Experienced insurance professionals are tapping their desks right now, saying, “Uh-huh, I knew that was coming.”
On Oct. 19, 2007, the Dow dropped nearly 397 points, a powerful echo of that Black Monday 20 years ago, on October 19, 1987, when the Dow plunged 508 points. Every October 19th since then, financial people get the jitters, wondering if lightening will strike again. Now, this year, it happened.
Well, it happened–sort of.
There was a plunge, yes, but the 2 sell-offs differ greatly in proportion and impact. Twenty years ago, the Dow fell 22.6% to slightly over 1,738. People started fleeing the markets in droves. But this year, on October 19, it fell just 2.6%–to 13,522–but was back up the very next day by nearly 45 points or 0.33%.
Insurance professionals expected it, not because of the 20th anniversary but because “that’s what the market does–it goes up and down.”
But many are breathing easy, too, because they believe their clients are well diversified enough, and insured enough, to be insulated from the volatility. They know they can say the following to customers:
“Yes, the market dropped and your investments are off a bit, but you are okay.
“You have fixed insurance products, and their account values are not off. In fact, your policy values will continue to grow at least by the guaranteed minimum, no matter what the market does.
“You have death benefit guarantees and they will take care of your estate if the worst should happen right now.
“You have level term life insurance, and that premium is guaranteed for the stated period, regardless of market conditions.
“In your variable policies, you have income guarantees (or withdrawal guarantees, no-lapse guarantees, etc.), which you bought as extra protection just for periods like this.”
That is a much different story than back in 1987. Before that crash, the insurance sales focus was on a product’s “interest sensitivity” (the credited interest rates in universal life, interest sensitive whole life, fixed deferred annuities). Some industry players were gussying up their variable policies, too, or preparing to enter the variable business to catch the market wave.