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Indexed GUL: The all-purpose solution

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There’s a certain long-standing burger chain that encourages customers to have it their way. When it comes to life insurance, clients have a lot more options than typically found on most fast food menus, but still they want it their way — and nowadays, many are seeking policies that offer security and flexibility as well as the opportunity to accumulate cash value.

Security is of the utmost importance because the economic events of the past couple of years have demonstrated the value of the safety net that guarantees provide. Clients buy life insurance to protect their estates, meet long-term needs and share their legacies with their heirs. Their coverage can’t be up in the air; it has to be available. They are not inclined to take undue risks with it. And with the continued uncertainty over the economy, that could be the case more than ever.

Flexibility is a must because clients’ lives are fluid; their needs can change. They might need to adjust premiums, take a distribution to provide for unexpected medical expenses, help pay for their children’s college education, etc. They often want their life insurance policy to have the flexibility to meet these needs. And with the significant declines in so many Americans’ nest eggs recently, the savings that may have been available in the past to cover such needs are not always there anymore.

One solution that can offer clients security, flexibility and the opportunity for cash accumulation is indexed guaranteed universal life. The most flexible structure for this type of product provides policy owners with long-term guarantees as well as the ability to allocate premium to index accounts, resulting in the potential to accumulate significant cash value.

See also: Life insurance: An overlooked asset class

The policy features that provide the potential for cash value accumulation inherently imbue strong death benefit protection, along with options to customize coverage guarantees to fit individual needs. In short, they make indexed GUL one of the most flexible products on the market.

Of course, non-indexed fixed GUL products have been available for years and are designed to feature lower premiums. Therefore, they offer policy holders little or no cash value growth potential and only limited flexibility within the contract. Indexed GUL products, then, can be a much better choice to present to many clients.

Indeed, indexed GUL is attractive because clients often desire higher returns but are concerned about the volatility of today’s equity markets. Indexed GUL products feature the opportunity to take advantage of some of the equity markets’ upside potential while offering a minimum guarantee to help decrease negative exposure to volatility.

Indexed GUL products can be especially appropriate for clients who wish to acquire permanent, guaranteed protection at an affordable price, with the opportunity to grow tax advantaged, supplemental income for their retirement.

Features to look for

One of the newer types of indexed GUL products enables clients to select from three premium allocation choices to most appropriately match their needs — a declared interest account, a one-year index account and a five-year index account. In addition to providing guaranteed death benefit protection, these interest-crediting accounts feature the opportunity to accumulate cash based partly on the performance of one or more global indices, with the flexibility to revise the allocation instruction anytime.

Among the features of today’s more attractive indexed GUL products are:

  • Guaranteed death benefit coverage up to age 121, with issue ages from 0 to 90 (in most states);
  • A flexible continuation guarantee that allows policy owners to choose their guarantee period and premium funding period;
  • One-year index interest crediting based partly on the one-year, point-to-point growth of a domestic index with cap rate and guaranteed interest rate of 1 percent (index does not reflect dividends);
  • Five-year index interest crediting based in part on three global indices with automatic overweighting of the two best-performing indices;
  • Minimum death benefit protection of $100,000, with a choice of two death benefit options (level or increasing);
  • A unique combination of death benefit guarantees with the potential to accumulate significant cash value;
  • Multiple loan options that offer policy owners choices of how to access their cash accumulation;
  • Monthly index accounts that permit flexible scheduling of premium payments; and
  • 24-month rolling targets (which may not be available in all states).

Flexibility regarding premium payments is an especially client-friendly feature. Many families are coping with financial challenges. Therefore, for certain products, any premium payments received within 28 days after the date of issue, and each subsequent premium due date, are treated as received on time for purposes of maintaining the death benefit guarantee.

Another customer-friendly feature involves the way that 1035 exchange premiums are applied to specific policies. For purposes of maintaining the death benefit guarantee, 1035 exchange premiums received up to one year after the policy issue date of certain Indexed GUL products can be treated as though they had actually been received on the issue date.

Moreover, depending on the specific indexed GUL product, policy withdrawals can be allowed (subject to restrictions and conditions) any time beyond the first policy year, and clients can select from two loan options to access cash values. With a typical loan, the client’s loan collateral is moved to the fixed account. This maneuver provides a stable, although usually low interest, credit to his or her loan collateral.

With certain attractive types of loans, however, loan collateral remains in the index account and continues to have interest credited based on movements in the equity markets. This offers more upside potential — albeit with higher risk. Optional riders can protect policies from lapsing with large outstanding loan balances, and several other riders are offered to assist with meeting individual needs.

With their unique combination of security, flexibility and the opportunity to build significant cash accumulation, indexed GUL products can provide clients peace of mind along with solid potential for growth. Considering the unstable economic climate we’ve continued to experience and the features that clients indicate they want as a result, 2013 appears to be an optimal time to consider including indexed GUL products in your portfolio.

For more on universal life products, see:

2012: A mixed bag for life insurance sales

Don’t file those life insurance policies away

11 ways to sell IUL more ethically


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