Clients need flexibility in financial and insurance products as their circumstances change through life. When they age and face new challenges, the financial products they put their faith in should be able to adjust to directly address those needs. Historically, many financial and insurance products were built to service a single need, but through the decades these products have evolved to meet the demands of a consumer that values choice and flexibility. In the permanent life insurance world we have seen continual evolution towards that end, and I would argue the most dramatic change has been within the variable universal life or VUL product arena. Due to a series of regulatory adjustments starting with actuarial guideline 38, followed by 49 and 49-A, coupled with a very low interest rate and resilient stock market environment, it has shifted some of the attractiveness towards the VUL side of the spectrum. None of those actuarial guidelines mentioned had an impact on VUL.
In 2013, AG 38 shifted the spectrum from traditional GUL to lifetime no-lapse guaranteed VUL products, often referred to as GVUL, creating a situation where more death benefit could be purchased per premium dollar with VUL while maintaining the guarantees compared to GUL/UL. AG 38 increased the reserve requirements for a carrier’s general account products which had a negative pricing impact for certain products. At that time there was one specific GVUL product available, but now there are several. Outside of the death benefit guarantee, VUL added the flexibility of cash value accumulation potential for the customer that GUL simply could not provide for potential income needs or 1035 exchange opportunities down the road. AG 49, and subsequently AG 49-A, put pressure on the indexed universal life or IUL market via specific guidelines on product specifications along with illustration requirements. That forced many carriers to integrate their multiplier IUL options, along with more traditional IUL options, within the VUL chassis as sub-account options instead. This adds tremendous flexibility to the VUL offering where previously there were no such options available for downside protection outside of the fixed accounts for VUL. Now a customer can invest some or all their cash value within these indexed accounts, between 50 and 100 equity, fixed income, or alternative investment options depending on the carrier, or within the fixed account options. Cash value volatility control becomes important as a client’s risk tolerance changes as they get older, or they decide it is time to take income. Without many being aware of it, suddenly, VUL has become one of the most flexible permanent life insurance solutions available–regardless of a protection or accumulation-based design–simply with the addition of these new features. Additionally, every carrier has their value-added nuances, such as John Hancock’s popular Vitality program, business solution support teams, as well as many offering survivorship or SVUL products in addition to their single life lineups.
Popular VUL carriers with age 120+ no-lapse guarantee availability:
Lincoln, Prudential, Securian and Nationwide (via ENLG rider)
So now you have a situation where VUL offers a range of no-lapse guarantees depending on product, IUL sub-account options for downside protection when needed, and typically a chronic illness rider with many policies as standard. For example, Prudential’s popular Benefit Access Rider (BAR) is an add-on that many agents and clients utilize. On top of that there are a handful of fantastic carriers that offer long term care riders for the “what if I get sick” scenario. This option is what I would refer to as a “combo” sale, to supplement what a client has perhaps already planned for in terms of long term care coverage. We all know how much assisted living costs, and the ability to accelerate the death benefit to provide a pool of cash either on an indemnity or reimbursement basis is adding another layer of flexibility to the product. Obviously a long term care rider comes at an additional cost that needs to be taken into consideration by both the retail representative and the client, but it at least provides that option.
As it pertains to this topic, a particular carrier who has offered a long term care rider since 1999 has been Nationwide Financial. Currently, the rider is utilized in 45 percent of their policies where it is available. It is one of the only indemnity style riders available among the carriers and we have seen considerable traction with this solution. Nationwide has what I would consider a very balanced VUL offering with this rider, along with a strong sub-account lineup, indexed options, and available no-lapse guarantees.
Popular VUL carriers with available LTC riders:
Nationwide, John Hancock, Lincoln and Equitable
A primary barrier to entry to access the VUL market for general agents and insurance producers is the fact that it requires securities licensing and a registration with a broker-dealer. Offering VUL requires an insurance license, the FINRA Securities Industry Essentials (SIE) along with the top-off Series 6 and Series 63 exams in most states.
Securities licensing needed to market VUL products:
Securities Industry Essentials (SIE), Top-off Series 6, Series 63 (Most states)
As regulation continues to change, whether that comes from the NAIC, FINRA, the SEC, or Department of Labor (DOL), it may be advantageous to obtain these licenses as an insurance producer or general agent to remain competitive. Not all broker-dealers are geared for the insurance industry, although there are many to choose from for a potential affiliation and registration. If you are not able to offer these solutions, your agents and customers may be forced to go to your competition. This VUL market has evolved to offer some very competitive and flexible solutions that are certainly worth consideration as you think about the future of your business or agency.
