(Hint: It’s now 36 percent of the marketplace.*)
What product can provide your clients:
• Financial flexibility?
• Guaranteed, tax deferred growth of their money?
• Quick and easy access to this money throughout their life?
• An income-tax-free death benefit to their loved ones?
The answer is whole life insurance.
Although whole life insurance is sometimes inaccurately labeled as “inflexible,” in reality it’s an exceptionally flexible product that can satisfy a variety of client needs. It not only provides a guaranteed, permanent death benefit, but it also can be used as a wealth transfer tool, in business planning, and as an alternative resource in which to store money for unexpected living expenses or to supplement retirement.
Today more than ever, people purchase whole life products for their ability to provide both living and death benefits. Following are some examples of whole life’s extraordinary flexibility.
Mutual Company Dividends
Participating whole life insurance policies are often sold by mutual life insurance companies. In mutual organizations, the policyholders are the “owners” of the company—and when they purchase a participating product, they receive a portion of the company’s profits through a policy dividend. Clients can use this dividend to increase their policy’s death benefit and cash value through paid up additions, apply the dividend toward the premium, or receive the dividend in cash to supplement income or pay down a policy loan.
Benefits of Adding Riders
PUAs. Whole life insurance enables clients to customize their policies by adding riders. With paid-up additional (PUA) insurance riders, clients can increase their cash value accumulation and death benefits with either a single paid-up additional rider (typically added to the policy at issue) or through the use of a flexible paid-up additions rider. The cash values that accumulate allow the client access to capital that they can use and can serve as an alternative to traditional financing methods. In later years, the cash values accumulated through the PUA riders even can be used to pay the premiums of the policy.
A single PUA rider can be funded through a 1035 transfer, an inheritance, or another windfall. This rider adds instant, guaranteed liquidity to the policy and an additional paid-up death benefit. A flexible PUA rider is used when clients want to increase the cash values in their policies through periodic payments. The rider offers flexibility in terms of timing of premium payments because the client can choose to pay monthly, quarterly, semi-annually, annually or even by irregularly timed payments. Additionally, the rider offers both minimum and maximum premiums (determined at issue). This flexibility allows the client to navigate financial bumps in life’s road without losing the advantages that the rider offers.
Term. Term riders were initially designed to provide additional death benefits for a specified period of time. Today, term riders can be used to provide greater earlier cash values in the policy (when used in conjunction with a paid-up additions rider) as well as flexibility in policy design when the client wants to only pay premiums for a short period of time. This can be as short as two years. Primary term riders add coverage for the insured on the whole life policy while “other insureds” add coverage to a spouse, or perhaps a business partner, allowing the client to write one premium check and have all the coverage in one policy. Term riders are often available in different durations.
Accelerated death and chronic illness. An accelerated death benefit rider provides the insured access to the death benefit prior to death, assuming he or she is diagnosed with a terminal illness. The advance from a death benefit can be used to pay medical costs or other expenses, or improve quality of life while the insured is still living.
Chronic illness riders are relatively new in the industry. They enable the insured to advance portions of the death benefit providing he or she meets the criteria, such as failing two of six ADLs or suffering from an impaired cognitive disorder. Advance payouts in either rider reduce the death benefit that will be paid to beneficiaries.
Waiver of premium on policies and PUAs. With a waiver of premium rider, if the insured becomes totally disabled, the premiums on the policy are paid by the insurance company—allowing the insured to maintain coverage. The waiver typically is offered as an “own occupation” rider and covers a specific period of time as long as the insured is unable to work at his or her current job. After this time, it means any other occupation the insured could be reasonably expected to perform.
An additional option offered by some carriers is a waiver of premium rider that covers the paid-up additions rider (as long as the policy was issued with a PUA). If a client purchases a policy with the goal of accumulating cash value, this rider allows the cash accumulation that would have resulted from the PUA rider to continue uninterrupted. The resulting accumulation of cash value can be used to meet whatever specific goals the client has, including to help meet cash flow needs or to replace income lost during the disability.
GPO. Guaranteed purchase options (GPOs) are designed for younger clients who may not currently have the money to buy the coverage they envision they’ll need later in life. GPOs enable these young people to purchase additional amounts of death benefit at specific ages or life events without evidence of insurability.
Premium Payment Options
In addition to the flexibility riders can add to a participating whole life product, your clients also have premium payment options with this product.
PPV/RPU and other non-forfeiture options. After a whole life policy has been in force for several years, the policy owner may have the option to pay the premiums from policy values instead of paying them out-of-pocket. However, if the policy owner decides to discontinue paying premiums entirely and the cash value in the policy isn’t large enough to pay them, he or she can use the policy’s net cash value to purchase paid-up insurance of the same type as the original policy but with a reduced death benefit.
Other non-forfeiture options usually include using the policy’s net cash value to purchase term insurance for the full coverage amount provided under the original whole life policy for as long of a term as the net cash value can provide, or surrendering the policy and receiving its cash surrender value.
Is whole life insurance a flexible and a good choice for most clients? You bet, and I’ve only touched on how policy owners can use whole life’s living benefits throughout their lives.
*LIMRA, 1Q2016.
