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Life insurance in a low interest rate environment

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Low interest rates might be good for homebuyers, but that just isn’t the case for the average investor. Returns on vehicles like certificates of deposit (CDs) are meager at best, and they require people to lock up their money for a long time, reducing liquidity. Early withdrawal penalties make CDs an even less attractive investment. Conventional savings accounts and interest-bearing checking accounts are earning low yields, as well.

Your current and prospective clients may not be financial experts, but they do know what low interest rates mean to them – and will be looking for advice on where to put their money to work hard for them. Life insurance can be a smart way to do just that, but as the advisor, you’ll need to explain its value. A safe bet, life insurance can perform much better than traditional products in a low-interest-rate environment. And they have the added bonus of a death benefit.

Here’s what you and your clients need to know.

Understanding the Environment

Low interest rates continue to have an impact on investors – and, ultimately, on agents and financial advisors. Things aren’t expected to change any time soon. The Fed’s decision in December to finally increase interest rates after almost a decade was a welcome move. However, additional increases in 2016 are very unlikely, and if and when rates do rise, it will likely be relatively modest.

You’ll need to keep this in mind when you’re speaking with your current and prospective clients. Be ready to explain exactly what the interest rate environment means to them and their money. Let them know that universal life insurance not only provides a death benefit, but will also generate a cash value that can outpace traditional products in a low-interest-rate environment. At the end of the day, universal life insurance represents a secure and steady investment for the client looking for an integrated estate planning approach built for today’s economic conditions.

The Selling Points

Many universal life insurance products can minimize the risk of interest rate changes, as well as offering a higher internal rate of return (IRR) on cash value. You’ll want to point clients toward universal life insurance products that act as non-correlated assets. Highlight policies where the cash value accumulation is tied to interest crediting rates, less deductions for charges, and not the market. This will remove the uncertainty of market fluctuations.

Agents and advisors should also offer universal life insurance products that with more upfront value for the client, as well as low surrender charges should the client’s needs change. When you’re describing the product’s features, make sure to remind your clients that traditional products like CDs, savings and interest-bearing checking accounts simply don’t offer the returns they once did — and are unlikely to do so for some time.

Universal life insurance is the perfect product for the today’s consumer preparing to invest and plan for their estate.


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