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NALC What's New... Read the latest NALC publications: In the News Upcoming Meetings REGISTER NOW!2010 Spring ConferenceApril 14 – April 16, 2010 |
What's Next in Whole Life?The recession has engendered a new appreciation for the safety and use of this venerable insurance product. The deep recession of 2008-09, which significantly hurt sales of both variable life and universal life products, also has wrought a positive change in the life insurance industry: People have rediscovered the value of whole life policies. And while even term life sales have fallen slightly, according to reports by Limra, the industry's marketing and research association, whole life grew in 2008 and through the first three quarters of 2009. Limra noted that annualized premiums for whole life during last year's third quarter rose 12%. Historically, product-line sales have been cyclical. The question is whether the extreme economic conditions of the past 18 months will have a longer-lasting effect than a normal economic downturn. "We are seeing that the recession is continuing to have an impact," said Deanna Mulligan, executive vice president at the Guardian Life Insurance Company of America, headquartered in New York. "While the recession may be over, the impact on people's investment portfolios and their financial plans is not over. People are still working to repair the damage done and will be for some time. So this is a great time for whole life to be part of that repair of people's financial lives." Damon Bates, vice president of life insurance marketing at MassMutual, is not so sure. "While whole life insurance sales are up now, and MassMutual remains committed to the product, we realize public memory can be short," he said. "The VUL [variable universal life] marketplace is down over 50% through the third quarter, according to Limra. There will be a time in the not-too-distant future when the market comes back, and VUL will be popular again. That said, we have no delusions that the economic conditions we're seeing now will permanently make whole life that much more attractive forever." Richard Weber, an industry veteran of 42 years and president of consulting firm The Ethical Edge, predicted whole life will be the favored type of permanent insurance for as long as what he described as "the current economic bubble" lasts. He characterized the bubble as a time of low short-term interest rates and historically low long-term safe rates of return. It could last six more months or six more years, he said. In such a period, whole life stands out because the underlying assets an insurer holds to back the product are largely long-term government bonds and other "safe income" instruments whose rates are substantially higher than today's short-term rates, Weber said. Significant GrowthThrough Sept. 30, 2009, MassMutual's whole life sales were up 9% year-to-date versus 1% for the industry, as tracked by Limra. "It's something we're proud of and have been focused on for quite a while, both on the enterprise level and tactically, all the way down to the tools we build for agents," said Bates. "We also have a field force that's committed to the whole life value proposition of guaranteed premiums, cash values and death benefits. We're among a handful of carriers that continue to build and reinforce a field culture that believes in the product." Bates said MassMutual continued to expand its field force in 2009, and the number of its career agents topped 5,000. He also said that about 70% of MassMutual's individual life sales are for whole life and that the company would write about $180 million in annualized premiums in 2009. Universal life sales would be about $32 million and VUL sales would be only about $2 million, Bates said. MassMutual likes to position VUL as "sharp knives," said Bates. "We like to put it on the top shelf, where most clients can't hurt themselves with it," he said. "It has to be overfunded consistently over time, and only a segment of clients are capable of doing that." In fact, people tend to buy VUL when the market is up and charging, but not when the market is down, "and therein lies the inherent problem with VUL for consumers and home offices," said Bates. Bates said last year's strong sales in whole life were due, in part, to product flexibility achievable through a variety of riders, including several term and paid-up additions options. Guardian Life achieved a 7% increase in total sales of individual life products through Sept. 30, 2009, and less of an increase in whole life sales, according to Mulligan. In 2008, the company wrote $178 million of whole life premium--some 83% of its $215 million in total life sales. By comparison, Northwestern Mutual Life, another big writer of whole life, had $704 million of total life sales, of which 72% was for whole life policies, according to Limra. She said the company's new 10-pay whole life product helped increase its whole life sales. This product allows buyers to fully fund their policy in 10 years while avoiding having it become a modified endowment contract, which does not have all of the tax benefits of a life insurance contract. Mulligan said the product appeals to small-business owners; grandparents, as a way of facilitating giving to grandchildren; and pre-retirees seeking protection against untimely death while building a savings pool from which they can borrow during retirement. Under current tax law, policy loans are not generally considered taxable distributions. If a loan is outstanding when the insured dies, the company subtracts the value of the loan from the death benefit. Guardian also offers an accelerated benefit rider that can tap into the death benefit during a chronic illness as well as a terminal illness. Mulligan also said banks will accept whole life policies as collateral for a bank loan, provided the policies are adequately funded. Weber recalled that in 1976, just before universal life products were introduced, whole life had an 88% market share of permanent life sales, as measured by annualized premium. Universal life quickly benefited from high short-term interest rates. Variable life and VUL became highly popular in the stock bull market of the 1990s. When the tech bubble popped during 2000 to 2002, no-lapse universal life became the hot product. By the end of 2007, whole life's market share had fallen to 22%, he said. Weber said The Ethical Edge works with insurance companies, agent groups and agents "to improve the conversation on behalf of the consumer about how their life insurance works and how it should be managed, and to be more responsive to the considerations of consumers in terms of how much they need, what kind they need, how they can best pay for it and from whom they should buy." In 2008, the company consulted on the acquisition of $1 billion of permanent life insurance, including $300 million of coverage on a single life. Guardian has been one of Weber's clients for nearly three years, he said. In his 42 years in the business, Weber said he's observed that while other permanent products have done well during certain markets, only whole life has performed well through all market phases. That does not mean he would always recommend whole life, he added. But in a white paper he wrote with business partner Christopher Hause in 2008, Weber concluded that whole life is the product best suited to serve as a value-added component in the fixed-income portion of an investment portfolio. Weber said the paper "allowed non-insurance advocates to better see participating whole life for what it is--that it's not simply an expensive form of life insurance, that the cash value can be separated out and seen and used as a distinct asset class all by itself," he said. "If you've got the money, and you've got an investment portfolio, and you've got any fixed-return assets, we think that the ideal place to satisfy your insurance needs is to put a participating whole life policy into the fixed-return portion of your portfolio."
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