What Life Insurance Brokers Can Expect in 2012
A new year should bring more than just a new start for old habits
Whoever said, ‘Many people look forward to the New Year for a new start on old habits,’ may have got it right. While beginning a new year may be little more than a faint line in the sand, it can be useful for adjusting old business habits and assumptions. While most future gazing is only slightly less successful than trying to understand teenage behavior, here are four significant signposts that deserve life insurance brokers’ attention in 2012:
1. More consumers are paying attention to their future. As a recent Forbes’ report points out, “With the economy in the state of flux, consumers are being understandably conservative in using their credit cards.” The Federal Reserve indicates that household liabilities, which rose to 135% of disposable income in 2007, has been sliding steadily and was at 119.3% most recently. While this focus shift has retailers reeling, it may indicate that some consumers are thinking more about their future, rather than just about today. This is a good omen for life insurance producers since it creates an opportunity to gain prospects’ attention and to share with them strategies for financial security.
2. The federal estate tax- year two. As of December 31, 2012, the $5 million per person estate, gift and generation skipping tax exemptions end and revert to $1 million with a 55% maximum tax rate as of January 1, 2013. This means that time is of the essence since no one knows what the future holds, particularly when the Fed has a seemingly insatiable appetite for revenue. To give clients breathing room and greater flexibility, it may be appropriate, for example, to suggest survivorship policies. With low prices, this strategy will maintain client insurability and give them time to weigh possible options.
3. Life products more effective in meeting expectations. As carriers continue their focus on consumer needs, we can expect the evolution and innovation of life products to continue unabated:
Term Life. Look for a slight bump in Term Life sales, since some carriers are introducing Term insurance on a UL platform. This allows insurance companies to put away lower reserves. Rates should be fairly stable or even drop slightly in 2012.
Guaranteed Universal Life fading away. If there were ever a product with high consumer appeal, it is Guaranteed UL. And why not? It gave clients the assurance they wanted, particularly as they reached retirement age. Even though the demand exists, some carriers are either exiting this market or pricing themselves out of it and producers will be seeking alternative solutions.
Whole Life lives. With a breadth of product choices, it’s interesting to note that whole life sales showed 5% growth in the first quarter of 2011 and 10% in the second quarter, according to a LIMRA report, while term life sales continued its long decline. It can be particularly valuable in providing supplemental retirement income and meeting estate and business planning needs.
Current Assumption UL has consumer appeal. Offering control and choice of options, Current Assumption UL plans offer a high degree of flexibility including cash value provisions. Since the cost is based on current interest and mortality rates, consumers benefit from greater product transparency. With current interest rates at an all-time low, these plans should still perform well if rates increase in the future.
Indexed Universal Life steals the show. IUL has a strong appeal since it can serve as an income stream for retirement and college planning, as well as a permanent death benefit. At the same time, this is a product with a substantial number of ‘moving parts’ that make it more difficult to understand. There is a learning curve for the producer.
Life/Long-Term Care hybrids offer sales kick. While individual LTC policies have been on the market for about 20 years, sales have never taken off, mostly because of cost, policy provisions and a track record of failed products and repricing. Producers complain about the amount of time they spend with clients, only to have their efforts fail to produce sales as prospects change their minds. Although there are variations in policies, all send the message that a purchaser can have it both ways permanent life insurance and long-term care protection.
4. Competition in the year ahead. To quote the late comedian, Jimmy Durante, “Everybody wants to get into the act!” That’s just the way it is with the marketing of life insurance products today. Along with life agents, the list of players includes banks, wirehouses, accountants, property & casualty agencies, and online marketers, among others. The message should be crystal clear: avoid complacency at all cost. Ignoring new products and strategies can prove dangerous. Producers must be competent in knowing what works and what doesn’t. Some products are flawed, while others may not be a good fit. A producer’s value rests in knowing the difference. While it’s popular to talk about Boomers, Millennials and other segments, such discussions may be overrated because they miss the point. Perhaps far more significant is a basic economic shift that has occurred. A growing segment of consumers now recognize an essential fact: they are responsible for their individual economic destiny. They are looking for financial products that give them flexibility and the ability to decide how to tailor those products to their needs. The life insurance industry has the tools to deliver what consumers want. However, it remains an open question if we have the will and determination to meet the challenge.
By Kenneth A. Shapiro Mr. Shapiro is president of First American Insurance Underwriters, Inc., a national life insurance brokerage firm based in Needham, Mass