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Taking advantage of trends in whole life insurance

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Life insurance sales have always hinged on the idea of love. Most individuals want to provide for those who are financially dependent upon them.

The additional benefits are the living benefits for the policyholder. But for some prospects, especially those without devoted family ties, it can be very challenging to part with substantial sums of money with no opportunity to benefit themselves. The pendulum continuously swings between these two types of sales. Today there’s been a much stronger orientation towards the living benefits type of sale.

In the whole life arena, there are two prongs to the “What’s In It For Me” (WIIFM) sale. The first is cash accumulation and the key lever is the tax advantages inherent in a life insurance contract. Many purchasers believe that the different layers of government will continue to tax the richest 1, 5 or 10 percent of the country at even higher levels. Those same individuals are searching for ways to maximize the value of their assets.

For the wealthy in a state like California, where the combined federal and state tax rates can be greater than 50 percent, the tax advantages of a whole life policy can make even a low, long-term internal rate of return, such as 3 to 4 percent, look like a fabled El Dorado.

Add in the ancillary benefits, such as a cash value that will never decrease, never losing the dividend once it is credited to a policy, continuous increases in the level of guaranteed cash value and preferred loan features and flexible premiums, and the life insurance policy begins to look like a very valuable asset. In a world shorn of guarantees and with fixed investment yields near or at rock bottom, it’s tough to see a better place to allocate conservative money than a whole life policy.

Some may argue that dividends are not guaranteed to be paid on a policy, and they would be absolutely correct. However, if you take a quick look at the track record of the mutual companies in the United States, there should be a lot of confidence regarding future dividends.

Without looking too hard, you can find companies with 90, 100, and even 150 consecutive-year histories of paying dividends. This timeline encompasses events like the Great Depression, World War II, the oil crisis of the 1970s, the dot-com crash and the Great Recession. In all that time, whole life delivered on its promise – that’s a track record that can’t be beat by any other asset available to an individual today.

The second prong of the current “WIIFM” sales trend has to do with new types of benefits available on permanent life insurance. These benefits are either Accelerated Benefit Riders (ABR) or Long-Term Care (LTC) riders.

While these two rider types can be very different in application, the goal of both is similar. Both provide relief to policyholders who are burdened by the need to pay for chronic illness care during their lives. These riders are more for the insured than the beneficiary.

Many Americans are reluctant to purchase a stand-alone LTC policy for a variety of reasons. For some, it’s the fact that much of the industry has consistently increased premiums on both new and in-force policies over the years.

For others, it may be the nature of LTC being a “use it or lose it” type of product. Premiums paid typically do not return to the payor unless the benefit is actually used. While these same individuals wouldn’t think of going without homeowners’ coverage – a similar type of benefit arrangement – the higher premium cost of the LTC product changes the risk/reward quotient for many consumers.

The ABR and LTC riders available with today’s whole life policies are typically much less expensive and, in some cases, free as far as ongoing premium costs are concerned. Because they are part of a larger policy package that includes cash values and death benefits, the buyer does not view the cost, if any, in the same fashion. They know that if the benefit is not used, there is still an ultimate death benefit payable to the beneficiary and the cash value is available to the policyholder during their lifetime. Additional costs are viewed in terms of the grand package and are often viewed as de minimis in the cost/benefit determination.

The power of the traditional tax advantages and cash accumulation features of a whole life policy, when combined with the ABR/LTC rider packages available, make the sale today for many advisors. The affluent and emerging affluent are oftentimes concerned about what they perceive to be a never satisfied hunger for tax revenue. They want some protections against the possibility of a confiscatory tax rate. Many are also in or approaching retirement, and are searching for conservative choices for their portfolio of assets.

The current yield environment makes traditional choices unattractive and is drawing these individuals to a portfolio-based product such as life insurance. Because of their age, many are also discussing issues such as the financial impact of chronic illness during retirement and the new suite of riders fits this demographic like a glove.

The convergence of the above issues means that whole life products today are being sold with the policyholders’ needs of utmost importance in the sales process. The death benefit is still important, but not in the way it would have been if these individuals were still 35 years old with a non-working spouse and children at home.

These sales represent higher premium potential and new opportunities to today’s advisor. The concepts of safety, security and guarantees are still the predominant themes of the sale, but the application and focus have changed. 

See also:

3 reasons why we don’t sell as much life insurance as we should

5 senior market segments and how to sell to them

Here’s why cash value life insurance is a superior product