As clients deal with the economic fallout of the COVID-19 pandemic, many may be looking for ways to diversify their portfolios in order to be better prepared for market volatility going forward. In fact, a recent Allianz Life study* found that over seven in 10 (72 percent) say the impacts of the COVID-19 pandemic are making them rethink how to protect their savings from volatility.
One important product that may help provide the protection and a level of stability that many seem to be looking for after the end of the longest bull run in history is a fixed index universal life insurance (FIUL) policy. Not only do these products provide consumers with death benefit protection, but also accumulation potential, flexibility for the future, and features that can help protect against ongoing market volatility.
What’s more, FIUL products are not what they used to be and continue to evolve, providing innovative solutions to clients who are looking to not only provide protection for their loved ones in the event of their death, but also reducing exposure to the aforementioned market volatility risks that can threaten an overall portfolio.
An important part of changing any pre-existing narrative on FIUL is educating clients on the new reality of this important product. Start the conversation with clients about new innovations in the life insurance industry, and how there is more to FIUL than meets the eye. Consider sharing these reasons why innovative FIUL products might be a good fit for those looking to help mitigate against the risks that market volatility can have on their portfolios.
Opportunity for accumulation
While the main purpose of an FIUL policy is to provide a death benefit, it also has the potential to build accumulation value tax-deferred, based on changes in an external market index. It’s important to remind clients—especially ones who have been burned by extreme market downturns in the past—that their money isn’t actually invested in the market, but can earn interest based on their chosen index’s positive annual performance potential.
This also means their policy won’t lose value due to negative index performance—likely a welcome feature based on recent market volatility. However, fees and benefit charges will still reduce a policy’s values, including the death benefit, so be sure to clarify this with your client to avoid any surprises.
Innovative features such as index locks on FIUL policies mean that clients have the opportunity to lock in indexed interest earned once at any point between policy anniversaries and prevent a zero percent credit. The index will unlock at the beginning of the next policy year. This can again help clients take advantage of any potential market upswing while also protecting them from additional drops in the market.
A customized level of diversification
FIUL policies allow clients to choose their level of diversification through various allocation options. These options determine the amount of interest credited to a policy, and are made up of an external index and a crediting method. Each policy has a variety of allocation options available—with some offering the opportunity to accumulate more interest (but with potentially more volatility), while others may have a lower interest potential (but with a little more stability). Clients may also select a fixed interest allocation option.
And remember that while diversifying across different financial products and types of accounts is a way to help mitigate risk, the same holds true for diversification within an FIUL policy. You would likely never recommend a client put all their funds into one index allocation option and hope for the best. Within a policy, choosing multiple allocation options provides clients opportunities for accumulation when things are going well, while still protecting them if the market drops. Diversifying allocations within an FIUL policy does not guarantee that the policy will earn interest in any given year. And no single index allocation option will be most effective in all market environments. Index allocation options may be subject to a cap and/or participation rate.
Indexes that target lower volatility are becoming more popular in the marketplace as well. These can help level out conditions by easing some of the drastic ups and downs a pure equity index can experience.
It’s important to check in on the allocation options annually, to check that they have the appropriate level of diversification given changing market conditions, and also to help make sure they are meeting the client’s financial goals.
Weathering the storm
Today’s FIUL policies are designed to help address a number of different risks to a portfolio. While the death benefit is its primary purpose, FIUL policies can offer so much more—especially for those who are looking to de-risk their portfolios as a result of recent market turbulence.
And since no one knows when or if the market will level out any time soon, now may be a good time to talk with clients about how they can look to add a level of stability with accumulation potential to their portfolio. An FIUL policy might just be the answer for their financial needs.
*COVID-19 Pandemic Wreaking Havoc on Americans’ Retirement Plans While Anxiety over Continued Market Risk Remains, https://www.allianzlife.com/about/newsroom/2020-press-releases/pandemic-wreaking-havoc-on-americans-retirement-plans.
It’s important to note that with an external index, your client’s policy does not directly participate in any equity or fixed income investments—your client is not buying shares in an index.
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Products are issued by Allianz Life Insurance Company of North America.