Life is full of uncertainty.
While we can’t predict what will happen tomorrow, financial professionals can help their clients prepare for the future by offering product solutions for their client’s overall financial strategy. One product category gaining momentum is fixed index universal life (FIUL) insurance. According to LIMRA, from 2012 to 2013 the annualized premium for FIUL products went up 9 percent with annual premium in 2013 hitting more than $1.7 billion in sales (2013 LIMRA U.S. Individual Life Insurance Sales report). With the availability of FIUL products increasing, FIUL can play an important role in helping clients of all ages, including retirees, build more protection into their financial future.
Life insurance provides an income tax-free death benefit to beneficiaries, which can address immediate needs that may include income replacement, a college funding strategy, paying down a mortgage or other debts, estate tax coverage, final expenses and business succession. But today’s FIUL policies can also provide additional features beyond the death benefit. Some of these options include the ability to help address future expenses, including the rising costs associated with a chronic illness and long term care, as well as inflation. These features may generally be available through optional riders that come at an additional cost.
Financial professionals who understand these additional advantages can help address clients’ needs and demonstrate that they are focused on helping their clients with their financial future.
Protection and More
FIUL differs from traditional universal life insurance by providing the opportunity for the policy to build cash value accumulation from indexed interest. FIUL can provide an opportunity for the policy’s cash value to increase based on positive changes to an external market index, but the policy’s cash value will never decrease when the external market index is negative (although fees and expenses will apply, which will reduce cash value). Although an external index may affect the interest credited, the policy does not directly participate in any equity or fixed income investments—clients are not buying shares in an index. Along with death benefit protection, we believe the potential for an increase to the policy’s cash value has helped make FIUL one of the fastest growing segments in the life insurance industry.
In addition to the death benefit protection, there are additional benefits that can make FIUL products a fit for many consumers, including retirees. For example, some FIUL products include chronic illness and long term care riders (which may be subject to underwriting requirements). According to the Allianz Life 2013 Life Insurance Perspectives Study,* when respondents (ages 25 to 75) were presented with examples of additional benefits available through some life insurance policies, “access to money if I become chronically ill” was the most popular option with 62 percent of respondents noting it as the most valuable benefit. When we look specifically at the response from older respondents, the majority (57 percent) of respondents ages 55 to 75 said access to money if they become chronically ill was the most valuable benefit. Policies that offer riders that specifically address chronic illness and long term care allow clients to access a portion of the death benefit or accelerate death benefit payments to help pay for other health care expenses or emergencies (subject to certain qualifications).
Focus on Innovation
A compelling aspect of the FIUL market is that it is constantly innovating as carriers listen to consumer demand. Understanding customer needs opens the door to finding new ways of making the products stronger and more flexible. Recent innovations within FIUL demonstrate that a focus on delivering these results for the customer is a key factor in the growth of the category.
One of the most recent innovations that carriers are adding is more choice in index allocation options. These allocation options provide clients with new opportunities for cash value accumulation. In addition to the death benefit that can help clients protect their family or estate in the case of premature death, these index allocation options are designed to help accumulate cash value for various purposes such as supplementing retirement income through policy loans. These index allocation options can also provide opportunity to build cash value to help address concerns such as health care and inflation.
In addition to current crediting methods that help build the cash value of the life insurance policy, new crediting methods can also offer the potential for indexed interest that is credited if the index performance is flat or experiences any increase from one policy anniversary to the next (including when the indexed interest exceeds that set amount). This index allocation option provides a more straightforward method with a shorter time horizon to build cash value for possible use on future expenses. This is also an attractive feature because it can be effective even in a low interest rate environment when small index changes can mean indexed interest could still be credited to the policy.
Financial professionals should be aware of other optional riders (available at an additional cost) that may be available on FIUL products. Some FIUL policies may offer riders that can help protect the purchasing power of the loan amounts and can also address concerns about future tax increases. Remember that taking policy loans and withdrawals against a life insurance policy will decrease any available cash value and death benefit and could cause the policy to lapse. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change, and your clients should consult their tax professionals. All guarantees in the policies are backed by the financial strength and claims-paying ability of the issuing company.
There are many options available to financial professionals as they help their clients create the financial future they desire. Those who are open to the possibilities will see that FIUL can provide clients, including retirees, with many of the benefits they seek. Today’s innovative and flexible FIUL products offer death benefit protection, options to help address certain concerns such as chronic illness and long term care needs, and innovative index allocation options for cash value accumulation potential. By educating these clients about what makes FIUL unique, financial professionals can offer clients reassurance for their financial future amidst a life full of uncertainty.
*The Allianz Life 2013 Life Insurance Perspectives Study was conducted by Ipsos via their online iSay/Partner Vendor Sample from Sept. 6-18, 2013 with 2,034 panel respondents age 25 to 75 with $75,000-plus in household income, and was commissioned by Allianz Life Insurance Company of North America.