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September 21, 2016 at 04:00 AM
Life insurance producers gravitate toward guaranteed universal life (GUL) contracts because of their simplicity.
To put it bluntly, these products are a known commodity that doesn’t cause problems and are easy to explain to consumers.
At the end of the day, if the client pays the premiums exactly as illustrated, that’s all it takes. There won’t be any surprises, and crediting rates don’t impact the death benefit.
End of story? Not quite.
What happens during policy audits and review conversations? During these meetings, it’s not unusual for clients to report that their situation has changed and they subsequently need more flexibility to:
-
- Reduce the death benefit
- Skip premiums
- Pay less than illustrated, or
- Change the duration of payments
When clients express such concerns, an advisor may say: “I understand how you feel, but that’s not possible with your present policy.”
But that’s still not the end of the story. With so many offerings from insurance carriers, it’s not necessary for clients to forfeit guarantees to gain the flexibility they’re looking for.
Related: 6 advantages of indexed universal life insurance
Although it’s always good to know that advisors are taking time to ensure that their clients’ policies are performing in light of their needs, it can be helpful to know why some plans are better than others. In other words, why the details are important.
We’ve all heard the reasons or excuses for a policyholder not making payments, but what happens to the policy? The ability to skip a premium (without making it up) depends on a number of factors. At the top of the list is the timing of the missed premium. When a premium is missed, the reduction in coverage duration can vary drastically.
Consider this: In a sample study for a male, age 55, skipping a premium in year six, some policies maintained coverage past age 100, while others lapsed as early as year seven.
Today, there’s simply no single product that will perform best in every situation. To avoid problems at some later date, it’s important for advisors to have a detailed discussion with clients regarding their objectives, possible future needs, and what could change going forward.
