Individual life insurance sales have been fairly steady over the last five years, with a 3% compound annual growth in annualized new premium.
What has not been steady is the mix of products sold.
Variable life policies (variable universal life and variable life) experienced double-digit annual growth from 1997 through 2000 followed by double-digit declines. Fixed products (universal life and whole life) showed an opposite trend, declining through 2000 and then rising by double digits from 2001 into 2003.
The mix of individual life insurance sales has followed trends in the equities markets fairly closely over the last several years (see graph). While the VL share has tracked closely with the S&P 500, the fixed share has shown the opposite trend, and that fixed share has been growing.
Both WL and UL have recorded strong growth in the last couple of years, but UL has been the star, with better than 20% growth (vs. same quarter prior year) for seven consecutive quarters. All the top 20 UL insurers in LIMRAs quarterly life sales survey reported increases in annualized premium in 2002. And UL achieved its highest share of total life premium in 2002 (28%) since the mid-1980s.
Why has UL, an interest-rate-based product, done so well when interest rates are at their lowest level in four decades? Lets see.
Based on media reports, insurers appear to be focusing much of their product development on new ULs. Many of these have guarantees, which may have appeal in the current economic environment. Many companies are having success with current-assumption UL, too.
Meanwhile, consumers are still reeling from three years of negative returns on 401(k) and mutual fund statements. They may be hesitant to invest more in the equities markets (although now may be the time to buy equities.) Having any return at all on cash value, even if small, may be more appealing than those declines.
In addition, producers are likely weary from explaining negative returns to VL clients. Right now, it may be easier to sell products with guarantees.