I get it. In the 1980’s Current Assumption and Variable products were illustrated using wild and crazy interest rates. The backlash is still felt all over the industry in the form of “Well what are the guarantees?” anytime someone is discussing permanent products.
This led to an overwhelming reliance on Guaranteed Universal Life and Whole Life as the default permanent product lines for many agents.
The problem is, many clients would likely fare better – with either lower premiums, greater cash buildup, or both – with one of the many other permanent products available.
Let’s not go off the deep end today though. I am going to stick to just discussing the basic need for Life Insurance.
We just placed a case for a 57-year old woman. She wanted $350,000 of permanent coverage. The advisor asked us to illustrate a GUL and a Whole Life product. After a brief discussion, the advisor agreed to look at an IUL geared towards protection.
We presented three options focusing on Death Benefit Protection:
IUL (geared towards protection)
This option came in as the least expensive but also had the shortest Death Benefit guarantee, ending at the insured’s age 90.
This premium came in 3.13% more expensive than the IUL but the Death Benefit is guaranteed to Lifetime.
This premium came in 124% more expensive than the IUL. However, the Death Benefit is guaranteed to Lifetime.
We then got a little more granular.
The IUL illustrated decent cash buildup. We explained that the guarantee is a worst-case scenario should the market return less than or equal to 0% for the next 23 years along with the carrier increasing their internal charges to the max level allowed. This product is projected to well outperform that scenario, even by staunch IUL skeptics.
The GUL does have an opt-out benefit at years 15, 20, and 25, but unlike the IUL, if you take the cash, you lose the coverage. We also discussed the dangers in early, late, and missed premiums.
The Whole Life contract illustrated tons of cash and a healthily increasing Death Benefit. However, the guaranteed and non-guaranteed aspects came with a hefty price.
In the end, the advisor took all three options to the client and the client chose to go with the IUL focused on protection due to the flexibility. She understood the difference in guarantees but felt more comfortable with the flexibility and price point that the IUL afforded her.
After the policy was issued, she asked if there was anyway we could set up the policy so she would not have to pay forever. An increase in premium of under 20% allows her to have the IUL policy paid-up in 19 years. That ended up being what was placed.
When you have conversations with clients about permanent products, Death Benefit Guarantees may be very important to them, but flexibility is likely to be up there as well. However, the flexibility conversation does not seem to be had as often.
Irresponsible illustrations made us look bad and left us leery of non-guaranteed products. However, there are current products that “bridge” the divide. We are happy to talk you and your clients through these products, how they work, and to find out if they may be the right fit for your clients.