Once you have made the decision to sell a cash-value policy to cover both the death benefit need as well as providing the opportunity to generate cash values for future distribution, the next question to ask is, "Which cash value policy should you sell? Whole Life, Universal Life, Variable Life or Indexed Universal Life?" The answer is, "It depends on what the client needs."
Life Insurance Products
Whole Life — Over illustrated and under performs
Clients looking for a product with bundled guarantees should look to Whole Life. These safe product come with plenty of guarantees, but when you look at the earnings potential based on dividend projections, these products have traditionally under performed their projections. According to Full Disclosure reports, when compared to how these policies were projected in initial product illustrations, the actual performance was significantly lower.
Universal Life (UL) — Low bond portfolio yields therefore low crediting rates passed on to clients
If clients are looking for an affordably priced, death-benefit focused product that is unbundled, they should look to Universal Life. Unfortunately, crediting rates on traditional UL products are very low due to the current economic environment and insurance companies don’t have opportunities to generate significant yields to pass on to their policyholders. The ongoing low interest rates make these safe products unattractive to most consumers looking to generate significant cash values, yet they may be appealing to those purely looking for death benefit protection.
Variable Universal Life (VUL) — Market volatility leads to product death spiral
If you're working with risk takers, then VUL would be the product you should present to your clients. Actually, up until about a decade ago, VUL was the product that everyone desired if they wanted to generate significant cash values within a life insurance policy. However, with the recent market corrections, more people have come to realize that VUL can earn negative interest. Negative interest creates a product death spiral and makes it very difficult for these products to compete over the long term as the product spirals out of control. VUL products are extremely risky and only those clients that understand all the risks should consider this product.
Indexed Universal Life (IUL) — Annual lock-in and reset leads to higher crediting rates
For a client that wants better performance than a Whole Life or UL product, but they don't want all the risk of the VUL, those clients should consider IUL. By design, when your clients avoid market corrections and can earn interest on the annual reset, your clients significantly minimize market volatility. When the worst your client can do is earn 0% in any given year, that floor helps reduce overall market exposure and volatility. Plus, IUL policies have advantages over other financial accounts and you should consider adding them to your clients' portfolios when they are a fit.
Choose the Best Product for Your Clients
To ethically sell any product, you need to understand the appropriate applications, and the markets these products serve. The best life insurance product is the one that best fits your client. As a cash-value life insurance product, Indexed Universal Life maintains all of the current tax-advantages as other cash-value life insurance products under Section 7702 of the Internal Revenue Code, such as Whole Life, Universal Life, and Variable Universal Life. When you are marketing IUL, present it to those individuals seeking both death benefit protection and the ability to generate cash values within the life insurance policy for a future distribution need.
If you are purely looking for the most efficient way to pass wealth at death, and your client is not interested in generating cash values that they will harvest at some time in the future, typically there are products that are more ideally suited for those needs, such as level premium term or minimally funded lifetime guaranteed UL.
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