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The recent market downturn and ensuing volatility have resulted in a renewed interest on the part of both producers and consumers in traditional life insurance products such as term, whole life and fixed universal life.
Based on LIMRA Internationals estimates of individual life insurance sales, during the latter half of the 1990s (when the Standard and Poors 500 index was regularly producing double-digit returns), new variable universal life premium grew at an average annual rate of almost 30% (see Figure 1). During that same period, fixed UL sales declined at an average rate of 1% per year.
However, with the start of the most recent recessionary period, this trend reversed itself. Fixed UL new premium growth now averages 29% per year.
Clearly, much of the current sales success of traditional life products can be attributed to growth in the fixed UL market.
Early in this decade, customer concern about exposure to market volatility led producers to call for products with stronger guarantees that better insulate investments from adverse experience. As a result, many insurers now offer at least one universal life product to compete in the death benefit guarantee market.
In a recent LIMRA survey of UL carriers, two-thirds offer a product that provides for death benefit guarantees to age 100 or for the insureds lifetime.
It is not just the flight to guarantees on the part of the traditional insurance-buying public that has led to the recent success of traditional life products. UL with long-term death benefit guarantees is also an attractive product for the older age market and is helping some life insurers to take advantage of the changing demographics of the U.S. population.
These products have become popular in both individual sales situations as well as in the estate planning market where older age buyers are primarily interested in payment of a death benefit with minimal exposure to changing market conditions. In fact, over the past 4 years, the product mix for survivorship life sales has shifted from almost 60% VUL to more than 60% fixed UL (see Figure 2).
