When reflecting on the secret to his success, hockey great Wayne Gretzky shared these words of wisdom, “Skate to where the puck is going, not where it has been.”1 It’s no secret that, if implemented, the proposed NAIC rules governing illustrations of index universal life (IUL) insurance products would change the way the products are marketed, but I believe some brokers are already updating their game plans and skating in the direction of the proposed rules with their IUL sales strategies.
Given consumer interest in IUL—sales of it represent more than half of UL premium2—you may be able to position countless clients appropriately for meeting their needs with IUL. As Ashley Durham, LIMRA senior research analyst, shared in a recent press release by the organization, “Market conditions and increased carrier and product options have led to a decade of positive growth for IUL.”3
Following are seven strategies designed to help you educate consumers about today’s IUL and leverage its power to meet their needs in virtually any market environment.
1. Start by identifying a low-cost IUL product from a carrier that’s a pioneer in the IUL market. Accessibly priced IUL solutions that offer great flexibility may be the best choice to review with value-conscious consumers.
2. Test the policy at a low interest rate. Show the client how the policy is designed to perform in the event of 2 or 3 percent returns. I believe products that perform well at a low interest rate are consistent with the intent of the proposed NAIC rules and have the potential to minimize the impacts of volatility.
3. Fuel the contract with extra premium. If you planned to fly a plane from New York to Los Angeles, you wouldn’t put barely enough fuel in it to get directly to LA. Instead, you’d have a surplus of fuel so that you’re prepared if you encounter unforeseen risks, such as inclement weather, being rerouted, or having to circle the runway. Think of premium as the fuel for IUL policies and design the contracts with extra fuel, as feasible, so if clients encounter the headwinds of adverse market conditions they will still have the ability to reach their destination. If their IUL product doesn’t achieve the performance they have anticipated, they will have downside protection—and if it achieves very good performance, they may have the potential to access cash value in the policy.
4. Seek unique ways to access cash value. If the policy is overfunded or conditions are positive, resulting in strong index performance, some IUL products provide the ability to access cash value in the contract—while maintaining the death benefit. As a broker, you have the responsibility to help your client understand the potential risks of funding the contract “skinny,” but also how your client might benefit from funding it with extra fuel or experiencing strong index performance.
5. Address the sequencing of returns issue. I believe our industry is beginning to understand more about the ramifications of the sequencing of the returns on IUL product performance. An illustration might show a 7 percent rate year after year, but I’ve never seen a contract earn a 7 percent static rate of return over time. It may earn 14 percent one year, zero the next, seven the next, etc., to equal an average of 7 percent over many years. How the returns are sequenced will likely have as much to do with the policy’s performance as the rates themselves. Turn toward an IUL solution that utilizes a form of volatility control—a rules-based index strategy designed to remove the highest highs and the lowest lows. The solution I’m thinking of is subject to a participation rate, but addresses the sequencing of returns challenge and allows for an uncapped return to the client.
6. Seek a guaranteed persistency bonus. Some IUL products offer a persistency bonus, but some bonuses are guaranteed and some are not. Therefore, while some IUL products may be illustrated with a persistency bonus 20, 40 or 50 years out, that bonus may never be paid—or, at the carrier’s discretion, it may be paid at a lower rate than in the current illustration. Be sure clients know whether the persistency bonus is guaranteed and at what rate. Try to avoid propping up an illustration with a persistency bonus that may not materialize.
7. Look for a flexible chronic illness rider. A living benefit rider designed to pay on an indemnification model for policyholders who experience a qualifying event allows them to use their benefits virtually however they choose. A rider that features flexible payout choices, such as 2 percent of the death benefit, 4 percent, or the maximum IRS per diem, is designed to help clients access the amount of money they need when they need it. Riders available on some IUL products today also provide a waiver of premium on the entire policy as long as the client is eligible for benefits, even if he chooses not to take the benefits.
Ultimately, when determining the IUL product that’s most appropriate for each client, take the time to understand how the offerings—not just the riders and features—are designed to work in any market environment. Read the policies and encourage your customer to read them as well, to help differentiate the various IUL offerings from each other in the great product soup of IUL today.
Keep in mind also that racing to where the puck is headed may help win hockey games, but racing to the table with any old IUL offering might not be what the client needs. Strive to put your customer in a position for success through value-conscious IUL product selection, responsible illustrations and sufficient fueling with premium.
Footnotes:
1. “Wayne Gretzky,” BrainyQuote.com. Xplore Inc., 2015, accessed June 1, 2015 at www.brainyquote.com/quotes/quotes/w/
waynegretz383282.html
2. “LIMRA: Individual Life Insurance Sales Experience Strong Fourth Quarter Growth.” LIMRA, March 16, 2015, accessed June 1, 2015 at www.limra.com/Posts/PR/News_Releases/LIMRA_
Individual_Life_Insurance_Sales_Experience_Strong_
Fourth_Quarter_Growth.aspx?
3. Ibid
