Many of us can remember simpler times and a slower pace of life. Back in the good ‘ole days, goods and services were provided by people you knew by name, who lived in your neighborhood, and who visited just to check on your children or catch up on any family news. There were fewer choices, and no one seemed to mind. The milkman would bring whole dairy milk to your door each week, and families enjoyed the vitamins and nutrients this product offered. But with the advent of new technologies, individuals began going to the grocery store to buy milk in 2%, 1% and skim varieties to enjoy a different set of nutritional benefits.
The evolution of the life insurance policy has been similar. Years ago, the neighborhood life insurance agent used to go door to door each week collecting premium payments (the debit agent) on small whole life insurance policies. These agents were held in high esteem within their communities, as they were the people who brought income tax-free dollars to homes when a loved one passed away. Then, times changed. Agents stopped running the debit as insurance carriers implemented advanced technology and designed innovative products which became somewhat more popular than the traditional whole life policy.
With the introduction of universal life and variable life policies, clients were able to pay lower premiums and get the same death benefit as with traditional whole life. For a time in the 1980s, cash values within the universal life policies were illustrated to grow at double-digit rates. Clients began experimenting with the flexibility of the product by reducing or eliminating premium payments, which resulted in the necessity to overfund these policies in order to avoid lapses in coverage after a few years. Obviously, this circumstance left a bad taste in the mouths of many clients, and a distrust of some life insurance agents followed. Carriers responded by designing universal life policies that offered a guaranteed death benefit option or rider to help ensure the death benefit would not lapse no matter what happened with interest rates as long as premiums were paid as projected in the issue illustration. More recently, universal life began to be offered utilizing the index option for cash growth within the life insurance policies, and this has gained in popularity over the last few years.
Now, things are again changing. The current low-interest-rate environment coupled with several years of weak market performance has driven many life insurance clients back to the basics. And for a life insurance customer, the basics are represented in the form of whole life insurance. As a matter of fact, according to LIMRA’s U.S. Individual Life Insurance Sales report, whole life is the only product to produce positive premium growth in each of the past five years. Whole life insurance provides a guaranteed death benefit and a guaranteed amount of cash value, as well as level premium guaranteed never to increase during the life of the policy. Some whole life policies offer dividends. These policies are known as “participating,” meaning they declare annual “refunds” based on the company’s performance for the previous year. These dividends are not taxable because they are considered an overcharge of premium. For a mutual life insurance company, participation also implies a degree of ownership.
The client has options when a dividend is declared. He or she can choose to receive the dividend in cash, use it to reduce premium or leave it to purchase additional insurance within the contract. If the client chooses to utilize dividends to purchase additional insurance, the death benefit of the policy is increased by the amount of life insurance that dividend will buy. This increase in death benefit occurs without the client proving his or her insurability, which can be an added benefit if the client experiences adverse health conditions.
Some whole life policies are non-participating – meaning that no dividend will be declared. All values related to the policy are usually determined at policy issue for the life of the contract and typically cannot be altered after issue. This means that the insurance company assumes all risk of future performance versus the actuaries’ estimates. If future claims are underestimated, the insurance company makes up the difference. On the other hand, if the actuaries’ estimates on future death claims are high, the insurance company will retain the difference.
Whole life policies can be designed as limited pay, allowing payment of all necessary premiums within a short time frame (e.g. 10 years, 20 years or as single pay contracts). To avoid creating a Modified Endowment Contract (MEC), whole life policies offer a paid up additions rider which will hold the excess premium until needed for policy premium payment. Sometimes the use of an insured term rider for a few years must be added to the policy to prevent a MEC from occurring. The paid up additions rider is also useful when maximum cash growth is desired. For younger clients, a rider (Guaranteed Insurability Rider) allowing for face amount increases at certain trigger points in life is available for an extra premium. The ability to “lock in” the client’s heath today for future purchase of life insurance at the same health class is extremely important. Regardless of a specific client’s need, accurate illustrations are a must when designing a whole life policy.
Many people utilize the whole life policy as a personal bank account through marketing programs such as those described in Nelson Nash’s “Becoming Your Own Banker.” For the disciplined client, whole life works very well in this process. Again, according to LIMRA, 50% of permanent life insurance buyers said they purchased whole life.
Despite all of the options and benefits available to today’s consumer, history has shown that in times of economic turmoil and uncertainty, people return to the perceived safety of many traditional products, from organic groceries and farm-fresh dairy to the whole life insurance policy. From the smallest to the largest policy size, call your Life Sales Relationship Manager for assistance in helping your clients enjoy the many benefits of this proven product design.
FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12150 – 2012/1/20