Often clients come to you looking for basic life insurance coverage. They want to be able to leave money to beneficiaries to cover their salary and the mortgage payment if they die prematurely. Of course, this is important and worthwhile coverage. But it’s also important to get clients to think beyond a term insurance policy and discover the possibilities and flexibility a permanent policy can offer.
Get your client to think about lifetime income
A common financial concern agents hear from clients is whether they’ll have enough money to live comfortably in retirement. Many of your current potential clients don’t know life insurance can be a strategy in their retirement savings plans.
If you are talking to a relatively healthy client, an index universal life (IUL) insurance policy with a lifetime income rider can be a good option. IUL may be a popular topic in your practice, but in my experience many agents focus only on the accumulation potential for future expenses but overlook the lifetime income rider feature of the policy. Lifetime income riders allow the insurance policy to offer guaranteed income to your client. (I’ll discuss more about how that works later.)
I call an IUL a “multi-purpose insurance policy” that can serve your client in various stages of life. By explaining the lifetime income feature to your clients, you have a competitive advantage. Don’t limit yourself to talking about death benefit, living benefits and potential cash accumulation. Use a lifetime income rider as a closer in your sale. It offers your client a full picture of the flexibility of an index universal life insurance policy. An IUL policy can offer your client death benefit and living benefits while they are young. When your client moves into more advanced stages of life the same policy (with no change to the original plan) can offer guaranteed, tax-free income your client can use for retirement.
Give your client an example
Help your clients understand the value of an IUL policy with an example:
- Our client (we’ll call him Corey) is a healthy 40-year old. He is married with two children and a new house. Corey’s job is stable, and he makes a good living.
- Corey comes to you intending to buy term insurance to cover his salary and help pay the mortgage if he dies prematurely. His primary goal is death benefit coverage to protect his family.
- You discuss Corey’s current life stage, where death benefit protection is the highest priority. But you also talk about his future life stages when he is an empty nester with the need to help pay some college expenses. Or, a retiree who needs supplementary funds so he doesn’t outlive his retirement savings.
If Corey purchases a term life insurance policy, there are two ways he can use it. He’ll pay monthly premiums so his beneficiaries can receive the death benefit if he dies prematurely. If the policy has living benefits, he can access money in the event of a critical, chronic or terminal illness.
If he purchases an IUL with a lifetime income rider, Corey has the flexibility to address his changing financial needs at various stages of his life. When his children are independent, and his mortgage is paid, the need for death benefit is no longer as prominent. If he purchases an IUL policy it can adapt to meet the financial needs of he and his spouse as their circumstances and priorities change. For instance, if he finds himself wanting to withdraw money as a policy loan to pay for a vacation or help his children with college expenses, his IUL has the flexibility to accommodate those things. And with a lifetime income rider on the IUL Corey can use the policy to supplement his retirement savings with a guaranteed income he can’t outlive. The rider is built into the policy, and you don’t pay for it unless you use it. (Some carriers charge for the rider whether you use it or not, others only charge if you use it. Check policies of carriers you work with for details on fees and how they are charged.)
How lifetime income works
Lifetime income riders on products from different carriers can vary, but the function and benefits are similar. With a lifetime income rider, your client has access to a reliable stream of cash for life—guaranteed.
How can we say guaranteed?
The lifetime income rider is built into the life insurance chassis. If the policyholder activates the rider and begins to take an income stream, the carrier will base its payout on the policyholder’s age and current account value. After the income payment is calculated there is a rider activation charge deducted from the policy’s account value. The charge doesn’t affect the income payment amount, as it is applied after the income calculation is made. The income is treated as tax-free since it is under the chassis of the life insurance policy. The insurance carrier will also guarantee a minimum death benefit and minimum account value for the life of the policyholder.
At the time your client activates the rider they will select one of the following payment options (this is an example only, as carriers may vary). Once an option is selected it cannot be changed.
- Level: cash flow payments remain level for life.
- Increasing: cash flow will increase by a specified percentage each year.
- Potentially Increasing: cash flow may increase or remain unchanged depending on the performance of the S&P 500 index. For example, if the S&P 500 index goes up by one percent or 12 percent, income will go up a specified percentage. If the index remains the same or loses value, income will remain the same.
Clients also need to be informed of any conditions that must be met to activate their Lifetime Income rider. Typically, conditions include (but may vary depending on policy and carrier) the insured’s age being between age 50-85; the insured must not be receiving benefits from other policy riders; the policy must have been issued at least 10 years prior to activating the lifetime income.
Your competitive advantage
Every client deserves to hear about the options and flexibility an index universal life policy with a lifetime income rider can offer. (They also need a basic understanding of how the policy works, and to know that index options on an IUL policy are not securities, and your client is not participating in the market or investing in any stocks or bonds.) Offer your clients a more holistic view of what a life insurance policy can do for them and go beyond death benefits and living benefits. Talking about a feature like the lifetime income rider can be the closer and give you a competitive advantage because not every agent talks about it.
