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Life Health > Life Insurance

Hitting A 'Home Run' With Indexed Universal Life

By Sheryl J. Moore

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When my son first started playing baseball, he was so nervous that he wouldn’t even swing. This went on for several games. Then came the day when he actually connected with the ball. He finally understood what to do, and after that, there was no stopping him from swinging and knocking balls out of the park.

Agents selling traditional universal life or even variable universal life seem to go through a similar process when getting acclimated with indexed universal life.

Initially, they ask, “Why should I even look at this new type of product? I don’t understand how it works.” This can be frustrating for insurance carriers offering IUL; not only do they see agents failing to “latch on” to the product, but they are also aware that customers are being denied the opportunity to select, or even learn about, the unique benefits IUL has to offer.

However, with a little education, agents can and do move from holding back to “swing,” even to hitting IUL “home runs.” How? It happens when carriers and distributors address agents’ product needs.

Consider the products the agents are currently selling. If it’s UL, then talk about the likenesses between the two products. Both UL and IUL have similar insurance charges (surrender charges, cost of insurance, premium loads, and per thousand charges). Both also have minimum guarantees and flexibility in death benefits and premium payments.

A big roadblock for many agents selling traditional UL is that they would rather sell the no-lapse guarantee (NLG) version. When that is the case, it’s a great opportunity to explain that many IULs offer extended NLGs–i.e., for a specified term, to age 100, or even for the client’s lifetime if living beyond age 100.

And, by the way, the IUL market also has several single premium products available, as well as survivorship plans, so there is something for everyone.

IUL’s big value proposition compared to traditional UL is the opportunity IUL offers for greater upside potential interest crediting. Whereas traditional ULs may credit 4% to 6%, an IUL has the ability to receive indexed-linked gains as high as 18% or more today. Of course, the minimum guarantee on some IULs may be 1% or 2% lower, but the IUL has the potential of more than twice the upside crediting, compared to traditional UL.

Seeing the IUL’s upside potential can easily move an agent to “first base.”

What if an agent is currently selling VUL? This requires a different comparison.

Point out the two products’ similar death benefits and potential for sizeable gains. Also, note that IULs don’t have the asset fees and separate account charges that may dwindle a VUL’s cash value. Add that the IUL sale doesn’t entail offering a prospectus and it generally involves less paperwork.

Many VUL agents will decide to test drive IUL due to the IUL’s minimum guarantees, which today range from 1% to 3%. This is a strong motivator when VUL clients face the possibility of losing their principal and walking away with less than they paid in. (Remember the market tanking after the turn of the century? I know I would have appreciated some minimum guarantees during that period.)

In fact, the minimum guarantees on IUL are what get the agent to second base.

This is not to say that agents shouldn’t carry all three types of ULs. Certainly there are clients who would feel more comfortable with the greater minimum guarantees that traditional UL has to offer, despite the lower credited rates. In turn, there are consumers who are not concerned with guarantees and want the unlimited upside potential that only VUL offers.

IUL is a great marriage of UL and VUL, offering both guarantees and potential for higher interest crediting. That makes it a viable solution for just about anyone.

Can agents think of clients who want guarantees and higher interest crediting potential? Certainly. The agents get an easy “walk to third base” as they see the increased potential IUL offers.

The former “niche” status of IUL may have deterred some producers and insurers from selling the product. However, the market is expanding quickly; one or two carriers have entered the IUL field each month in the past several months. Consider: In the 2nd quarter 2005, only 12 carriers offered IUL, but now, two years later, 31 carriers offer IUL.

Furthermore, in the 1st quarter 2006, IUL sales accounted for 7% of the total UL sales, but now, one year later, IUL represents 9.2% of total UL sales.

IUL, now age 10, may be viewed as an immature market when compared to VUL (now about age 30). But IUL has the potential to grow much larger; its 2007 sales will likely top $400 million, a 7-fold increase over 9 years ago. This suggests that agents entering the IUL market have a good chance of hitting a “home run.”

Sheryl Moore is president and CEO of AnnuitySpecs.com, an indexed product resource in Des Moines, Iowa. Her e-mail address is [email protected].

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