How Does Your IUL Stack Up?

Sales of IUL policies showed the strongest growth of all new life policies in 2012. Industry sources attribute the strong performance to consumer aversion to market volatility in the aftermath of the 2008 downturn as well as a desire to add life insurance benefits with the ability to accumulate wealth on a tax deferred basis. The market for IUL should remain robust since many high net worth individuals are maintaining sizable cash reserves but also seeking alternative tax advantaged options. To capitalize on the IUL market opportunity agents should promote a solution that offers more than just life insurance. The alternative investment scenario and robust flexibility of IUL is every bit as important.

What are some of the features that may provide value? Here is a quick checklist:

1. Loan options: Does the IUL policy provide variable loans with a cap and the ability to create a positive arbitrage when borrowing from the policy? Many products will offer loans that amortize and compound the loan if not repaid. This clearly can jeopardize a policy in the future as well as make less money available to be borrowed. Clearly, a policy that offers variable loans where the client can potentially create a positive arbitrage would be a very good opportunity for your clients.
2. Wash Loans: Does the policy offer wash loans? Simply, this type of loan will not amortize. Thus, will not jeopardize the policy by amortizing in the future.
3. Interest Rate Bonus: Does the IUL policy offer an interest rate bonus? An interest rate bonus will credit to the policy after it is owned for a specific number of years. It is payable in addition to the annual return or until the policy is paid out or is terminated.
4. Growth Options: What investing options does the policy offer? Many clients are selecting IUL for the growth potential within the policy. Offering a product that provides clients with a variety of investment opportunities allows them to find growth potential while limiting risk. Diversification is also easier with more options.
5. Lapse Protection Rider: If the client plans on benefiting from the accumulation values while alive, does the policy offer a lapse protection benefit rider so the client can avoid a large tax bill if they liquidate all values inside the policy during their lives? We have all heard at least one nightmare story of a client depleting their policy and receiving a tax bill. You can help your client avoid this by selecting a policy that provides a rider that will prevent it.
6. Chronic Illness/LTC Rider: Does the policy leverage the death benefit by providing both accelerated death benefits and chronic illness benefits? These are very important features that will continue to grow in relevance. With the LTC market in transition, having coverage for not performing 2 of the 6 ADL’s provides peace of mind along with economic benefits. (For more information on this specific topic see our post on Linked Benefits.)

These are just a few of the options that can help seal your next IUL sale. Of course, every client has different objectives and needs. But, the point is that IUL and whole life both provide great flexibility for modification so you can meet any client’s needs. If you need help picking the right product or the right options for your client, then drop us a note and we’ll help you find the best options.