Understanding Indexed UL – Positioning Your Client For Distributions

With several of our core carriers offering their own flavor of Indexed UL today, positioning your clients in the best possible light for retirement income can be a confusing and lengthy process.

It’s a full time job knowing all the moving parts for each Indexed UL product.

Understanding how the products work and how to sell them most effectively can be a confusing and lengthy process.  We have spent many hours working with clients to help them better understand the product’s crediting and accumulation strategies.

However, the second part of educating a client regarding Indexed UL is, understanding the moving parts during the distribution from an IUL policy.

What is the best way to distribute the funds from the policy?

Most Indexed UL policies allow for either fixed or variable loans.  The fixed loans have a stated interest rate locked in from the policy issue date on the outstanding loan amount so there is no question about the cost of the loan.

After a number of years, (typically 15) the IUL product will often provide for a “Wash Loan” or “Zero Cost Loan” where the amount being charged on the loan is the same as the interest being credited to the cash value.

The more commonly illustrated policy loan distribution is the “Indexed Loan” or “Preferred Loan”

Using a positive arbitrage (the illustrated interest crediting rate for cash value is higher than the interest rate being charged on outstanding policy loans) allows an illustration to reflect a gain on the outstanding loan rather than a charge.  Because this can make an illustration more attractive due to the higher cash value accumulations during the distribution phase, it is what many producers prefer to show to their clients.

It is imperative that producers understand how these loans features work and communicate to their clients that they also have the potential for a negative arbitrage which can create considerable interest due on outstanding policy loans.

Depending on the client’s risk tolerance and whether they plan on paying outstanding policy loan interest as it accrues or not, either policy loan option can be appropriate.

Be careful – if you do not have a full understanding of how the clients approach their policy loans and simply elect the variable loans due for the potential of a positive arbitrage, you may be putting the client in a difficult position later if the loan interest charged exceeds the interest crediting rate for cash value and the amount available for distribution decreases well below your clients anticipated income amount.

Producers selling IUL products and highlighting the ability to generate an income stream from the policy should have a thorough understanding of the loan provisions and be able to help their clients to better understand which feature is most appropriate.

Take the time to refer to the product guide you are illustrating to see what the variable loan interest rates are tied to.  What are the Cap rates for Variable loans?  What is the Fixed Loan rate and is it Participating?  This can be valuable information to share with your client when illustrating Indexed UL products with Distributions.

For more information, contact your Insurance Marketing Manager today.

No Adverse Underwriting For Family History Of Cancer

Family history of cancer can have an adverse impact on underwriting decisions despite a client’s own personal history of excellent health.

While most carriers limit eligible rate classes for this particular family history, there are still a couple of A+ carriers that do not underwrite family cancer histories at all.

This means a client with a family history of cancer can still qualify for all of the Preferred Rate Classes, including Best Class.

In addition, there are other carriers who disregard family history of opposite-gender cancers, such as, a male applicant whose mother died from uterine cancer or a female applicant whose father died from prostate cancer.

Let our Underwriting Team help you get the best offers for your clients with family history of cancer!  Call us today.

Why Women May Be The Answer To Your LTCi Sales

Not only are women living longer than ever, they’re also the target market that will drive your LTCi sales further.

Women typically have spent some time during their life taking care of another person – a daughter, sister, wife, mother or friend.  As they look to their futures, they must consider how they are going to take care of themselves.

With 70% of people over the age of 65 requiring assistance due to physical or cognitive impairments, and women’s life expectancy being 83.1 years, they have a higher chance of needing long-term care.

Why Long-Term Care Insurance?

Planning ahead can help protect your clients’ assets and allow them to get care covered in a variety of settings, including within the comfort of their own home.

LTCi is especially important for women who may be single, divorced, or widowed as they do not have a built-in spousal caregiver as some of your other clients may.

Talk to your female clients about taking the important step to consider how the need for long-term care could impact their future.

We’re here to help you design a plan that is both affordable and the best solution for your clients’ needs – contact your LTCi Sales Rep for guidance.

DI Retirement Security

Do you have clients who’ve maxed out their Disability Insurance coverage and could possibly be leaving their retirement unfunded if they got sick or hurt?

Try DI Retirement Security (DIRS).  It provides coverage for individuals to help them continue to make retirement contributions if they become unable to work due to disability.

Since retirement contributions are not necessary to qualify for this coverage, any individual in a qualifying occupation (class A through 5A Select) earning at least $76,000 per year can apply for DIRS.

Coverage also does not diminish eligibility for regular individual Disability Income (DI) Insurance.  This means an individual can qualify for DIRS even if he or she already has a regular individual DI policy up to the maximum issue and participation limits.

How DIRS Works
  • If the insured is disabled beyond the elimination period, benefit payments are made to an irrevocable trust.  These proceeds are not accessible until age 65 or 67 (depending on the Benefit Period selected).
  • The insured directs the investment of the funds to fit his or her investment style and risk tolerance, using a number of investment options within the trust.  There is a $50 per month trust administration fee.
  • The trust is activated only after the insured meets the elimination period requirement and benefits begin.  Trust earnings are taxable each year to claimants/ insureds, unless they selected a non-taxable investment instrument.
  • Claim benefits paid to the trust are non-taxable if the insured pays the DIRS premium.  Benefits are taxable if an employer pays the premium and the premium is not considered income to the employee.
  • At the end of the Benefit Period, trust assets are distributed to the insured per the terms of the trust agreement.
DIRS Features
  • Coverage provides a maximum benefit up to 15% of earned income, with a minimum benefit requirement of $1,000 per month.  For 2011, the maximum benefit is $4,125 per month ($5,325 per month if the benefit is taxable).
  • Available elimination periods are 180 or 365 days.
  • Benefit periods are To Age 65 or 67, with “Your Occupation” periods of two years, five years, Age 65 or Age 67.
  • Optional riders include: Future Benefit Increase, Cost-of-Living Adjustment and Mental/Nervous Substance Abuse Disorder Limitation.

If DIRS is written as a stand-alone policy with no other DI coverage applied for or in force, then simplified underwriting guidelines are used.  If the client applies for other DI coverage along with the DIRS application, full underwriting applies.  Employer groups that qualify for a multi-life discount also receive the discount on DIRS policies.

For more information contact your Disability Income Insurance Specialist today.

10 Most Common Life Insurance Mistakes (And How To Avoid Them)

Placing the right policy, for the optimal amount, with the correct details, can be more challenging than it seems.

Learning the common pitfalls and how to avoid them will not only help your clients get the coverage they need, but will also help you become a better producer.

10 of the most common mistakes are:
  • Naming your client’s estate as the beneficiary.
  • Failing to name at least two “backup” beneficiaries.
  • Failing to check up on your client’s policies at least every three years.
  • Matching the problem with the wrong solution or type of life insurance.
  • Your client’s amount of personal coverage is inadequate for their family’s financial security goals.
  • The policy is payable outright to your client’s minor children or grandchildren.
  • All the insurance on your client’s life is owned by that same client.
  • You haven’t checked to see if your client’s business or professional practice can provide insurance on a more efficient basis.
  • Forgetting that term insurance (including group term coverage) runs out and/or becomes prohibitively expensive to carry.
  • Purchasing life insurance as though it were a commodity.

Your Life Sales Representative is the ultimate resource to placing the proper policies quickly and with ease.  Contact us today.