Index universal life (IUL) has been around for the past 10 years but has recently taken the life insurance market by storm -- some projections say IUL business will double in 2007.
So why is this product slated to be such a success? "Today's consumers like the opportunity for gains without the risks to principal," says Jay Bugg, CLU. "Cars are not the only growing hybrid on the product horizon." The hybrid Jay speaks of is index universal life -- a mix between traditional variable and fixed ULs.
How to pick a winner
With literally dozens of index interest crediting methods to choose from, how do you pick a winner for your client? Like any indexed product, UL or annuity, keeping moving parts to a minimum is a must. The more flexibility the insurance company has to move, the fewer gains your client will enjoy. Look for higher initial participation rates (some companies offer up to 140 percent in the first year) and higher guaranteed minimum par rates on index options without earning caps. Stay away from high asset fees or spreads. For index crediting methods with guaranteed par rates, look for the higher initial earning caps and higher minimum guaranteed earning caps so the rest of their time spent in the IUL can be as fruitful as the first year. Also, each index strategy is specifically designed to reap the benefits of a different market setting.
Predicting the future
How do you know which option will best suit the upcoming index market? You don't. It's impossible to predict; however, there is a way protect yourself and your client against the next bull, bear, volatile, or non-marketplace diversification. Most IULs today allow you to mix between the different indexing strategies as well as a fixed option. Do this and you'll be sure to pick a winner for your client.
The tax-free death benefit, high cash accumulation, and cash value protection from market risk has made the IUL a very popular retirement vehicle. Today, baby boomers are more worried about whether they're going to get their money back at all, much less grow it. These features make the IUL a fine choice.
Throwing annuities into the mix
Does your client have an annuity about to mature and that they pay taxes on? Suggest your clients place 1035 into an immediate annuity and 10 pay into an IUL. Their tax hit is broken up over 10 years as opposed to only one, and 10 years of payments will buy a bigger death benefit, which will be tax-free. Also, if your client dies during the annuitization period, the beneficiaries not only receive the tax-free death benefit from the IUL, but also the remaining payments from the annuity. Of course, since you've helped them avoid such a large tax burden and pass more money on to beneficiaries, you won't mind collecting commission on both the annuity and IUL.
Hal Rochkind is the national marketing director for Moody Insurance Group Inc. in Galveston, TX. Mr. Rochkind previously spent two years in the marketing department at National Western Life in Austin, TX. He can be reached at 800-252-4002 x18 or by email at halr@moodygroup.com.
