Right now the product world is evolving. The dynamics and fundamentals of how a life insurance carrier prices a product and makes money continue to change due in part to the evolvement of the regulatory environment and the continued low interest environment. For the past decade, advisors have been selling Guaranteed Universal Life to clients because it was an inexpensive solution that was relatively easy to explain and had the appearance of being virtually risk free from change. What many advisors have failed to do is to pull back the veil, look behind the curtain, and understand how the product works. They have sold it based on an illustration and a gross assumption. The assumption being that human behavior is rational and predictable and that circumstances remain consistent. They sell it with the belief that the owner of the policy will continue to pay premiums at the exact same time each and every year and will pay the exact amount on the initial illustration provided at the time of sale. They were offering inexpensive coverage with no upside and very little, if any, flexibility; and it is only now that we see advisors finally listening and getting a better idea of how these products work and the risks involved.
In short, one of the biggest risks is that a client may pay premiums early or late and that they may pay an amount that is greater or less than the scheduled premium. Most no lapse policies are designed with very little premium flexibility so that if premiums payments are not consistent, the carrier may credit and or charge alternative rates which can drastically affect performance. In some instances, the changes to the policy charges may be so drastic that it may be prohibitive to regain any guarantees.
While knowing how to explain this to a client is imperative, it is just one piece to the puzzle. It important that an advisor also be able to present product solutions to their client to ensure their needs are met; one way to do this is by conducting a policy review. In this ever-changing industry policy reviews are now more critical than ever since many no lapse guaranteed polices will not perform as expected.
Please contact us for additional information on how implementing our policy review kit can help you to ensure the satisfaction and protection of your clients.