The previous bear market ended in March of 2009. The current bull market has lasted more than eight years. That makes this advance in equities the second oldest on record without at least a 20% drop in the S&P 500 Index.
To the casual observer, this would seem like a purely positive development for the financial services industry, since a booming market usually leads to stronger portfolios, and in turn, to happier clients.
This is generally true; however, bull markets also bring their own set of unique challenges for financial professionals, especially those who are focused on helping meet their clients’ holistic planning needs.
As a general rule, growth is good, but when clients see constant growth they can become fixated on accumulation and forget the other parts of their financial strategy that also need attention — namely protection.
Building a level of protection into your client’s overall financial strategy can certainly come through diversification of their investments, ensuring they have a broad mix of assets so their portfolio is not too concentrated in one area. Usually this amounts to utilizing different types of mutual funds, but can also extend to other financial vehicles outside of equities such as fixed income options like fixed index annuities (FIAs) that provide guaranteed income and principal protection against market loss (any product guarantees are backed by the financial strength and claims-paying ability of the issuing company). Yet, to ensure your client’s financial strategy is complete and includes protection, they need to incorporate life insurance into their overall strategy, which provides needed death benefit protection for their beneficiaries.
Life insurance has long been one of the foundations of the financial planning pyramid, but it’s an easy area to overlook when the stock market is enjoying daily gains and everyone is focused on growing their savings. And when life insurance is part of the conversation, it often starts and stops with term coverage, which provides the necessary death benefit to protect against the financial consequences of an unexpected loss of life, but offers no additional advantages that could complement a client’s financial strategy.
Innovations Bring Opportunity
This is unfortunate as innovations within permanent life insurance have made the category much more dynamic in recent years and worth considering for clients in need of more flexible options for their finances.
So why do permanent life insurance products not get the attention they deserve? Simply put, too many people are unaware of the additional living and tax advantages that may be available through permanent life insurance.
According to the 2018 Life Insurance Needs Survey from Allianz Life Insurance Company of North America (Allianz Life), nearly nine in 10 people (88%) understand the death benefit component of permanent life insurance, yet more than half (51%) are unsure or don’t believe cash value from permanent life insurance can be used to help fund college education, supplement retirement income or assist with other financial needs. Furthermore, a full two-thirds (66%) are unsure or don’t believe benefits paid from life insurance are not taxable.
These misconceptions exist despite the fact that consumers place high value in financial products that can provide these very benefits. When asked what they find most valuable in financial products, 85% of respondents said one that “provides a source of tax-free income in retirement,” followed by 78% who value one that “provides tax-free money for family/loved ones” and 68% who want a product that “provides the ability to use the funds to pay for college.”
While life insurance is not a college funding vehicle and does not provide a source of guaranteed income in retirement, it does provide the opportunity to accumulate cash value. Any cash value in a life insurance policy can be accessed through policy loans and withdrawals income-tax-free that can help supplement retirement income or complement a college funding strategy.
The survey, which questioned Americans between the ages of 35 and 60 with an annual household income of $100,000 or more, also found that three-quarters of people who work with a financial professional are discussing sources of tax-free retirement income with their financial professional. Additionally, a full 70% discuss ways to fund their child’s college education and more than half (52%) talk about financial products that offer low/no interest loans against its cash value.
Showing Value through Offering Options
The key takeaway here is that conversations about these broader topics are already happening with clients that have the financial resources to need alternative options, but those discussions aren’t covering all of the bases. Permanent life insurance is an option that could help meet all of these needs mentioned above; however, according to the survey, fewer than half of those with a financial professional have permanent life insurance and one-quarter don’t currently have it, but would like to learn more about it.
Clearly, there is an appetite for products that can help solve for multiple issues, but financial professionals — especially those who are just beginning to embrace a holistic planning approach that must address all aspects of their client’s financial life — need to take note and truly explore all available opportunities. This means understanding all of the different ways that they can help provide both protection and opportunity to their client’s long term financial strategy.
The good news is the innovations happening in the annuity world with the popularity of FIAs has opened the door for greater understanding and acceptance of index products in general, including fixed index universal life insurance (FIUL). As a reminder, FIUL is a permanent life insurance policy that allows for an opportunity to accumulate cash value based on positive changes in an external market index or a fixed interest allocation. There is also a built-in annual floor that ensures the cash value will not decrease due to market volatility as the cash value is not directly invested in the market (although certain fees and expenses will reduce cash value).
Thus, for clients that need death benefit protection, but also want the opportunity for increased flexibility for their finances as well as potential tax advantages, FIUL is a viable solution. As more people look outside of traditional life insurance agents for assistance in meeting their protection needs, financial professionals who are familiar with index products and the potential benefits they can provide will have an advantage in helping meet and exceed their client’s expectations.
Nearly 95% of respondents in the Life Insurance Needs survey said the ability to save enough to retire comfortably was a top priority when planning for their financial future. Now more than ever, Americans’ need a diverse mix of financial products to help them achieve that goal and the financial services industry must do more to educate them about their options.
In terms of getting both protection and opportunity – for the right client in the right situation, it is possible for them to accomplish these objectives through new options within permanent life insurance.
Jason Wellmann is senior vice president of life insurance sales at Allianz Life Insurance Company of North America.