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April 18, 2004 at 08:00 PM
What Advisors Say They Need
In The Current Variable Life Marketplace
As everyone knows, sales of variable life insurance slumped badly when the bull stock market run of the 1990s came to an end. The product has yet to recover, despite the recent upturn in equity markets.
If you ask advisors what lies behind these trends, as was done in a recent Million Dollar Round Table survey of members who are most active in VL markets, youre likely to hear a variety of explanations. Some say the product was oversold during the boom market, while others see consumers overreacting to investment swings in either direction.
Regardless of the cause, however, top agents seem to agree that the targeted consumer market for VL products has narrowed. It is now limited to somewhat younger clients and is less likely to be considered the answer in pure protection cases, such as estate and charitable giving. And it has moved upscale to markets having the kind of disposable income necessary to fund the contract conservatively.
Variable life business also has suffered because of relative improvements in fixed permanent life products. Highly competitive universal life products with secondary guarantees have become particularly attractive as alternatives.
The MDRT panel generally was satisfied with VL products available on the market today. Many noted the dramatic improvement in plan designs and options compared with earlier generation offerings. They also had good things to say about recently introduced “hybrid” VL products that offer death benefit guarantees, subject to specified premium funding levels.
Looking beneath the hood, advisors often disagree on the relative importance of various VL product features. For example, some see guarantee provisions as increasingly important, although not as important or as common perhaps as has been true in variable annuity markets. This would include minimum death benefit or interest rate contract provisions or riders.
There is, however, some disagreement on this point, as others prefer to manage risk the old-fashioned way, encouraging clients to fund the product properly and diversify fund allocations.
Advisors generally see loan, surrender and withdrawal provisions of VL products as crucial in niche markets for VL, such as corporate owned, deferred compensation and retirement supplement markets. Some believe clients often are attracted to plans allowing easier access to cash values. They believe at least some consumers like seeing cash values accumulate early and are more comfortable knowing they have access to policy values even if they have no specific plans to use them. These features mitigate some of the bad press insurance and annuities face in comparisons with mutual funds.
There is, however, a dissenting view on this: Some advisors have a problem with sales approaches and uses that suggest the primary purpose of the VL contract may be something other than protection.
