Essential Guide to Life Insurance

Uncertainty Pushes Sales Higher

Now more than ever before, older clients want the guaranteed returns and risk protection life insurance offers.

Many older clients have developed stock-market fatigue. At the same time, though, yields on conservative fixed-income investments have dropped to historic lows. That combination makes the guaranteed returns and risk protection benefits available with cash-value life insurance look attractive again.

Sales figures reflect consumers' interest in the products. LIMRA reports that overall in 2011, life insurers issued 2 percent more individual life policies than in 2010. That's modest growth, but LIMRA notes it's only the fourth time policy sales have increased in the past 30 years. If you've been overlooking life insurance as an asset class with your senior-market clients, you might be missing an opportunity. Here's a recap of what's selling and what's not:

Whole Life

Whole life enjoyed its sixth consecutive year of growth in 2011 according to LIMRA. Premiums paid increased 9 percent while the number of policies grew by 5 percent over 2010. "Our research shows that the three most important things buyers look for when they're purchasing life insurance are premium and coverage guarantees and lifetime coverage," says Ashley Durham, a senior analyst with LIMRA in Windsor, Conn. "These preferences are likely compounded during times of uncertainty and whole life offers all three."

Universal Life

The results for universal life (UL) were solid overall for 2011. Premiums (3 percent rise) and policy counts (8 percent increase) were higher with the growth driven by indexed UL products. Those products' premiums increased 38 percent in 2011, representing about 25 percent of UL premium sold for the year; policy count rose 30 percent. Variable UL (VUL) sales were 22 percent higher for the year, although the number of policies fell by 9 percent. That decline marks 29 consecutive quarters of VUL policy count declines.

Although sales of lifetime UL captured 40 percent of the annualized premium in 2011, sales dropped 7 percent. LIMRA attributes this decline to price increases and companies leaving the market. Gene Lunman, senior vice president of Retail Life & Disability Products at MetLife in Bloomfield, Conn., also expresses caution on this UL segment. "We've had strong universal life sales but MetLife, like the industry, now is pulling back on the pricing there and increasing rates," he says. "Because of the interest rate situation we're in right now, that is a product that has an embedded risk on interest rates. We, like many other competitors, are raising prices there and that's having a negative impact on sales on that product right now."

"Our research shows that the three most important things buyers look for when they're purchasing life insurance are premium and coverage guarantees and lifetime coverage." ~ Ashley Durham, LIMRA

Combination Life/LTC policies

It was also a good year for life policies that offer long-term care (LTC) benefits. According to LIMRA's "2011 Individual Life Combination Products Annual Review," these products grew 56 percent in 2011, representing the third consecutive year of double-digit growth. Total new premium for life combination products reached $2.2 billion in 2011, approximately 13 percent of total individual life insurance new premium. More than 72,000 combination policies were sold in 2011, which make up approximately 16 percent of all long-term care insurance policies and contracts sold in 2011.

In a press release issued on April 23, Elaine Tumicki, corporate vice president and director LIMRA product research, noted that sales of life combination products continued to grow at a "remarkable" rate, especially coming off the double-digit growth experienced in 2009 and 2010.

LIMRA reported that all life combination product lines grew in 2011, with universal life (UL) combination products becoming the dominant product (increasing 67 percent in premium compared to 2010). Whole life (WL) and variable combination premium grew 16 percent and 17 percent, respectively. Linked benefit products, primarily single premium and all-in-one packaged products, grew 66 percent in policy count, capturing 29 percent of the market in 2011 (an increase from the 21 percent market share held in 2010). Acceleration policies, which provide LTC benefits up to the amount of the life death benefit and are more commonly riders that can be attached to many of the products in a carrier's life product portfolio, grew 29 percent, attaining 71 percent of market share (by policy count).

LIMRA's study also found that consumers under age 59 held more than half of in-force polices in 2011. Similar to long-term care insurance, a greater number of life combination policies are insuring women with almost six in 10 policies in force covering women.

Term

Last year wasn't a good year for term policy sales as both premiums (minus 6 percent) and policy count (minus 4 percent) were down. The soft economy, combined with several insurers' shift from term to term UL, are two of the main factors in the recent decline, says Durham. Nonetheless, advisors shouldn't write off term's possible use with clients seeking lower cost insurance: LIMRA's research shows that term represents 65 percent of outstanding coverage and nearly 40 percent of all new individual life policies issued in the U.S.

"We've had strong universal life sales but MetLife, like the industry, now is pulling back on the pricing there and increasing rates." ~ Gene Lunman, MetLife

Making the Pitch

Try these strategies when selling life insurance to your senior clients.

Although the uncertain economic environment benefits overall life insurance sales, you still need a sales strategy to motivate potential buyers. We asked two industry veterans, one in personal production and one overseeing a national sales force for a carrier, for their insights into today's successful sales strategies for senior market advisors.

Back to basics

As director of Individual Life Insurance Advanced Marketing for Prudential Life Insurance in Newark, N.J., Brett Berg, JD, LLM, CLU, ChFC, works with the insurer's top advisors. Successful life insurance producers in this market are going back to the basics, he says. "They're connecting with their clients, especially the senior clients, in the context of overall comprehensive planning," he says. "They are tailoring their life insurance product recommendations to the client's needs and budget in that context."

Berg cites two factors as particularly important. The possibility of higher estate and gift tax rates starting next year is motivating wealthy clients to take action now instead of later. For high-net-worth older clients, the gifting opportunity for the remainder of this year is just over $5 million per person and $10 million per couple. That gifting opportunity continues to provide a business opportunity for advisors, says Berg: "What we see them doing is positioning permanent products with no-lapse guarantees to lock in those guarantees."

For other older clients, Berg has observed that flexible insurance products are important. As an example, he points to term insurance products with conversion (to permanent life) features. Those products provide coverage to the clients without committing them to permanent policies. "It gets the client to move, to lock in protection and to preserve insurability, which we all know is important," says Berg.

"They're connecting with their clients, especially the senior clients, in the context of overall comprehensive planning." ~ Brett Berg, Prudential Life Insurance

Selling risk transfer

Bill Black, CLU, ChFC, with W. H. Black & Co. in Winter Park, Fla., is a 22-time qualifier for the prestigious Million Dollar Round Table. His approach to life insurance with the senior market is straightforward. "My biggest success in selling life insurance is selling insurance not as an investment but as a transfer of risk," says Black. "What we look at is using what I call guaranteed premium universal life insurance, which is life insurance that has a premium and a death benefit that is guaranteed to age 100 or even as far out as 125 with a minimal cash value."

The common feature among Black's clients is that they need life insurance, whether it's for estate liquidity, family protection or another reason. When prospective buyers counter that they can earn more with their money than the insurance company can, Black shows them the policy's internal rate of return based on realistic life expectancies. "That internal rate of return shows you how much you would have to earn on average every year after taxes to have the premium grow to an amount equal to the death benefit," he says. "The internal rate of return that your client would have to earn every year after taxes to beat the insurance is virtually an unattainable number. When you look at it that way you almost classify life insurance as a separate asset class."

Coverage reviews as marketing opportunities

Black doesn't rely on advertising campaigns or high-pressure referral requests to grow his business. He believes instead that the best prospects are those with whom the advisor has established credibility. It turns out those prospects are found in the advisor's existing book of business but many advisors overlook that opportunity. "One of the things to do is to talk to your existing clients about a complementary review," says Black. "Clients are always looking at their certificates of deposits when they come to maturity. But people are under the misconception that once they buy their life insurance they can throw it in a drawer and forget about it."

In response to that attitude, Black points out that most clients aren't using the same cellphone or computer they owned 10 or 20 years ago. Likewise, he points out, the "technology" of life insurance contracts also has changed since the client bought the existing policy. "Now, when I say technology what I mean is the interest rate credits in these guaranteed universal life policies," says Black. "The mortality tables have changed. People are living longer. The ratings of companies have changed. You know that company that you bought 10, 20 years ago, maybe it's not as strong as it was back then." All of these factors, says Black, provide viable reasons to offer clients a complementary review of their existing coverage.

"The internal rate of return that your client would have to earn every year after taxes to beat the insurance is virtually an unattainable number." ~ Bill Black, W. H. Black & Co.

Succeeding With Whole Life

Advisor Steve Vasgaard helps his clients make the leap to financial stability.

Experienced senior market advisors can recall when the stock markets could do no wrong. Clients—and many advisors—assumed that stock and mutual fund portfolios would grow consistently by double digits. In contrast, cash value life insurance products were deemed a low-yield waste of money. The smart strategy was to buy term insurance, invest the difference and watch your nest egg grow.

Fast forward to 2012. In the past decade investors have suffered through bear markets and flash crashes while the overall U.S. equity markets produced flat returns. Europe's financial crisis and the sputtering domestic economy dominate headlines and the markets' short-term results. Low interest rates make it almost impossible for savers to keep up with inflation and taxes.

It's a tough environment, but Steve Vasgaard with Wealth & Retirement Strategies Inc. in Knoxville, Tenn., continues to prosper. Vasgaard was the top producer in the OneAmerica system in 2011 and surprisingly—or perhaps not surprisingly, in the current uncertain environment—he's succeeding with whole life insurance.

Making the LEAP

Vasgaard, 63, started selling individual and group health insurance in 1984. In 1995 he transitioned to financial planning and at first used what he calls the "accumulation of money" theory in his work with clients. That approach didn't produce the desired results for clients, though, so he switched to the Lifetime Economic Acceleration Process (LEAP). "My whole success has really come from using the LEAP planning financial model where I eliminate feeling, opinions and emotions," he says. "I'm able to verify scientifically what they should do so my clients know that they're making the best financial choice they can possibly make."

Vasgaard estimates that 75 percent to 80 percent of his current clients are baby boomers and retirees. He describes them as typical middle-class America, with family incomes in the $100,000 to $200,000 range and several hundred thousand dollars in accounts such as IRA plans.

"Everybody is light years behind how much money they should have saved at this point in time in their lives."

These investors thought the stock market's performance in the 1990s would continue forever and now they're facing a new reality, says Vasgaard. "For the last 12 years the growth they thought they were going to have never has materialized," he says. "So everybody is light years behind how much money they should have saved at this point in time in their lives."

Those circumstances strengthen Vasgaard's case for whole life insurance. He cites an example of a client with a $1-million portfolio. The usual recommendation for sustainable lifetime withdrawals is about 4 percent per year, or $40,000 in this case. That strategy, which Vasgaard calls an asset-only retirement, often fails to produce enough income for the client, however, he believes. As an alternative strategy, Vasgaard often recommends annuitizing part or all of the $1 million, a step that can yield significantly more than $40,000 per year. The client simultaneously buys life insurance for the amount of the assets that he or she annuitizes. That coverage allows the client's estate to replace the annuitized assets for the benefit of a surviving spouse or other heirs.

"One of the things I do is to create the options when they (clients) retire," says Vasgaard. "When you have an asset-only retirement you have literally no options whatsoever. But if you have life insurance equal to the size of your asset then you increase the options. In today's low interest rates $1 million (annuitized) would generate close to $80,000 guaranteed income as long as he's (the client is) alive. But without the life insurance in place you have no options. You have to live on the interest that you can generate from your million dollars."

"When you have an asset-only retirement you have literally no options whatsoever. But if you have life insurance equal to the size of your asset then you increase the options."

Essential Guide to Life Insurance

Uncertainty Pushes Sales Higher

"Our research shows that the three most important things buyers look for when they're purchasing life insurance are premium and coverage guarantees and lifetime coverage." ~ Ashley Durham, LIMRA

"We've had strong universal life sales but MetLife, like the industry, now is pulling back on the pricing there and increasing rates." ~ Gene Lunman, MetLife

Making the Pitch

"They're connecting with their clients, especially the senior clients, in the context of overall comprehensive planning." ~ Brett Berg, Prudential Life Insurance

"The internal rate of return that your client would have to earn every year after taxes to beat the insurance is virtually an unattainable number." ~ Bill Black, W. H. Black & Co.

Succeeding With Whole Life

"Everybody is light years behind how much money they should have saved at this point in time in their lives."

"When you have an asset-only retirement you have literally no options whatsoever. But if you have life insurance equal to the size of your asset then you increase the options."

Resource Center

Trending Stories

Essential Guide to Life Insurance

Uncertainty Pushes Sales Higher

"Our research shows that the three most important things buyers look for when they're purchasing life insurance are premium and coverage guarantees and lifetime coverage." ~ Ashley Durham, LIMRA

"We've had strong universal life sales but MetLife, like the industry, now is pulling back on the pricing there and increasing rates." ~ Gene Lunman, MetLife

Making the Pitch

"They're connecting with their clients, especially the senior clients, in the context of overall comprehensive planning." ~ Brett Berg, Prudential Life Insurance

"The internal rate of return that your client would have to earn every year after taxes to beat the insurance is virtually an unattainable number." ~ Bill Black, W. H. Black & Co.

Succeeding With Whole Life

"Everybody is light years behind how much money they should have saved at this point in time in their lives."

"When you have an asset-only retirement you have literally no options whatsoever. But if you have life insurance equal to the size of your asset then you increase the options."

Related Stories

Resource Center

Trending Stories