A recent report from Bloomberg News headlines a statistic that is changing the life insurance products we sell: The extraordinary numbers of Americans over 65 who are either still in the active workforce or have returned to the workplace in the last decade.
While the news story highlights the impact a 65+ workforce has on teenagers looking for work, what struck me is the correlation between "retirees" not retiring, and the rise of guaranteed insurance products, particularly guaranteed universal life (UL). As the number of seniors in the workplace has more than doubled, the appetite for guaranteed products has skyrocketed.
Guaranteed UL products continue to increase in number and popularity. Understanding why guaranteed products are popular now -- and why they will grow in popularity, at least in the near term -- will be crucial to selling them and serving your clients well.
We can't just "Leave it to Beaver"
From the 1940s into the '90s, an overwhelming majority of working Americans retired by or before age 65, often from jobs they'd held steadily for decades. During this time, our clients trusted defined benefit pensions and long-term saving and investments. They weren't looking for lifetime guaranteed death benefits because they "knew" if they made it to retirement, they had financial security -- the house paid off, a good pension from their steady job, reliable savings and investments -- a stable financial plan in a stable financial environment.
Did you ever see the television show "Leave it to Beaver"? Airing in the 1950s and '60s, it featured a cinematic version of part of our target audience. While this show didn't follow parents Ward and June Cleaver into their retirement years, it captured a slice of American life reflected in our business. Let's project the family forward in time, because understanding them is crucial to understanding why our market and products are changing now:
o Ward invested his career in one stable company
o Ward retired with a pension
o June and Ward stayed in the same house, in the same town, all their lives
o June and Ward paid their mortgage off early or at least entirely
o Sons Wally and Theodore (the "Beaver") grew up to be like their parents: productive, self-sustaining, stable
So which life insurance products did Ward and June buy?
While breadwinner Ward was employed (June worked at home), the couple would have relied upon Ward's group term. They might have purchased whole life, with the caveat that most people cashed their whole life in at retirement because they no longer needed the death protection. Why? If tragedy struck and Ward died young, his policy would enable June to pay off the mortgage and live comfortably, as well as make sure that the boys went to college. But if Ward and June were reasonably long-lived for their generation, they weren't worried about guaranteed death benefits beyond retirement. Just as with so many of our real clients, they "knew" they had financial security.
Impacts of low interest rates
But now the old idea of living in the same place all your life, and having paid off the family home years ago, is mostly gone -- partially because Americans have increased their mobility, partially because the economy and career markets are radically different.
Retired and pre-retirement Americans have more debt and more obligations than ever before. And millions of people age 65+ are going back to work because they have to, not because they want to.
For years, our industry's "current assumption" UL products stayed popular while fixed interest rates remained high. Now, however, not only have interest rates come down, the majority of market forecasts indicate rates will continue to stay low while monetary leaders try to create favorable conditions for market stimulus and growth.
The low interest rate consequence for current assumption contracts sold in the past is that performance reality hasn't matched illustrated assumptions. And for new UL sales, illustrations based on today's low rates are unexciting.
The shift to guaranteed products
Considering all the changes and economic turbulence of recent years, it's no wonder Americans are looking for guarantees -- including guaranteed UL. Today, we see a greatly increased need among many Americans for insurance coverage that extends well beyond retirement, maybe for life. Clients now are much less comfortable with risk. This makes guaranteed UL very attractive, particularly with the opportunity for clients to lock in a guaranteed death benefit and premium for exactly as long as they expect to need it.
Guaranteed UL is attractive for several reasons:
o A guaranteed death benefit if conditions are met
o Reduced potential for volatility
o Continued low interest rates (for fixed products)
o Stability in unstable times
Guaranteed UL will grow in popularity
More carriers and products are entering the guaranteed UL space. The resulting influx of products is driving stronger price competition among carriers, and healthy competition benefits both the producer and the end consumer.
As trusted producers and agents, we can feel more comfortable offering a guaranteed product to risk-averse and even market-burned clients. Our clients can feel more secure knowing a guaranteed product is a good fit for them and will retain its value.
Some companies offer an alternative guaranteed UL (at a higher premium than the low-cost product) that can generate significant cash value in addition to providing a death benefit guarantee. In some situations, a cash value product is a better fit because it provides more options for the policyowner in the future.
New guaranteed UL products are creating more flexibility and opportunity for customization, with features such as:
o "Consumer-friendly processing" that imparts some forgiveness for late premiums while preserving guarantees
o The ability to tailor premium payment periods to individual needs
o The benefit of dialing the guarantee to a desired age or duration
o The potential to generate significant cash value (albeit at a higher premium than the low-cost product).
The conventional wisdom for clients like the Cleaver family was that as people approach retirement, they don't need as much -- or possibly any -- life insurance. That's no longer true. Not only do many clients need life insurance today, they want a guarantee that they will still have it tomorrow. With guaranteed UL products, you can fulfill that need at an affordable price.
Michael Murphy, CLU, ChFC, is Vice President Account Services for American General Life Companies, where he has worked since 1998. In this role, he is responsible for market development and training to support life insurance sales. Previously, he was Vice President, Marketing Development & Support for Life Insurance. Murphy earned a bachelor's degree in political science from the College of the Holy Cross in Worcester, Mass. and a Juris Doctorate degree from the University of Maine School of Law in Portland, Maine.
