The market freefall of recent memory was a shock to the system, which obviously has a lot to do with why variable universal life has not recaptured its rightful market share for new life premiums.
In its most recent quarterly survey of U.S. individual life insurance sales, Limra International reported that variable life scheduled premiums were down in the first quarter of 2004 from the first quarter of 2003. However, half of the top 20 variable life companies reported increases in the first quarter of 2004.
Nearly all were double-digit increases, compared to just one of the top 20 VUL companies reporting an increase in the first quarter of 2003. Also, both the number of policies and total face amount increased during the same period, which are promising signs.
Therefore, it appears that insurance companies are getting the word out again to the marketplace, and producers are passing it on to customers: No other life product can deliver the death benefit protection and potential for cash value accumulation that variable universal life can.
You may ask, what is it going to take to rejuvenate VUL sales? In my opinion, you need these 4 elements:
? Products that reflect the current environment;
? Training and education of producers and clients;
? Communication with clients; and
? Market and economic stability and growth.
Products that reflect the current environment. Although VUL sales have struggled in recent years, companies are re-tooling variable life portfolios and creative product development efforts to make VUL “hot” again.
These activities have led to a greater number and variety of products, riders and benefits, all of which help make the VUL purchase less commoditized in terms of design, structure and cost. These changes will help correctly position this valuable product in the marketplace.
Some of the changes include offering longer guarantees, creating hybrid UL/VUL products and providing ways to access accumulated cash values efficiently.
One recent innovation is the introduction of flexible no-lapse guarantees (sometimes referred to as “shadow account” guarantees) on VUL products. This feature, which was previously found only in UL products, allows clients to invest at least a portion of their assets in the variable investment options while also having a flexible guarantee.
Whether or not customers will find this innovation attractive is still undetermined. In fact, some carriers have fought the urge to add the guarantees because they come at a cost (to either the consumer or the carrier) and therefore tend to impact negatively the cash accumulation potential.
Training and Education of Producers and Clients. Financial professionals who sell variable products may consider VUL a “high maintenance” or complex vehicle compared to other solutions. However, once producers and clients understand that VUL requires a long-term commitment, that market volatility will occur and that the product needs to be funded properly, many of the high maintenance issues are mitigated.
Without this understanding, clients may be disappointed by, and more likely to abandon, the product. So, producers should take a proactive role in educating clients and providing them with ongoing monitoring and management of their policies.
Producers also should make clients aware of the flexibility and features that exist in their VUL product. Examples of features that help protect the client during periods of volatility are tax-free transfers between investment options, automatic rebalancing and allocated/directed charges.
Dollar cost averaging also can help manage risk, but the tool does not guarantee positive performance and requires continued purchases through periods of low price levels.
Producers need to understand and be comfortable with these features so they can make appropriate recommendations to clients based on the individual clients risk tolerance, time horizon and financial goals.