Today with so many carriers and marketing organizations jumping on the Indexed Universal Life (IUL) bandwagon, it’s hard to believe that the product was actually introduced to the market in 1997. Back then, forward-looking insurance companies were trying to find ways to make their fixed insurance products more attractive. By introducing the Indexed Crediting Method to a Universal Life "chassis", a policy’s performance could now be based on the change in the closing level of a stock market index over a period of time.
Clients looking for safety
The biggest problem in today’s fiscal environment is that clients looking for safety, and traditional “fixed” products are experiencing very low interest rates. The inherent volatility in “variable” products puts too much at risk. The introduction of IUL has lead to ongoing innovation in the market. Currently most consumers that purchase an IUL product do so to protect their family, and generate significant cash values that they plan to harvest for income at some future point in time.
Sales Transition to Kitchen Table
The first insurance agents to promote IUL focused their efforts on the high-end of the market, primarily selling the product to the affluent. The first marketing and sales concepts focused on exotic sales strategies such as home equity management. In this concept, a couple or individual would strip equity out of their primary residence, and in turn, place that equity into an IUL. At the time, just about anyone could qualify for a home-equity line of credit, and with banks flush with money to lend, the concept attracted many agents and clients, until it all came to an abrupt halt with the bursting of the real-estate bubble.
Premium Finance
Another concept that is still seeing some traction today is Premium Finance. Again, a concept primarily for the wealthy where premiums to purchase the policy are loaned to the client. Until lending rates increase, premium finance will still appeal to those who have considerable assets, but not cash-on-hand to purchase large cash-value insurance policies.
Looking Forward
Over the past few years, IUL has found it’s way into the more traditional life insurance sale for the middle-income market. Many consumers purchasing Indexed Universal Life today are primarily doing so to protect their family, and to set aside money that grows tax-deferred, which they will distribute as tax-free income at some point in the future, usually for supplementing retirement income, assuming the policy is correctly structured and funded. (Click here to read about the tax advantages and disadvantages of different financial accounts).
With the market corrections in 2000, 2002, 2008 -- and many more corrections to come in the future -- clients are looking for a secure and sound insurance product to place their hard-earned money. The depressed long-term interest rate has eliminated traditional fixed Universal Life as a real cash value accumulator, and this market environment has increased the opportunity for IUL. If all the trends continue, there does not seem to be any indication that IUL sales will slow, and the growth will continue to grab market share away from other cash-value products.
