The first index universal life product was brought to market a mere nine years ago, yet sales for this product line have grown substantially each year. Sales of index universal life last year exceeded $550 million of annualized premium.
Advantage Group Associates President Sheryl Moore, who conducts a quarterly sales survey of this product, recently said, “Indexed life sales continue to astound me. This is merely a testament to the fact that this once-niche product is becoming the preferred type of life insurance. Traditional and variable UL better watch out — I think we can give them both a run for their money!”
A key reason that index universal life has become so popular is that a large number of agents and marketing organizations are promoting it as an excellent product in which to save money now to produce a steady cash flow later in retirement. This article will examine eight advantages of using index universal life to save for retirement.
1. The safety of no negative returns.
Clients burned by declining values in the equity, bond and real estate markets now understand the value of a guarantee that their annual returns will never be negative. That guarantee is precisely what index universal life provides. If the index used by the product declines over the period measured, the client is completely protected from that risk. There is never a decline in the contract’s value due to declining values in the index.
2. The carrier absorbs the investment risk.
The carrier provides interest credits to the index universal life product by investing in bonds and index options. Some experts expect bond defaults this year to be seven times historical averages. What if one of the bonds defaults? What if the counterparty to the index options defaults, like Lehman Brothers did to many insurers? The answer in both cases is that the insurer bears this risk and protects its contract holders from it.
3. The possibility of high positive returns.
Safe alternatives without investment risk right now are suffering from very low yields. Many are at historical lows, and that makes them unattractive to many savers. With index universal life, if the index performs well over the period measured, the contract can result in an interest credit that is quite attractive. Some index universal life products even include interest crediting formulas that compare multiple indices and more heavily weight the better performing indices.