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What You Need to Know

  • Many whole life buyers wanted cash to pay for funerals, burials and other final expenses.
  • The majority of indexed product purchasers were looking for cash accumulation.
  • Permanent life products have been popular with consumers looking for ways to pay long-term care bills and other post-retirement expenses.

U.S. life insurers are reporting big increases in sales of non-variable individual life insurance products for the fourth quarter of 2021.

Combined sales of non-variable indexed universal life and non-variable indexed whole life policies increased 16% between the fourth quarter of 2020 and the fourth quarter of 2021, to $718 million, according to new life insurer survey data from Wink.

Sales of traditional whole life rose 45%, to $1.5 billion.

Pricing Objectives

All life insurance policies provide death benefits, and the COVID-19 pandemic has focused consumers’ attention on the possibility that they could die.

Wink is reporting, for example, that the primary pricing objective for 86% of the individual U.S. whole life policies sold in the fourth quarter was to provide a death benefit; pay the bills associated with funerals, burials and other final expenses; or support wealth transfer arrangements.

In the fourth quarter of 2020, about 84% of the individual whole life policies purchased were used mainly to provide death benefits, pay final expenses or support wealth transfer arrangements.

The percentage of individual whole life policies priced as final expense products fell to 41%, from 50%, and the percentage priced as sources of death benefit or wealth transfer support increased to 45%, from 34%.

Cash Accumulation

Many life insurance buyers use permanent life policies to save money for ordinary retirement expenses, long-term care expenses or emergency expenses through arrangements that, under current tax rules, free the assets and withdrawals from the kinds of income tax requirements that apply to annuity income, or to withdrawals from ordinary retirement arrangements.

The percentage of traditional whole life policies sold with cash accumulation as the primary pricing objective fell to 14% in the latest quarter, from 15% in the year-earlier quarter.

In the market for non-variable indexed life products, however, the percentage of policies with primary pricing objectives related to death benefits, final expenses or wealth transfer fell to less than 13%, from 21%. The percentage of indexed life products priced for cash accumulation increased to 80%, from 71%.

The shift toward use of indexed life products for cash accumulation could be due partly to new changes in life insurance tax rules, which may have increased the appeal of permanent life products used for cash accumulation.

The shift could also be due partly to investor concerns about the possible effects of proposed estate tax changes on assets held outside of life insurance policies, or to changes in life insurers’ own sales strategies.

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(Image: Adobe Stock)