The New Term/Universal Life Products: A Game Changer? Maybe!
If you can say one thing about the life insurance industry (being as conservative as it is), innovation and overcoming the obstacles of regulations and new law is its distinction.
One particular noteworthy innovation is the term/universal life (UL) combo that is hitting the marketplace. These products were created primarily in response to the reserve requirements for level premium term, as well as the pressure to have marketable yet competitive term pricing. Simply put, reserving requirements for UL products are less than term and allow carriers to offer “term-like” products that cost less.
Although these new products are built on a UL chassis, they have many of the same characteristics as term. Just like term, they offer a guaranteed level premium—most for 10, 15, 20 or 30 years. However, because they are universal life, there is some flexibility that term does not offer. In addition, your clients can lock in their mortality cost to age 120!
Here are some of the advantages of these term/UL products that you and your clients will discover:
• As with any UL policy, the premiums can be paid at any time, in any way, and in any amount the policyholder wants, provided enough is paid to maintain the policy in force.
• Guaranteed coverage can be extended for the client’s lifetime.
• Rates for the level premium period and beyond are known from day one.
• Although the product is sold using specific guaranteed periods (e.g., 10, 15, 20 years), the client can actually pick any guarantee period needed and pay the premium to support it. So, if for some reason your client needs the coverage for only 18 years, the premium would be less than for the 20-year guarantee. Complete flexibility.
• A policy can be purchased with a single premium.
• A 1035 exchange is available with the policy.
• Grace periods are typically longer than true term.
So are there disadvantages to these new term/UL products? Only one—complexity. Because these products are basically UL, the policy language is complex and difficult for clients to understand. If not sold correctly, policyowners may actually think they bought term insurance. To add to the confusion, clients will receive annual statements, as they do with UL. To avoid this confusion, explain the product completely at the initial sale. Using carrier specific materials can help.
Let’s take a look at some sales strategies that you can take advantage of with the new term/UL flexibility.
Client: Young parents who have old whole life policies purchased when they were children. The death benefit is simply not enough to fit their current needs.
Jack and Jill have a young family and have recently purchased a new home. They recognize the need for more life insurance. Jack owns a $25,000 whole life policy that his parents purchased for him as a child. The policy now has $5,229 in cash value. Jack is 34 and in a preferred rate classification. You can show him how to leverage that $5,229 into a policy with $350,000 of death benefit and, by using a 1035 exchange for a 20-year term/UL, there will be no additional premiums!
Client: Bob, age 55, whose policy is “under water” with little chance of survival unless he puts in additional premiums.
Before the policy’s cash value is completely exhausted, suggest that with a new term/UL product, the cash value from his “under water” policy may be enough to purchase an equal amount—or even more coverage, with a guaranteed death benefit (dependent on his health classification).
Bob’s current $750,000 policy with a $1,500 annual premium will keep his death benefit in force until age 72, based on current interest and non-guaranteed charges. This is below what was originally projected at age 85 because of fluctuating interest rates. The policy has $38,825 in cash value, but Bob wants to be sure that the policy will stay in force until age 85.
Show Bob that by doing a 1035 exchange with his current policy into a guaranteed 30-year term/UL product and continuing to pay the $1,500 annual premium, he can restore his policy to age 85 and provide a death benefit guaranteed for 30 years. If he decides later that he needs the coverage longer, he can increase the planned premium to an amount that will carry the guarantee for as many years as needed.
So is the term/UL product a game changer? I think so, considering its flexibility and options!
Cindy Gentry, CLU, ChFC, LUTCF, is president of BBA Life Brokerage Agency, an independent life and annuity brokerage agency. She began her insurance career in 1980 and has been in marketing and management with Brown & Brown Associates since 1987.