With the economy starting to rebound, income planners are beginning to look once again at variable universal life and how it can fit into the retirement income plans of baby boomers.
Actually, financial advisors are looking at virtually all cash value-building life policies in this light. But this article concentrates mostly on use of VUL products for this purpose.
In the first quarter of 2004, annualized premium for VUL was down 8% when compared to the first quarter of last year, allows Elaine Tumicki, corporate vice president and head of product research at LIMRA International, Windsor, Conn. However, “half of the top 20 variable life companies reported increases in the first quarter,” she says, “and nearly all were double-digit increases. This compares to only one of the top 20 VUL companies that reported an increase in 2003.”
When choosing VUL or universal life or other cash value products, boomer clients typically want more than a death benefit, says Michael T. Palermo, an attorney and financial planner based in Lexington, Ky. “They want a policy that builds economic benefit inside for possible use later onto supplement their income.”
If the client is only interested in having an investment, this would not be a good choice for the income plan, he says. “In general terms, you dont encourage the client to buy life insurance unless the clients needs the life insurance protection, tooRemember, the client pays for the insurance.”
But if the boomer has the insurance need, he adds, “the advisor can show the client ways to work VUL into the income plan as well as the estate plan.”
Many people who are age 40-55 and earning salaries of $100,000 or more are now working with financial advisors on their retirement plans, points out Leonard Scholl, assistant vice president-individual and small business markets at Sun Life, Wellesley Hills, Mass. Sooner or later, he says, “the question comes up: Why not factor into the retirement income plan a means of obtaining supplemental income?”
If the client is interested, the focus then turns to finding out what to put aside for this purpose and how. Funding a VUL policy is a solution that often works, Scholl says. And, with the economy improving, this is an especially good time to consider that. “You want to get into [the policy subaccounts] before the stock market goes back up to its high.”
The VUL selection will be affected by the comfort level of the person, he says. If a client is not comfortable with equities, the advisor always can suggest using a fixed life policy, such as UL, for the supplemental income purpose, he says.
What is important to many boomers, Scholl says, is to address the fear many have that their funds will not last for their entire retirement.
To this point, he says, the advisor can show how the VUL offers a solution, through its exposure to equities. (Investing in equities increases the chance that the asset value will keep up with inflation and last longer than if invested in fixed instruments, most experts agree.)
Many VUL providers are looking at ways to make their products even more useful in the income planning market, adds Jerry Patterson, vice president and chief marketing officer-life and health for Principal Financial, Des Moines, Iowa. For example, he says, several are looking at innovations that provide no-lapse guarantees and types of income guarantees similar to those found in variable annuities.
Meanwhile, many producers are working with current VUL contracts in income scenarios. If the boomer has a need for life insurance, notes Kyle B. Walker, a financial services professional with New York Life in Overland Park, Kan., “I point how permanent life insurance can be used to pay a death benefit and a living benefit on a highly tax-favored basis under current tax law.”