The market for fixed index universal life (FIUL) insurance reached new heights in 2012, topping the $1 billion sales mark, according to LIMRA, and affirming the product category as a viable option for all agents selling life insurance.
Along with the income tax-free death benefit protection for beneficiaries that can be used for final expenses or helping to replace income of the deceased, FIUL differs from traditional universal life insurance by providing the opportunity for cash value accumulation from indexed interest. This can be a big help with addressing the financial concerns of tomorrow, such as taxes, college funding, business planning solutions and supplemental retirement income needed to help deal with things like rising inflation and ever increasing health care expenses.
Another advantage of FIUL is the protection it provides — not only to beneficiaries via the death benefit, but also to the value of the policy through the selected index allocation. FIUL can provide the opportunity for the policy’s cash value to increase based on positive changes to the index, but the policy’s cash value will never decrease when the index is negative (although fees and expenses will reduce cash value). For financial professionals charged with helping clients build their financial future, the ability to offer the reassurance that a client’s policy won’t lose cash value due to negative market performance is huge.
Sales could be even bigger
These attributes — death benefit protection and the potential for an increase to the policy’s cash value — have helped make FIUL one of the fastest growing segments in the life insurance industry highlighting the true need and appetite for cash value life insurance. Yet, FIUL still plays in a relatively small part of the overall market, with sales reaching $1.51 billion in 2012 — only 14.8 percent of total life insurance sales, according to LIMRA data.
So what’s missing? For many financial professionals, it comes down to timing. All too often, financial professionals miss a window of opportunity where their client may have the greatest need for purchasing a life insurance policy. Traditionally, life insurance sales have been targeted at a younger age group, usually between the ages of 35 and 55, when the client has younger children at home and therefore a potentially greater need for the death benefit protection. This window is also important when it comes to highlighting the benefits of cash value accumulation within the policy, as the younger client has more time to accumulate before a policy loan is needed.
Older age groups, including “transition boomers” — those ages 55 to 65 and on the cusp of retirement — have not typically been the main target for traditional life insurance sales. But recent innovations within FIUL may be changing that dynamic.
In addition to other crediting methods that build cash value of the policy, new crediting options exist that can offer a set amount of interest credited to the policy if the index is flat or experiences any gain from one policy anniversary to the next (including when the interest rate exceeds that set amount). This is a significant advancement, as it provides transition boomers with a shorter time horizon with a simple way to accumulate cash value that can be accessed for future needs. It’s also an attractive benefit because it can be effective in low interest rate environments. This is true when even small index returns mean interest is credited to the policy.
We believe these results for the customer are part of the success of this product category.
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