It all comes down to the purpose of the sale, and making sure that the product you are recommending is built to accomplish that goal. The idea that there is one best product for all sales is simply not the case.
Traditionally, if there is such a thing in the equity indexed UL (EIUL) space, sales of EIUL products have been based on one common purpose: accumulating cash while providing a death benefit
. Virtually every sales idea out there has this at its core. College funding, premium finance, life insurance as a retirement supplement and all the rest are built on the same foundation.
Early in my work with these products, however, I used a design with one of my producers that was 180 degrees in the other direction. The design? Using EIUL to minimize the cost of life insurance coverage. This producer had written a significant amount of variable life insurance over the years, and as we were reviewing the contracts, a couple trends emerged.
The first was regarding premiums. The economic climate had made it very challenging for people to keep up their premium payments. Minimizing out of pocket costs was the order of the day, and the variable contracts they owned were simply not well suited to that approach because of the higher costs associated with the product.
The second was that there was a subset of the EIUL
world that was really well suited to a minimum funding
design, and they were not the carriers with the highest caps or illustrative rates. Instead, the carriers that had the lowest cost structures rose to the top.
Think about it. It is similar to comparing gross and net rates of return. Even if the gross rate is the same, the individual with the lowest tax bracket is going to see the best net rate of return. In the case of a life product, it is the expenses that fill the role of the tax rate and the products with the lowest expenses resulted in the lowest premium costs. Over-funding a product with a high illustrative rate can overcome
higher cost structures on paper, but when we squeeze funding levels down to a minimum, these expensive contracts are exposed. The same can be said if we experience a market that does not approach the cap rate in a higher cap rate product. It simply never has the chance to perform as it was designed.
So, why bring this up? A couple reasons. Primary among them is the fact that we are already seeing the GUL price increases we expected based on the ratification of AG 38
back in September with another round of increases expected in 2013. With these price increases comes the need to explore lower cost, alternative designs that perform well in our current economy and are likely to continue to perform well in the future. The second is that there is some evidence that EIUL product design is trending in this direction.
What this does not mean, however, is that a high-cost, high-cap product has no place in the market. It certainly does, particularly in many of the sales scenarios described above. In a market that repeatedly reaches or exceeds cap rates, they will likely perform quite well. It all comes down to the purpose of the sale, and making sure that the product you are recommending is built to accomplish that goal. The idea that there is one best product for all sales is simply not the case.