Remember the automobile called “The Thing?” The Thing debuted in the North American car market in the 1970s and although it looked like a Jeep missing a roof, it was from Volkswagen. In fact, its official name was Volkswagen Type 181.
Similar to other automotive trends, it flared into public consciousness complete with fervent supporters, detractors, and people who confessed: “It was so ugly I fell in love with it and had to buy it.” Volkswagen Type 181 isn’t in production any more, and other trends have swept through the marketplace (huge SUVs and tiny Smart Cars, for example), but cars are still being made, and we’re still buying them.
I started thinking about this because of all the trends in life insurance. Think of the many products that serve audiences both niche and broad. We’ve seen fads come and go, like The Thing, and yet, at the end of the day, life policies are still being written for people who know the importance of protection.
Spotlight on: guaranteed universal life
In the midst of all the hype about different kinds of life policies, how do we separate the best products from the fads? One sure indicator is to watch where the market goes. Today, we’re seeing heavy market traffic in guaranteed universal life (GUL) products.
Term insurance remains very popular, of course. But with the recent fluctuations in financial markets, is it any wonder GUL is drawing steady attention from individuals that need permanent protection? Given everything that has happened with the economy in these past few years, guarantees have become much more important. Today, we live with greater uncertainties, and many clients find crucial security in having a guaranteed death benefit for a specific period of time and a specific premium.
Despite the rising consumer popularity of these products, we’ve also seen some carriers raise rates or even exit the market. As GUL has gained popularity, the marketplace has grown more competitive, which in turn means that choices have narrowed in some areas of the market.
Part of the agent’s role is to interpret these choices for clients. As you weigh the benefits of various guaranteed universal life policies, consider the following product features.
A common complaint with traditional GULs is that they don’t build cash value. The good news is that there are products on the market that build in a scale of cash value to provide the consumer with liquidity down the road as needed. Look for policies that not only do this, but that also guarantee cash values. After all, one of the reasons GUL is so attractive is that “G” stands for “guaranteed.”
Consider the cost of the premium, the schedule over which the consumer must pay, how long the policy can be guaranteed, etc. There is no need for your client to accept a one-size-fits-all policy when it’s possible to customize the fit for the user.
Shop around for what are often termed “consumer-friendly” packages. For example, most clients would prefer to avoid policy terms where the guaranteed period is at risk of being significantly reduced by late payments. Look for policies with a robust payment period – some policies count a payment “on time” as long as it is received within a month of the due date. Consumers appreciate a friendly payment schedule where “late” payments won’t shorten the guarantee period.
Carriers committed to their markets often create important benefits in product design. One innovative example is the way cash value deductions are handled. With typical guaranteed universal life policies, taking a withdrawal or loan from the policy would materially impact the guarantees in the policy. In many cases, this could cause the policy to lapse. Now, some GUL policies allow the policyholder to take distributions from the policy. The policy then changes on a proportional basis, allowing the policyholder to maintain their guaranteed coverage.
Life insurance continues to be a preferred solution for many financial professionals and their clients because of its unique combination of long-term protection, flexibility, tax advantages, and more. Now, add in the additional assurances provided by guaranteed death benefits and guaranteed cash values and we are back to why the market continues to trend toward GUL.
Keeping all this in mind, it’s clear that guaranteed universal life insurance is not just another “Thing.” Quite the contrary, in fact: it is the quality vehicle that can continue to build value and protect assets. And, with the potential to guarantee coverage up to age 121, GUL could last longer than almost any other vehicle out there.
Tim Heslin is a vice president with American General Life Companies, specializing in life insurance products. He can be reached at tim.h[email protected].
For past life insurance coverage, visit ASJ’s Life Insurance Resource Center.
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