says CNAs Miller. Thats easy to explain, and customers catch on fast, he says.

However, producers need to watch that consumers dont “overbuy” on the guarantees, Miller says. Some people do overbuy, he notes. “For instance, some may seek a guarantee to age 100 when the family history suggests they wont need thissay, the parents and grandparents may have died in their 50s to 70s.”

Such heavy emphasis on guarantees is “shocking,” says Miller. “Almost no one wants to buy non-guaranteed products anymore. They say theyd rather have the guarantee and less cash value than more cash and fewer guarantees.”

The best strategy for agents, says Miller, is to engage the customer in a discussion about realistic needs. “For instance, instead of a guarantee to 100, consider going to age 95 or 92for a much lower premium.”

Guarantees actually make life easier for companies and agents, contends McCormick of SAFECO, which has also debuted a multi-guarantee product, the SAFECO Accelerated Universal Life.

The new policy includes: a guaranteed death benefit (20 years or to age 90 if target premium is paid); an accelerated benefit rider; a safety benefit (pays additional amount if the insured dies in an auto accident while wearing a seat belt); a transportation benefit (pays additional amount to transport an insured who dies 100 or more miles from home); and a guaranteed interest rate bonus (pays over the UL lifetime).

Clients see such products as “straightforward, easy to read, and easy to understand,” McCormick maintains.

But he cautions that advisors who work with so-called “contingent guarantees”i.e., they require the owner to do something to get the guaranteeshould be sure to “illustrate the ifs.” That is, they should “illustrate what happens if the conditions are met and if they are not met.”

Doing that helps “highlight the advantages of guarantees,” he maintains. It also helps buyers understand the contingency aspect of the guarantees, he says.

Advisors should also do their due diligence on the products, and provide customer education at point of sale, McCormick recommends. And, after the sale, “do regular follow-ups, look at the statement, point things out, etc.”

The topic of guarantees is important when discussing VUL policies, too, points out Endersbe, the Minneapolis advisor. Thats because VUL values can fluctuate, and depending on market performance, and if they drop too low, the coverage could lapse if more money is not added.

Therefore, Endersbe points out how the death benefit guarantee option works in a VUL. “If the clients want the feature, they are not overly concerned about the cost,” he observes.

VUL reps should also be sure the policies are not under-funded, and that the client receives good disclosure about what could happen, he says. The big concern, he adds, is to match the death benefit to the clients needsay, to meet terms of a buy-sell agreement or an estate funding scenario.

Hoelfer, the Iowa broker, believes policyholder need plays a central role in deciding whether and how to include a guarantee in a UL plan.

The UL death benefit guarantees are especially useful in estate planning and survivorship cases, he says, “because these clients are looking for a permanent death benefit, not supplemental income. They dont want to be faced with a policy that may under-perform and require more premium later on.”

The newer UL guarantees are especially well suited to such clients, he adds. “They often enable the client to buy more coverage at lower premium than with older ULs or WL/term blended plans,” he explains. “Also, they let the client have the death benefit guaranteed to 100 and beyond; and, in some products, the client can even dial the guarantee up and down.”

Tronek, the Florida general agent, also recommends assessing guarantees in view of client needs. “If a UL will be used for supplemental retirement income, I think a guarantee to age 65 would be sufficient,” he says. “But if its an estate planning or wealth transfer case, consider using a UL with a lifetime death benefit guarantee.”

Also look at the persons psychological needs, Tronek says. If a person is wary of the stock market, the client may “need” the guarantee.

Also think about the persons age. Those in their 30s and 40s may generally be more suited to variable life products, he says, while those in their 70s and 80s may be more suited to fixed products. But “with those in their 50s and 60s, give close attention to their goals, plans, and attitudes toward risk.”

The point is, Tronek concludes, “you have to position people properly.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 15, 2002. Copyright 2002 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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