I was recently approached by an “insurtech” startup firm from California with a desire to offer variable universal life insurance on their direct-to-consumer app. I was intrigued and held the all-too-familiar Zoom call with them. They are further along than I would have imagined, with some real experience in the life insurance space, current production, and an impressive knowledge of the MGA distribution model. Variable life is a different animal, and they wanted to better understand how this could potentially work. We have held similar calls regarding the need to integrate suitability review for VUL while simultaneously offering a fully integrated, digital platform for consumers. There is no doubt this is where things are going with a real potential for disruption, especially with the mega-tech names that have shown interest in the space. These groups are getting their feet wet with the tech-savvy, younger generations who are less of an underwriting concern and fit nicely into the vastly expanding accelerated underwriting programs offered by the carriers. They are jumping over the point-of-sale wholesalers, hurdling over the traditional financial professional, and going direct to consumer with a focus on ease-of-issue. With technology increasing at such an astounding rate, it will be interesting to see where we go with it as an industry. For now, let us look at the applications of VUL for the various generations as it stands now, and less-so a decade from now.
The oldest millennials will soon be entering their prime earning years with the current age span of 23 to 38. Couple that with an all-but-guaranteed income tax increase on the horizon, it bodes well for tax avoidance strategies and accumulation focused opportunities. They have plenty of life runway remaining, and they are generally healthy. This is perfect for max-funded, managed to 7702 type of permanent policies. AG-49a threw a wrench into the IUL market and the low-interest rate environment is thinning the herd for traditional, fixed insurance. The carriers have begun to migrate their more popular IUL options within the variable chassis as sub-account options as an alternative. This creates an enhanced VUL offering that can showcase more flexibility for growth as well as downside protection. The beauty and genius of the product is that it can be tailored to either accumulation, protection, or somewhere in between depending on the client need. All these aspects are good for millennials, but it does not mean they can all afford it. I think an overlooked opportunity for Gen Xers or baby boomers is assisting their children, who likely fit the millennial or Gen Z category, in the purchase of permanent life insurance. For instance, the annual gift tax exemption sits at $15,000 per year which could be gifted to fund a nice annual VUL premium. Say a client has $150,000 they could gift annually for 10 years for their child and spouse to purchase a survivorship VUL policy with the beneficiary being a grandchild or grandchildren if applicable. Just a simple idea, but for a financial professional looking to create stickiness with their existing client and associated family assets, it’s an idea worth considering because we all know the dreary statistics regarding spouses and/or children leaving the financial professional at the time of the primary client’s death. As my old economics professor would say, it is important for any developing economy to build backward and forward linkages. Same concept, only with generations.
Generation X sits somewhere in between this accumulation and protection need, with a current age range of 41 to 56. This is where a death benefit is of substantial concern along with perhaps creating a bucket for long term care if needed or, perhaps to a lesser extent, tax-advantaged supplemental income. Pairing a permanent life insurance solution with a long term care rider provides a pool of available funds for that “what if I get sick” scenario. Any human being that has come face to face with the very real and very expensive long term care need for a loved one will know all about the challenge it poses. For many Gen Xers, they face this with their baby boomer parents, and it should provide them with the emotional motivation to find a long term care solution for themselves. Nationwide has found success in the space with their popular indemnity long term care rider on their VUL policies, along with Equitable and John Hancock with their reimbursement long term care riders. Lincoln also offers a long term care rider, and Prudential has additionally been successful with their BAR or benefit access rider on their policies. Apart from this, most of the VUL policies today come standard with a chronic illness rider. I believe you will find Generation X customers to be very open to this combination solution as a component of their financial plan.
Now let us talk about those baby boomers between the ages of 57 and 75. I was talking to a long-standing Leaders Group BGA recently who said, “Ten years ago if you told me I’d be selling VUL for a guaranteed protection solution I’d call you crazy.” Lo and behold, here we are. AG-38 made this somewhat more viable back in 2013, where it mandated an increase in reserve requirements for traditional GUL products and thus negatively impacted pricing. VUL was not affected. Lincoln was first to that game with their immensely popular VUL ONE product. Guaranteeing the death benefit to client age 121 regardless of market performance and creating a bucket for cash value potential, all while being more competitively priced compared to GUL, created an easy choice for many agents and BGAs. I credit Lincoln for creating a massive need for BGAs to become FINRA registered with that single product alone. As a broker-dealer for BGAs, this accelerated our growth substantially as you might imagine. Prudential was next in the space with their Protector VUL, along with Securian’s Defender VUL, which is also very competitive. Baby boomers and those who are older generally fit into this protection-oriented bucket where the death benefit is the primary focus for wealth transfer, estate taxes, and numerous uses. Other carriers have moved into this space to some degree as well. John Hancock has made recent enhancements to their Protection VUL offering, which we will continue to see from other carriers as well. This market is ripe for BGAs and traditional life agents because this generation is older, wealthier, requires advanced expertise around estate planning and, due to various health issues, relies on underwriting guidance. This generation also likes face-to-face interaction and values the in-person relationship which is perfect for the point-of-sale model. Many of them also have a financial advisor they work with regularly.
The generations are unique in their own way and so are their needs as it pertains to life insurance. Life insurance is unfortunately associated with death, and we all struggle with the idea of our own mortality. In that regard it is generally a fear-driven sale. The reality is that life insurance can be utilized to improve the lives of millions while they are alive, as well as when they eventually depart this world. This shifts the client discussion dynamics to both a greed as well as a fear sale, which opens far more applications. Life insurance is also, by its nature, one of the few products that links generations together for economic benefit. Between the owner, the insured, and the beneficiary, it opens a multitude of different combinations to enable one generation to support another just as long as there is an insurable interest. From a practical standpoint, it provides a shield against what is going to be a very uncertain tax environment in the coming years. Variable life insurance is a product line that has come a long way, and due to a multitude of economic and regulatory factors, has become far more appealing and flexible than a decade ago, regardless of generation.