Do I Have To Pay Forever?

A question that we get frequently from clients is “Do I have to pay forever?” It’s not an unreasonable question, especially if the policy has been put in place to cover a specific need. If the purpose of my policy is to pay off my mortgage, why do I need to pay after my mortgage has been paid off? If I bought the policy for income protection, do I really need to pay the premium after I retire? The same question applies for retirement supplement. Even though many things can and will change between the time a policy is applied for and the time it is needed (or not), the idea that you have to pay forever can be a daunting proposition. Though they may never need to do it, it would be nice to have the option to stop paying at some point. The question for the agent is what happens if they do?

With participating whole life, your client has a non-forfeiture option designed for this exact situation—reduced paid up (RPU). RPU gives the client the ability to stop paying premiums and use the existing cash value as a single premium to purchase a lower guaranteed death benefit. That death benefit is guaranteed for life. No additional premium payments are needed. But that’s not all. The client still gets all of the benefits of participating whole life! The paid up policy has guaranteed cash value and guaranteed growth of cash value. The paid up policy has the ability to earn dividends, which can be used to increase the guaranteed cash value and the guaranteed death benefit. All of this happens automatically when the client selects RPU. He has a guaranteed paid up policy that continues to grow for the rest of his life.

Now some may argue that the same concept can be accomplished with an IUL. My answer to that would be “maybe, if…” Certainly we can structure an illustration to show a limited pay scenario, but will there be sufficient cash value to ensure that the death benefit will continue for life? What about the cash value? Maybe, if the client pays the same premium every year. Maybe, if the policy performs as illustrated. Maybe, if caps stay the same, participation rates stay the same, COI charges stay the same… That’s a lot of “maybe, if…” for a client who just wants to hear “No, you don’t have to pay premium forever.” Which answer do you think your client will prefer?

There is good news for current IUL clients who have that concern. As long as they have cash value in their IUL policy, and they are insurable, they can create their own RPU solution with single premium whole life. For a client like those that we described earlier—they bought coverage to address a specific need and now don’t want to continue paying premium—they can take their cash value and purchase a single premium whole life policy with guaranteed death benefit and never pay another premium. Or a client with an IUL that is underperforming and doesn’t want to continue paying premium, they can purchase a single premium whole life and receive guaranteed cash value growth with the potential for even more growth with dividends. The best way to address a policy that has underperformed is to offer one that is guaranteed to perform. Remember, if you focus on the guarantees, then the first day of your single premium whole life policy is the worst day it will ever have. If anything changes it’s because the company paid a dividend, which will make the guaranteed side of the illustration look even better.

The RPU solution is not perfect and it is not free. By electing RPU, the client is lowering their death benefit and potentially decreasing the cash value growth. But, it provides flexibility for your clients. It protects them from potentially losing coverage altogether. It allows them to continue to benefit from a plan that may have served its initial purpose but has the potential to do much more. It helps you definitively answer the question “Do I have to pay forever?” It also gives you another reason to take another look at an old friend—participating whole life!

Luke Cosme is senior vice president, chief sales and marketing officer at Mutual Trust Insurance Company, A Pan-American Life Insurance Group Stock Company, where he manages the company's distribution and sales development and support efforts. Cosme joined Mutual Trust in February 2014 after serving for a decade as sales vice president at North American Company for Life and Health, where he was responsible for the recruitment and development of MGA relationships, sales strategies and case placement.

Cosme started his career at North American in 1997 after graduating from the University of Illinois at Urbana-Champaign, where he majored in economics. At North American, he held positions as sales director, financial institutions, and worked in client services before being promoted to sales vice president in 2004.

Cosme can be reached at Mutual Trust Insurance Company, 1200 Jorie Boulevard, Oak Brook, IL 60523. Telephone: 800-323-7320, ext. 5300. Email: cosmel@mutualtrust.com.