“It’s too expensive.” “At my age, I just don’t need it.” “It’s a luxury, not a necessity.” As a life insurance agent, you’ve heard just about every excuse in the book as to why clients are unwilling or unable to purchase a life policy. Many of them even seem to understand that these policies come with huge benefits, but somehow they just can’t part with the money needed to pay the premium payments. Hopefully, you’re using the tools and strategies you learned from Creative Life to overcome these objections and convince them otherwise. Or maybe you’re offering some of them a less expensive policy alternative that still offers guarantees: no-lapse universal life.
Universal life with a no-lapse guarantee is also known as guaranteed universal life, term for life and universal life with a secondary guarantee (ULSG). These policies allow clients the opportunity to maintain level premiums and a guaranteed death benefit for life, regardless of what happens to the policy’s cash account as long as the premium is paid regularly and on-time. For clients who need cash value accumulation, this type of policy won’t be a good fit. By contrast, traditional universal life policies will lapse when the cash account value falls below the amount required to cover policy expenses and the cost of insurance.
THE FUTURE OF ULSG
According to LIMRA, universal life with secondary guarantees made up about 43% of new UL sales year to date through second quarter 2011. Meanwhile, total universal life sales rose 3% by years end. Clearly, this option is one that continues to entice agents and clients alike. However, many carriers aren’t sharing the same sentiment.
Due to reserving requirements and low treasury yields, we’re starting to see carriers 1) move away from the ULSG market altogether or 2) raise rates to address the market risk these policies are creating. By law, carriers are required to keep a specific level of reserves to cover secondary guarantees. These reserves would cover the shadow accounts required in case a policyholder’s cash value falls below zero. Given the current economic environment, this is becoming more and more challenging. Additionally, state regulators continue to push for higher reserve requirements, which may lead to further cost increases for policyholders.
Recently, we’ve seen AXA Equitable leave the secondary guarantee market and John Hancock reposition their portfolio to accommodate for challenges regarding these issues. In a recent Q&A session with Neal Kerins, AVP, Life Product Management at John Hancock Life Insurance Company1, he summarized the transition the carrier has chosen to make:
In 2008, guaranteed UL products were among the most popular products in the life insurance marketplace and accounted for over half of John Hancock’s sales that year. However, it was also around this time we decided to begin shifting our marketing focus away from guaranteed UL products. We felt that interest rates might indeed stay low for some time, thereby necessitating price increases on the product. We also saw a unique opportunity for the company to develop a compelling alternative to guaranteed UL. This meant that we needed products that were marketable in a low interest rate environment and that offered policy owners real value in exchange for sacrificing some guarantees.
More importantly, some carriers have likely relied upon policy lapses to provide a margin for covering those still in force. If not enough lapses occur and interest rates rise, ULSG policies will no longer be profitable for the carriers selling them, so there’s a good chance more companies will follow AXA and John Hancock’s trend.
YOUR NEXT SALES STEPS
If carriers continue to move away from no-lapse policies, what should your next steps be? First, we’d like to encourage you to maximize the value these policies present while they’re still on the table. If you have clients who need a life insurance death benefit for a guaranteed cost, talk to them today about purchasing a policy. If you have clients looking to address estate planning concerns by purchasing a ULSG policy owned by an irrevocable life insurance trust (ILIT) with a single premium payment, urge them to move forward and protect their loves ones with this solution.
If and when these policies continue to rise in cost or slowly disappear, don’t forget about an array of life solutions that might be right for your clients’ needs. We’re seeing a rise in popularity of whole life policies again, particularly for clients who want those guarantees but also want greater value than the ULSG policies can offer. Although whole life is typically more expensive, clients can take advantage of the cash value accumulation and still move forward with guaranteed level payments for life.
There are also universal life alternatives that can be competitive from a pricing standpoint with ULSGs and provide more cash value upon surrender. These policies also provide the client with upside potential, given that the price of the policy will decline should crediting rates rise.
As we wait to see how the fate of the secondary guarantee market shakes out, don’t let potential changes cause your life sales to take a nosedive. Take advantage of the opportunity to provide clients with the benefits of these policies while you can, but put a variety of solutions in your sales arsenal to meet all of your clients’ needs. For help designing cases and expanding your portfolio of policies for clients, contact your Creative Life Sales Team.
1 A Success Story: John Hancock Leads the Way in Transitioning Our Product Portfolio. John Hancock Journal, Second Quarter 2012.
FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12291 – 2012/5/2
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