Life insurance illustrations are like marriage; you either learn to pay attention or pay dearly. Through paying attention to these power phrases and suitability points, FIUL can be a potent and powerful tool for legacies of lifetime income and protection.
Fixed indexed universal life
(FIUL) was one of the fastest growing products in 2012 and has shown no sign of letting up in 2013, as savers and investors increasingly look at life insurance as a separate asset class in a zero-rate world where tax rates are cratering at all-time lows.
Here are some power phrases to get prospects pumped and primed to think about fixed indexed life as an alternative to an overbought bond market and most of all, a solution to wealth transfer or basic protection to ensure the lives and legacies of loved ones. This is where the discussion should start.
1. At retirement, would you rather have a lifetime income stream that you can control that may be tax-free, or an uncertain income
stream that you can’t control and is fully taxable?
2. If you could control a potential 25 percent of losses for the next 25 years (the median tax rate for a middle class American at age 60
for 25 years), how much of your safe funds could you use to avert this large loss of your family’s legacy?
3. Would you rather pay taxes now, later, or never in protecting your loved ones? And if funded properly, provide a lifetime tax advantaged income for life?
4. If you could buy a AA-rated, insured, tax-free bond that pays 4 percent tax-free interest (price would vary by age and a municipal bond is a security product, whereas a FIUL is a lLife product) and pay 60 cents on the dollar and get back one dollar tax-free rather than having to pay capital gains taxes like the bond, how many of these bonds would you buy — $100,000 or $200,000?
Unless rates change, like VUL and its predecessor UL, millions of these FIUL policies will suffer a similar fate and implode. Do not leave the funding of this great alternative to luck. Many FIUL
advisors cross-sell both FIUL and FIA. The acronym F-I-A is a great way to remember how to offer fixed indexed universal life (or its cousin VUL) and UL properly to ensure maximum performance:
1. Fund it right.
Relying on those 8 percent net illustrations based on pie-in-the-sky market performance is like the luck of getting a paper cut when opening a get well card. Don’t get into an illustration battle.
2. Illustrate it right.
Most FIUL illustrations carry historical numbers from the 1990s, which was the second greatest bull market in history. The fact that it occurred at the beginning of illustration provides a positive sequence of returns and unrealistic outcome. Use Monte Carlo or back testing software to demonstrate random returns which are more realistic. I see the results of a 30-year bull market for bonds being used showing a drop in rates from 14 percent Treasuries to 1.70 percent. Witnessing another bond market
rally like the last 30 years is about a likely as surviving a cordless bungee jump fall.
3. Allocate it right.
Even though an FIUL is just a wrap around an FIA and crediting methods are designed to produce similar returns, the difference between the NASDAQ and S&P 500 over the years can be found in the tens of thousands of dollars in cash value and income over time. Use blended indices including hard assets like gold to provide optimal return with less risk.
Life insurance illustrations
are like marriage; you either learn to pay attention or pay dearly. If one pays attention to these power phrases and suitability points, FIUL can be a potent and powerful tool for legacies of lifetime income and protection.