Indexed Products Rule Life Market in Q3

The shift toward index-based investing continues to reshape clients’ life insurance.

The number of individual indexed universal life policies sold increased 18% between the third quarter of 2022 and the third quarter of 2023, according to preliminary U.S. market survey data from LIMRA.

IUL policy sales increased 26% in the second quarter. IUL policies now account for 24% of all U.S. retail life sales premiums, or about $900 million in annualized premiums per quarter.

Annualized premiums from all kinds of U.S. individual life sales increased to $3.7 billion in the latest quarter, up 5% from the total for the year-earlier quarter.

What it means: First, index-based investing came for your clients’ mutual funds. Now, it’s also coming for their life insurance.

Indexed universal life insurance: An IUL policy is a form of permanent life insurance that builds cash value.

Clients can use IUL coverage in estate planning and retirement planning, as well as to provide death benefit protection.

An IUL policy owner gets a fixed rate of death benefit value growth. If selected investment market indexes perform well, the holder may get an extra amount added to the growth rate.

Life insurers also offer traditional fixed universal life policies, which have growth rates not tied to the investment markets, and variable universal life policies, which have growth rates tied to the performance of actively managed investment funds.

The trends: IUL sales may be growing partly because life insurers see offering index-linked policies as a simpler, easier-to-hedge alternative to selling variable universal life policies, not just because of clients’ preferences.

Recent growth in the number of IUL and variable universal life policies sold supports the idea that clients are recovering from first-quarter jitters and accepting more exposure to investment market volatility.

Regulators, consumer representatives and some financial professionals are engaged in a long-running debate over the illustrations showing how the indexes used in life and annuity markets work. Some have argued that marketers may be boosting IUL policy sales with illustrations that give the buyers misleading ideas about what will really happen to the policy value growth rates.

The policy counts: LIMRA is a market research and services group. It sends comprehensive survey reports to its members.

It publishes a sampling of the data to increase public awareness of its research.

The quarterly public charts show percentage changes in premiums from new sales and policy sales counts, but not the actual dollar figures or the actual policy counts.

Here’s what happened to the number of policies sold, for five types of coverage, between the third quarter of 2022 and the latest quarter:

• Indexed universal life: +18%
• Term life: +6%
• Variable universal life: 3%
• Whole life: +0%
• Fixed universal life: -7%

Credit: Adobe Stock