Whole life holding its own

From the October 2008 Issue of Senior Market Advisor Magazine

It’s difficult to imagine a less exciting topic to broach with your clients than whole life insurance. The consumer finance publications have slammed the product for years, essentially branding it a rip-off. Assuming you can get past that objection, you still face the challenge of selling a product that’s, well, pretty boring.

In spite of these obstacles, whole life continues to hold its own. According to LIMRA’s U.S. Individual Life Insurance Sales Summary Report, annualized premiums for whole life increased 3 percent for 2007 over 2006. Sales dropped by 1 percent in the first quarter of 2008, but that’s still a stronger performance than term, variable life, and variable universal life.

So why is whole life holding its own? Industry insiders say it’s because the product is doing exactly what it should. It provides guaranteed lifetime- and death-benefits in an uncertain environment. Whole life owners still value the peace-of-mind that the policies provide: guaranteed premiums, cash values, and death benefit; tax-deferred cash value growth; and tax-free loans of policy values.

Whole life products have also become much more flexible over the years. Insureds can still buy a traditional policy that requires premium payments for life. But variations now range from single-premium polices through joint-and-survivor coverage to contracts that include a term component. Whole life policies have evolved, resulting in increased flexibility and appeal to senior clients.

The View from Headquarters
Scott L. Berlin, senior vice president with the Individual Life Department at New York Life, says the current economic uncertainty has increased the value of whole life policies for insureds. “In today’s economy more than ever people are recognizing the value of having assets put aside for a rainy day, and for a lot of people their life insurance contract is their primary savings vehicle,” he says. “We’ve seen an increase in the amount of loan activity and there’s a good feeling about that for us, that those policies are there and those cash values are there for our consumers when they need them.”

New York Life has had a 7 percent to 10 percent increase in its whole life portfolio sales over the last several years, Berlin estimates. In particular, sales have been stimulated by the introduction of the company’s custom whole life product in 2006. “Custom whole life allows you to choose the period over which you want to fund the death benefit protection,” says Berlin. “Let’s say you are 45 and you plan to retire at 62. You can buy a seventeen-pay custom whole life product where we tell you what the premium is for the next 17 years. You’re able to pre-fund your benefit and pre-fund the premium payments.”

Berlin says that the custom whole life has been very successful among pre-retirees, many of whom need to boost their retirement savings in a short period of time, which he defines as at least 10 years. The product has also proven popular with grandparents who purchase a policy for a grandchild. The grandparents pay the premiums as a gift, and the policy’s values grow toward future education costs. The policies can also be an effective method for wealthier clients to pass assets to future generations. “Typically in those cases you would use the grandchild as the insured,” says Berlin. “First of all, if you are starting up an insurance program for them, you want that insurance to be on their life, and then it’s something that they will own eventually. The second thing is if you are using it as a savings vehicle, the internal cost of insurance is a lot cheaper on a grandchild than it is on the grandparents. We have a concept that we market that’s called the ‘four-year-old millionaire’ where the grandparents gift the annual gift tax limitation to their grandchild (for the policy’s premiums). I don’t remember the exact numbers, but it’s like $25,000 a year for college, ages 18, 19, 20 and 21. At age 31 the grandchild can take out $100,000 toward a down payment on a house. And from ages 65 to 85 they take out $100,000 a year every year to a total of $2 million. When they die, they still pass on about a million dollars to their grandchildren.”

MassMutual has experienced solid sales growth in its whole life products, according to Craig Waddington, a vice-president and actuary in life product development with the company. He reports that sales for 2008 are up 16 percent versus 2007, a pattern that has held for the past two-and-one-half years. Growth has varied across the product line: limited-pay policy sales grew strongly during 2006 and 2007, while other products have experienced strong results in 2008.

Waddington says that the greater flexibility with today’s whole life products has contributed to their popularity. He notes that universal life policies previously had the advantage of greater flexibility over whole life; in response, MassMutual “added a ton of flexibility to our whole life products,” he says. “We allow people to increase the face amount of the policy within the same policy. By adding certain riders, you can vary your premiums the same way you can vary them on universal life. So there’s, in my opinion, very little that you can do with a universal life contract that you can’t do with today’s whole life contract.”