I haven’t been successful in marketing UL products so often. I’d look forward to some of you lending a hand. A few good tips might just make things work for me!
Total Comments: 19
Posted: Mon Mar 29, 2010 10:51 am Post Subject:
The problem could be that UL products are inappropriate much more often than they are appropriate. How about selling life insurance and using UL when it is the most appropriate life insurance product?
Posted: Tue Mar 30, 2010 04:23 am Post Subject:
Hi Expert, thanks so much for your kind reply!
Now, how do you explain their being more 'appropriate'? I've never really been able to identify the right time to market UL products.
Posted: Tue Mar 30, 2010 02:02 pm Post Subject:
UL is essentially an annual renewable term (ART) policy to age 121 with an added cash value component. The two or three death benefit options have to do with the cash value and its relationship to the death benefit.
Option I (A) is like whole life, a level death benefit -- and the cash value is part of the death benefit, not in addition to it . . . unless the CV actually exceeds the face value of the policy (highly unlikely today, when policies are paying only 4-6% interest on CV), then the full CV becomes the death benefit.
Option II (B) is more like the "buy term and save the difference" concept, and known as an "increasing death benefit" -- because the CV is added to the face amount of insurance at death. The "increasing" part of the equation only happens if the policy is properly funded through out its lifetime.
Option III (C) offered by a few companies is simply Option I with a return of premium provision. Figure 30% to 70% higher cost to "get your money back" when you die. (But, guess what? YOU don't get it.)
Trouble with all of this is that a properly funded UL policy is very expensive -- far more so than a "plain vanilla" whole life policy. To overcome the objection that a client would have to the high premium, agents use poor illustrations (higher than expected interest payments) that inflate projected CV and decrease premiums to a minimum level. This hurts the client in the long run, because it will lead to policy collapse in anywhere from 7 to 20 years, depending mostly on the issue age and premium payments.
When is UL right? Mostly when the client can afford to pay the full 7-year premium in the first 7 years. And even a UL policy funded in this manner is not guaranteed to outlive the insured, but it will stand a much better chance of doing so. If a client cannot afford this, it's probably the wrong product for the client.
So who's the right client? They are often corporations with deep pockets looking to fund executive benefit plans, not your typical blue collar worker looking to provide a modest amount of protection to his/her family in the event of premature death.
UL was created in the 1970s when inflation/interest rates in the American economy was running in double digits (about 19% by 1979). People were -- foolishly -- taking CV out of their whole life policies and plunking into CDs paying 12-15%. Until 1988, they could claim the phantom interest on the life insurance loan as a deduction on their income tax return. But even with that benefit, a taxable CD paying 15% interest, in the face of 18% inflation, and maximum tax rates of 50%, was a money-losing proposition.
Enter the insurance companies with UL and the tax deferred CV. Now offer 15-20% (at least one company did, but they no longer exist) in "tax-free" (as an agent would say) interest (and loans), and "this policy will pay for itself." Sounded too good to be true, and it eventually was. But billions of dollars poured into these policies in their infancy, only to evaporate when inflation/interest rates came under control in the Reagan era. UL policy collapses in the 1980s and 1990s cost the industry billions of dollars in regulatory fines, civil judgments, and policyholder restitution.
The industry has been trying for decades to build UL policies that work, but the design is inherently flawed. Enter the "secondary guarantees" of the 21st century, that try to overcome the ART drawbacks of UL. If CV is insufficient to provide enough interest in addition to premium payments, then CV must be used to pay the cost of insurance and policy charges, which erodes the CV, which reduces interest earnings, which increases the rate at which CV erodes, which leads to policy collapse when there is no more CV to borrow.
The ART premium is going up every year, and only the cash accumulation can offset that, as it reduces the "net amount at risk" (NAR). When CV is in decline, the actual premium the client must be paying is increasing rapidly, but all most insureds ever pay is the minimum premium the agent told them they would have to pay in year 1.
Clients fail to read and understand their annual statement. They do not recognize when the policy's cash accumulation has begun to level off, or worse, is in real decline. They do not understand their need to pay higher premiums to correct for this. And they do not understand why they get the lapse notice 60 days before their policy will die. When they learn the answer, they are usually very unhappy.
If your client does not understand (and appreciate) their responsibility to their policy, it's the wrong policy for them. Most people believe that life insurance is simple: "I pay, I die, they pay." In whole life, and term (during the policy term, of course), that's absolutely true. It can be true of UL or VUL or EIUL policies, but read the contract -- it is never guaranteed (absent the "secondary guarantee").
There is nothing wrong with any type of life policy if the policyowner understands what will be required to keep the policy in force to its last day. Some people just don't want to pay that much money.
Posted: Tue Mar 30, 2010 05:48 pm Post Subject:
Sorry Max, but you're making it way more complicated than it needs to be. If someone wants guaranteed UL, pay the premium and don't touch the cash value. Simple as that. You can also do a 10-pay, 20-pay, or pay-to-age-65 and still have the death benefits guaranteed for life. That will still be far less expensive than any whole life policy, even a non-participating policy, with the same payment period.
Posted: Wed Mar 31, 2010 05:11 am Post Subject:
You may safeguard assets and resolve issues related to estate taxes with the help of UL insurance. This could certainly be one good alternative for UL marketing.
Posted: Wed Mar 31, 2010 03:46 pm Post Subject:
you're making it way more complicated than it needs to be
Until one gets to the variable contracts, UL/EIUL is THE MOST COMPLICATED life insurance product ever devised.
While the secondary guarantees will keep the policy in force as long as 100% of the premiums are paid on time, what guarantee does anyone have that they will be able to pay those premiums according to those terms?
That's why calling TERM insurance "temporary" and WHOLE LIFE (Cash Value) insurance "permanent" are very poor choices of vocabulary which have been foisted upon us all by the insurance industry (and subsequently adopted into most insurance laws). They are intended to scare people into making decisions that may only benefit the insurance company.
Of course, there are 1-pay/7-pay/10-pay/20-pay/paid-up-at-your-choice-of-age options in all Cash Value policies. They are all necessarily more expensive (while they last) than each of the individual annual/monthly payments to age 121, but also less expensive than the sum of those individual payments.
However, not everyone can afford those higher, short term payment options.
Secondary guarantees, in my opinion, are just a cover for poor product design. Do they work? Of course they do. If the insured does his/her part.
The better question is: Do they work 100% of the time in 100% of the policies to which they are attached? The answer is NO. Unless 100% of premiums are paid without fail.
In all other Cash Value policies, missing a single payment usually leads to an "Automatic Premium Loan" to pay the premium . . . until there is no more cash value. Not an utter loss of benefit.
Secondary guarantee UL policies are built on the assumption (and minimum premiums) that there will never be much, if any, cash value, so missing a premium payment would mean the policy is on the verge of lapse.
It's really just a cash flow game created by the insurance companies. Play the game their way, and your beneficiary will ultimately receive a payment (call it a "win", but someone has died, and that's usually a bigger loss). Play it any other way, and it probably means it will end up that only the insurer wins (keeps all the money and pays no death claim).
People tend to understand that about the TERM insurance game, but that's not what they expect when agents use the word PERMANENT to describe their insurance contracts.
Caveat emptor.
[[ As an aside, it would be interesting to know how many UL policies with secondary guarantees have lapsed or otherwise been terminated in the past 2-3 years of our economic woes. But those are probably closely held corporate secrets. ]]
Posted: Wed Mar 31, 2010 04:04 pm Post Subject:
I know how a UL policy works, you don't have to explain it to me. You said this:
Trouble with all of this is that a properly funded UL policy is very expensive -- far more so than a "plain vanilla" whole life policy. To overcome the objection that a client would have to the high premium, agents use poor illustrations (higher than expected interest payments) that inflate projected CV and decrease premiums to a minimum level. This hurts the client in the long run, because it will lead to policy collapse in anywhere from 7 to 20 years, depending mostly on the issue age and premium payments.
A limited pay guaranteed UL will be much less expensive than a limited-pay whole life policy. Since a whole life policy will have premiums that are 2 or 3 times higher than the UL for the same death benefit, I'm not sure why you say that a propertly funded UL policy is very expensive. I would say that a whole life policy is very expensive compared the UL, not the other way around. If the person wants coverage guaranteed for life and is prepared to pay a whole life premium, especially for a "plain vanilla" non-participating policy, they should easily be able to pay for the 10-pay or 20-pay UL.
Posted: Wed Mar 31, 2010 04:19 pm Post Subject:
A limited pay guaranteed UL will be much less expensive than a limited-pay whole life policy.
Only if you're speaking of a UL policy that will never have any cash value.
That's not what most people are thinking about when they start looking for life insurance. They've heard about being able to borrow money in retirement, or for emergencies, from their life insurance. If this (no significant CV accumulation) is not properly disclosed at the time of application/policy delivery, an agent might just find himself on the losing end of a future E&O claim if the client has kept his original illustration showing the oodles of money commonly attributed to UL sales presentations (that we all know rarely, if ever, materialize).
Posted: Wed Mar 31, 2010 04:28 pm Post Subject:
I must be getting the wrong illustrations. Most of them show little to no cash value on the current side and no cash value at all after the first few years on the guaranteed side. I don't know why someone would want to overpay for their life insurance just to borrow it back later (and pay interest on their own money), but hey, what do I know...
I will avoid making this a 10-page thread about whole life versus UL.
Posted: Thu Apr 01, 2010 05:38 am Post Subject:
Some good agents would meet their existing clients time and again. These agents would keep a track of the current coverage needs of their clients. After a close analysis, they'd show up with new offers for their clients. They'd often come up with UL products as a part of financial plans.
Posted: Mon Mar 29, 2010 10:51 am Post Subject:
The problem could be that UL products are inappropriate much more often than they are appropriate. How about selling life insurance and using UL when it is the most appropriate life insurance product?
Posted: Tue Mar 30, 2010 04:23 am Post Subject:
Hi Expert, thanks so much for your kind reply!
Now, how do you explain their being more 'appropriate'? I've never really been able to identify the right time to market UL products.
Posted: Tue Mar 30, 2010 02:02 pm Post Subject:
UL is essentially an annual renewable term (ART) policy to age 121 with an added cash value component. The two or three death benefit options have to do with the cash value and its relationship to the death benefit.
Option I (A) is like whole life, a level death benefit -- and the cash value is part of the death benefit, not in addition to it . . . unless the CV actually exceeds the face value of the policy (highly unlikely today, when policies are paying only 4-6% interest on CV), then the full CV becomes the death benefit.
Option II (B) is more like the "buy term and save the difference" concept, and known as an "increasing death benefit" -- because the CV is added to the face amount of insurance at death. The "increasing" part of the equation only happens if the policy is properly funded through out its lifetime.
Option III (C) offered by a few companies is simply Option I with a return of premium provision. Figure 30% to 70% higher cost to "get your money back" when you die. (But, guess what? YOU don't get it.)
Trouble with all of this is that a properly funded UL policy is very expensive -- far more so than a "plain vanilla" whole life policy. To overcome the objection that a client would have to the high premium, agents use poor illustrations (higher than expected interest payments) that inflate projected CV and decrease premiums to a minimum level. This hurts the client in the long run, because it will lead to policy collapse in anywhere from 7 to 20 years, depending mostly on the issue age and premium payments.
When is UL right? Mostly when the client can afford to pay the full 7-year premium in the first 7 years. And even a UL policy funded in this manner is not guaranteed to outlive the insured, but it will stand a much better chance of doing so. If a client cannot afford this, it's probably the wrong product for the client.
So who's the right client? They are often corporations with deep pockets looking to fund executive benefit plans, not your typical blue collar worker looking to provide a modest amount of protection to his/her family in the event of premature death.
UL was created in the 1970s when inflation/interest rates in the American economy was running in double digits (about 19% by 1979). People were -- foolishly -- taking CV out of their whole life policies and plunking into CDs paying 12-15%. Until 1988, they could claim the phantom interest on the life insurance loan as a deduction on their income tax return. But even with that benefit, a taxable CD paying 15% interest, in the face of 18% inflation, and maximum tax rates of 50%, was a money-losing proposition.
Enter the insurance companies with UL and the tax deferred CV. Now offer 15-20% (at least one company did, but they no longer exist) in "tax-free" (as an agent would say) interest (and loans), and "this policy will pay for itself." Sounded too good to be true, and it eventually was. But billions of dollars poured into these policies in their infancy, only to evaporate when inflation/interest rates came under control in the Reagan era. UL policy collapses in the 1980s and 1990s cost the industry billions of dollars in regulatory fines, civil judgments, and policyholder restitution.
The industry has been trying for decades to build UL policies that work, but the design is inherently flawed. Enter the "secondary guarantees" of the 21st century, that try to overcome the ART drawbacks of UL. If CV is insufficient to provide enough interest in addition to premium payments, then CV must be used to pay the cost of insurance and policy charges, which erodes the CV, which reduces interest earnings, which increases the rate at which CV erodes, which leads to policy collapse when there is no more CV to borrow.
The ART premium is going up every year, and only the cash accumulation can offset that, as it reduces the "net amount at risk" (NAR). When CV is in decline, the actual premium the client must be paying is increasing rapidly, but all most insureds ever pay is the minimum premium the agent told them they would have to pay in year 1.
Clients fail to read and understand their annual statement. They do not recognize when the policy's cash accumulation has begun to level off, or worse, is in real decline. They do not understand their need to pay higher premiums to correct for this. And they do not understand why they get the lapse notice 60 days before their policy will die. When they learn the answer, they are usually very unhappy.
If your client does not understand (and appreciate) their responsibility to their policy, it's the wrong policy for them. Most people believe that life insurance is simple: "I pay, I die, they pay." In whole life, and term (during the policy term, of course), that's absolutely true. It can be true of UL or VUL or EIUL policies, but read the contract -- it is never guaranteed (absent the "secondary guarantee").
There is nothing wrong with any type of life policy if the policyowner understands what will be required to keep the policy in force to its last day. Some people just don't want to pay that much money.
Posted: Tue Mar 30, 2010 05:48 pm Post Subject:
Sorry Max, but you're making it way more complicated than it needs to be. If someone wants guaranteed UL, pay the premium and don't touch the cash value. Simple as that. You can also do a 10-pay, 20-pay, or pay-to-age-65 and still have the death benefits guaranteed for life. That will still be far less expensive than any whole life policy, even a non-participating policy, with the same payment period.
Posted: Wed Mar 31, 2010 05:11 am Post Subject:
You may safeguard assets and resolve issues related to estate taxes with the help of UL insurance. This could certainly be one good alternative for UL marketing.
Posted: Wed Mar 31, 2010 03:46 pm Post Subject:
you're making it way more complicated than it needs to be
Until one gets to the variable contracts, UL/EIUL is THE MOST COMPLICATED life insurance product ever devised.
While the secondary guarantees will keep the policy in force as long as 100% of the premiums are paid on time, what guarantee does anyone have that they will be able to pay those premiums according to those terms?
That's why calling TERM insurance "temporary" and WHOLE LIFE (Cash Value) insurance "permanent" are very poor choices of vocabulary which have been foisted upon us all by the insurance industry (and subsequently adopted into most insurance laws). They are intended to scare people into making decisions that may only benefit the insurance company.
Of course, there are 1-pay/7-pay/10-pay/20-pay/paid-up-at-your-choice-of-age options in all Cash Value policies. They are all necessarily more expensive (while they last) than each of the individual annual/monthly payments to age 121, but also less expensive than the sum of those individual payments.
However, not everyone can afford those higher, short term payment options.
Secondary guarantees, in my opinion, are just a cover for poor product design. Do they work? Of course they do. If the insured does his/her part.
The better question is: Do they work 100% of the time in 100% of the policies to which they are attached? The answer is NO. Unless 100% of premiums are paid without fail.
In all other Cash Value policies, missing a single payment usually leads to an "Automatic Premium Loan" to pay the premium . . . until there is no more cash value. Not an utter loss of benefit.
Secondary guarantee UL policies are built on the assumption (and minimum premiums) that there will never be much, if any, cash value, so missing a premium payment would mean the policy is on the verge of lapse.
It's really just a cash flow game created by the insurance companies. Play the game their way, and your beneficiary will ultimately receive a payment (call it a "win", but someone has died, and that's usually a bigger loss). Play it any other way, and it probably means it will end up that only the insurer wins (keeps all the money and pays no death claim).
People tend to understand that about the TERM insurance game, but that's not what they expect when agents use the word PERMANENT to describe their insurance contracts.
Caveat emptor.
[[ As an aside, it would be interesting to know how many UL policies with secondary guarantees have lapsed or otherwise been terminated in the past 2-3 years of our economic woes. But those are probably closely held corporate secrets. ]]
Posted: Wed Mar 31, 2010 04:04 pm Post Subject:
I know how a UL policy works, you don't have to explain it to me. You said this:
Trouble with all of this is that a properly funded UL policy is very expensive -- far more so than a "plain vanilla" whole life policy. To overcome the objection that a client would have to the high premium, agents use poor illustrations (higher than expected interest payments) that inflate projected CV and decrease premiums to a minimum level. This hurts the client in the long run, because it will lead to policy collapse in anywhere from 7 to 20 years, depending mostly on the issue age and premium payments.
A limited pay guaranteed UL will be much less expensive than a limited-pay whole life policy. Since a whole life policy will have premiums that are 2 or 3 times higher than the UL for the same death benefit, I'm not sure why you say that a propertly funded UL policy is very expensive. I would say that a whole life policy is very expensive compared the UL, not the other way around. If the person wants coverage guaranteed for life and is prepared to pay a whole life premium, especially for a "plain vanilla" non-participating policy, they should easily be able to pay for the 10-pay or 20-pay UL.
Posted: Wed Mar 31, 2010 04:19 pm Post Subject:
A limited pay guaranteed UL will be much less expensive than a limited-pay whole life policy.
Only if you're speaking of a UL policy that will never have any cash value.
That's not what most people are thinking about when they start looking for life insurance. They've heard about being able to borrow money in retirement, or for emergencies, from their life insurance. If this (no significant CV accumulation) is not properly disclosed at the time of application/policy delivery, an agent might just find himself on the losing end of a future E&O claim if the client has kept his original illustration showing the oodles of money commonly attributed to UL sales presentations (that we all know rarely, if ever, materialize).
Posted: Wed Mar 31, 2010 04:28 pm Post Subject:
I must be getting the wrong illustrations. Most of them show little to no cash value on the current side and no cash value at all after the first few years on the guaranteed side. I don't know why someone would want to overpay for their life insurance just to borrow it back later (and pay interest on their own money), but hey, what do I know...
I will avoid making this a 10-page thread about whole life versus UL.
Posted: Thu Apr 01, 2010 05:38 am Post Subject:
Some good agents would meet their existing clients time and again. These agents would keep a track of the current coverage needs of their clients. After a close analysis, they'd show up with new offers for their clients. They'd often come up with UL products as a part of financial plans.
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