Now, with the NLG rider attached, your UL customer can get a fully guaranteed permanent insurance product at a significant discount off the WL premium. (See chart.)
A no-lapse guarantee rider guarantees to the policyholder that as long as the NLG premium is paid, the death benefit will remain in-force irrespective of what happens to the interest rate environment.
Given todays low interest rate environment, youre probably finding that customers want guarantees, so that feature should have appeal.
Look at the effect of this rider: On a UL illustration using the NLG rider, on a guaranteed basis, cash value will go to zero, perhaps as early as age 70, but the death benefit will remain in force until at least age 100. Some companies even go beyond that, guaranteeing the death benefit “forever” with premiums ceasing at age 100.
Of course, as with any insurance product, NLG customers generally get what they pay for–access to cash values if they pay the minimum premium to ensure the NLG is available. But this access comes with restrictions–namely, that the customer would lose the no-lapse guarantee if he or she withdraws any money, even if only one dollar.
Even if interest credited is higher than the contractual guarantee (usually 4%) and significant cash values build up within the contract, accessing those cash values will normally eliminate the no-lapse guarantee. In effect, this contract almost functions like a “term-to-100″ contract.
These no-lapse guarantee riders on UL plans have some definite benefits. These include:
- They provide the lowest, level, guaranteed death benefit premium level, irrespective of the interest rate environment.
- They provide the customer with piece of mind (“Coverage for life at a guaranteed premium level”).
But NLG riders on universal life plans also have some disadvantages. These include:
- They provide limited, if any, flexibility for the policyholder. (If the owner accesses the cash values via loans or surrenders, for instance, this may negate the NLG. And the increase in cash value growth, above the guaranteed rate, cant be used to fund future premiums.)
- The UL has limited upside potential if interest rates increase dramatically. [Unlike WL, which will show an increase in death benefits based on dividends payable, the ULs death benefit will remain level with cash value accumulations within the contract unavailable (see above).]
- An option B (increasing) UL with a NLG feature is extremely expensive (the cost is at least 50% higher than the cost of an option A-level–plan with a NLG).
As you can see, UL insurance with NLG riders isnt for everyone. For those customers seeking death benefit growth to keep up with inflation, increasing business valuations, or estate growth, other products are probably more suitable.
However, for the “termite” customer who wants to lock in guaranteed death benefit protection at the lowest possible guaranteed level premium outlay, a UL with NLG rider cant be beat.
Michael S. Pinkans, CFA, CFP, CLU, ChFC, is a registered representative and investment advisor with Equity Services Inc. and vice president of sales and promotion at National Life Insurance Company, Montpelier, Vt. His email address is [email protected].
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 2, 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.