Life Buyers Flock to Fixed Products

Finally, although market interest rates are at near-record lows, UL interest rates are much higher. The median UL rate for new deposits reported in LIMRAs first quarter 2003 individual life insurance sales survey was 5.4%.

UL survivorship products are also benefiting from the flight to fixed products. While overall survivorship sales are into the third year of declines–due to the estate tax turmoil–survivorship UL is doing well, with annualized premium rising 34% in 2002 and 25% in the first quarter of 2003. Survivorship UL now accounts for over 50% of survivorship premium, up from one-third just a year ago.

While UL has been the star, WL has been the best supporting actor in the last couple of years. WL annualized premium increased in eight consecutive quarters (vs. same quarter prior year) and grew by double digits in five of those quarters. This follows a decade of WL declines. As with UL, guarantees are likely playing into the WL resurgence, along with dividends that are still attractive, albeit smaller than before.

What are the prospects for fixed and variable products? The graph suggests that its important to have both strong fixed products and strong variable products to meet the needs of consumers in different economic environments. There should be opportunities for both types of products, regardless of environment.

VL may have overshot its natural market share in the late 1990s (it peaked at 36% of premium in 2000). Perhaps some risk-averse people bought VL, not believing the market could drop, despite cautions in the prospectus.

For those who need permanent life insurance, a comprehensive risk assessment is critical. This may be easier to do now that everyone knows the stock market can and does go down now and then. For those willing to accept some risk in return for potentially greater reward and comfortable with stock market ups and downs, VL is ideal. In fact, even with the current stock market turmoil, some people are still buying VL–the line accounted for almost 20% of annualized premium in the first quarter of 2003.

For those who already own VL and are unhappy with the performance of their contract, communication is key. Point out the long-term nature of permanent life insurance and note the historical long-term performance of equities compared to fixed interest investments. If clients are leery about putting more money into their VL (which may be necessary to keep it in force), take advantage of the products fixed accounts and dollar cost averaging features.

For those who are uncomfortable with risks associated with investing in equities, UL or WL is likely a better choice. With all the product development activity in fixed products, there are many options available, depending on the mix of performance and guarantees desired.

is corporate vice president and head of product research at LIMRA International, Windsor, Conn. Her e-mail address is [email protected].

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 21, 2003. Copyright 2003 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.