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In the recent bull market, life insurance professionals often had to use a bullhorn to communicate the need for protection features in investment products.

The deafening noise from a seemingly endless rise of the stock market had many investors ignoring the call for an overall financial plan that includes both accumulation and protection solutions. “Why pay the extra expense for annuities and variable universal life policies, with their tax-preferred treatment, when I can keep riding the stock market returns to my financial destination?” they argued.

Today, the listening is not quite as selective. Today, the stock market downturn has made many investors realize they need an investment plan that protects them from outliving their income and one that protects their estate in event of unexpected death. Today, investors are willing to hear that annuities are the only way to guarantee income for as long as they live.

Today, clients are willing to learn about diversification in its fullest sense–i.e., investors should not only diversify among investment classes but also establish a diversified financial plan incorporating accumulation, lifelong income, and death-benefit solutions.

That is good news. However, there are still challenges in reaching these investors. Consider: Some of the countrys most educated and successful consumers, when polled in Nationwide Financials 2002 Survey of High-Income Professionals, said that the products best suited to meet their needs are those they least understand.

On the up side, positive impressions of products with protection features, such as income annuities, fixed annuities and whole life insurance, ranked 10% higher than in last years survey.

However, more than 25% of high-income professionals still reported they are not at all knowledgeable about variable universal life insurance, variable annuities, income annuities, or long-term care insurance.

At the same time, the survey suggests there is a new frustration with products most directly associated with stock market performance, such as mutual funds and individual stocks: Impressions of these products decreased from last year by as much as 10%.

To meet this new thirst for protection, life insurance professionals must gauge their clients situation and have a diverse product offering to meet those needs.

Just as it would be irresponsible for investors to put all of their money in one index fund, it also would be irresponsible to use one protection solution for all clients.

For example, VUL is always bought as permanent insurance that shifts the risk of early death. But product designs should vary, because some clients want to maximize their living benefit while others want to emphasize their death benefit.

As you know, VUL policies that focus on accumulation are designed for clients who want to maximize the contracts living benefits–funding for long-term financial goals such as college education, new career, health expenses and supplemental retirement savings. If such a policy is over-funded, achieves favorable returns from the underlying funds, and has a long enough time horizon, any tax-deferred growth on the cash value could provide for access to cash values through partial surrenders and loans.

On the other hand, the VUL products that focus on protection are designed to be useful tools for efficiently transferring wealth from one generation to the next. Having a greater death benefit per premium than do accumulation-focused VULs, these protection-oriented VULs offer clients a vehicle for a greater income tax-free death benefit.

In sum, VULs and annuities come in varying forms to provide customized solutions. Thats especially helpful in todays climate, when the insurance industry has a renewed opportunity to educate clients about options available for creating a retirement portfolio that protects them and their assets in retirement.

Yes, this market decline is painful. But it is also providing a defining moment for life insurance professionals.

is senior vice president of wirehouse and brokerage life sales for Nationwide Financial, Columbus, Ohio. His e-mail is golaptop@nationwide.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 12, 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.