Helping Clients Understand Universal Life Policies

I have met sooooooo many clients that have Dying UL policies, and I can not alway help them understand how they work. I'm not talking about Guaranteed UL, I'm talking UL's from the 80's and 90's. Between the interest rates and the cost of insurance increasing over the years eating away at the cash value. I am asking is anyone has a PDF or anything that can help me explain in a simple chart/or whatever how these policies work.
Anyone?
 
How about the same way some people used to sell it?

You have a bucket, and two spigots feed into the bucket. The first one is your premium, the second one is the insurance company's crediting rate.

Additionally there are some holes in the bottom of the bucket. One hole drains water (money) for the premium charge (load fee), one for the admin charge, and the last for cost of insurance. As long as there is water in the bucket you're policy will remain in force.

So you turn on the premium spigot, water flows into the bucket, water drains out the holes, whatever remains get interest and that amount of water pours in when the crediting rate spigot turns on.

Over time, the hole for the cost of insurance is going to get larger, large enough so if you aren't pouring enough water in yourself the water level in your bucket is going to start going down. If all the water drains out, the policy lapses.

Take a piece of paper and draw that scenario out.


Now, if you want to get into what about this illustration my agent gave me that said I would be ok.

Unfortunately the assumption made when this policy was sold was that a lot more water was going to come out of the crediting rate spigot, but that hasn't been the case. So either you need to turn your spigot on much higher to make up the difference, or else let the policy eat itself--drain out all your money--and lapse.
 
I like that BNTRS. Another type of explanation would be:

"Those products were designed around a sales pitch. The pitch is that in the future, you'll have earned this "free cash" that you can use for your kid's college. In reality, these policies have a number of moving parts, the result of which is that there is no guarantee that they insurance company might not have to come back and raise your rates. They're fine for extremely sophisticated buyers, but lousy for the rest of us. (Stress "us"). The pitch was that you would have this "free cash" down the line you could spend tax free. The truth is that people who DO end up with some cash value spend it, can't afford new enormous premiums, and then get a tax bill for the cash they took out. Why don't we look at a simple guaranteed UL or term policy for you?"
 
Very nice, thank you. I will use that in the future for sure. I find at least three to five of these policies a week and some people just don't understand how they work or why their insurance agent sold it to them.
Thanks again
 
Very nice, thank you. I will use that in the future for sure. I find at least three to five of these policies a week and some people just don't understand how they work or why their insurance agent sold it to them.
Thanks again

I also find these policies every week. Unfortunately, I am finding that agents continue to sell underfunded policies today.

Often the client bought a "permanent" policy from Company A for $100 a month because it was cheaper than Company B at $150 a month. The only problem, unknown to the client, is that $100 a month is grossly underfunding the policy and that the illustration (which they never saw) shows the policy will "implode" within the next 20 years.

The problem is two-fold. (1) The average life insurance agent out there doesn't understand what they are selling (harsh but true). (2) There are a huge number of unscrupulous agents that will knowingly screw the client if it means a nice commission.

Is anyone seeing these coming a lot from certain companies? Whenever a client says they have a "permanent" policy from certain captive companies, a red flag goes off in my head.
 
I also find these policies every week. Unfortunately, I am finding that agents continue to sell underfunded policies today.

Often the client bought a "permanent" policy from Company A for $100 a month because it was cheaper than Company B at $150 a month. The only problem, unknown to the client, is that $100 a month is grossly underfunding the policy and that the illustration (which they never saw) shows the policy will "implode" within the next 20 years.

The problem is two-fold. (1) The average life insurance agent out there doesn't understand what they are selling (harsh but true). (2) There are a huge number of unscrupulous agents that will knowingly screw the client if it means a nice commission.

Is anyone seeing these coming a lot from certain companies? Whenever a client says they have a "permanent" policy from certain captive companies, a red flag goes off in my head.

Does this go for Guaranteed UL also?
 
There is a very simple way to help these clients without confusing them with all that detail that most of them don't want. (Keep in mind I deal with 50-85 year olds. Younger people MAY have different reasons for the UL policies.)

You ask them what their goal for the policy is. Usually they will tell you about money for their spouse to live on if they die, final expenses, leaving money to kids or grandkids, etc.

You ask them how long they want the coverage to be guaranteed. They ALWAYS say they want it for their entire lifetime. They didn't buy the policy thinking it was term.

Then we call their insurance company. ALWAYS use a speaker phone. Once you finally get a human on the phone you say- I am (state your name here) and I am a life insurance agent in (your prospect's state). We are on a speaker phone with (prospect's name) and we have a few questions about their life insurance coverage with you.

They will want to verify that the policy owner will allow them to speak with you. Once that is done, you ask these questions in this order:
1. What is the current death benefit of this policy if the insured died today? They will tell you.
2. What is the current monthly premium for this policy? They will stammer around a little bit and talk about the flexibility of the premiums and finally get around to the amount the client has been paying monthly.
3. How long is the policy GUARANTEED to stay in force if the insured pays this premium amount on time every month? This can go one of two ways- They tell the truth and say the policy is only guaranteed to last until XXXX-date or they start double talking and say how sophisticated the policy is and it's VERY flexible and it is intended to be in force their entire lifetime and blah, blah, blah...

You keep them on course by going right back to the question- How long is the policy guaranteed to stay in force if they make the same premium amount they are currently paying on time each month? With some companies you will have to ask this question many times and often go through several people before they will finally say the words your client needs to hear.

Once they finally tell you and your prospect that the policy is on schedule to lapse WAY before the prospect plans to die, you follow up with- If the policy lapses, does Mr. Prospect receive any money back from cash value or return of premiums or anything? Of course that is NO.

Your prospect has just jumped from thinking everything is fine with his insurance policy and YOU are just a salesman trying to sell him something to YOU are very smart and YOU have just proved to him that he didn't get what he thought he did when he bought this policy. I've had several that start yelling at the person on the phone that they are crooks and they have been ripped off.

Now to finish covering all the bases, you ask- What amount of premium would Mr. Client have to pay starting now to guarantee this policy wouldn't lapse prior to age 100? They will do anything to not answer this question because it's always a HUGE premium amount. Often they will say they can't figure that and will have to mail it to the client.

Final question- Does your company sell any form of whole-life insurance? Did they sell it back when Mr. Client bought this one?

Once you have done this, your prospect sees YOU as someone who is honest and knows a LOT about life insurance. They see the agent who sold them the UL policy as either incompetent or crooked. They are pissed and they feel they have been misled. They are ready to hear some good options from you.

AND, you have never said a negative word about anyone or any company. And you have not put them to sleep with too much detail about the mechanics of the policies. All they are usually looking for is a guarantee that if they do what they need to do (pay the premium) the company will do what it's supposed to do (pay the death benefit.)

I think guaranteed UL is a good option to show them IF they are buying a large amount BUT I would ALWAYS show them a true whole-life policy and explain the difference in whole-life and guaranteed UL and let them decide.
 
Does this go for Guaranteed UL also?

Oh yes...The Guaranteed part of Guaranteed UL is a rider that has to be paid at that premium level. I once saw a client who took out "Guaranteed UL", even had the brochure with the policy file in his file cabinet. Only problem was that when I looked at the illustration, the premium was lower than the premium needed to add the Guarantee Rider.
 
Oh yes...The Guaranteed part of Guaranteed UL is a rider that has to be paid at that premium level. I once saw a client who took out "Guaranteed UL", even had the brochure with the policy file in his file cabinet. Only problem was that when I looked at the illustration, the premium was lower than the premium needed to add the Guarantee Rider.

Not all GUL is a UL with a rider. There is a true GUL product that many carriers sell; its an excellent product.
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I run across a lot of older UL policies that where underfunded, over loaned, and are crashing.

The biggest cause of this imo is agent error.
For some it was a lack of knowledge, for others Im sure it was greed.
And of course you always find those clients that loaned out 98% of their CV in one lump sum... lol

ULs in the past had lower rate guarantees, higher expenses, higher COI charges and a much larger window for adjusting the COI.
Basically there where a lot more variables within the contract.

And today there are good UL contracts and bad UL contracts out there. And of course the undereducated agents will still sell the poorer UL contracts out of ignorance.


Bottom line, whenever a policy is sold the guaranteed illustration should be used to judge the policy. That goes for WL, UL, and term.

Agents underfunding a UL these days is almost criminal.

But a UL is an extremely effective policy for the right situations. Yes, it is a bit more complex than WL, but not much. It can be tailored for a clients needs much more so than WL.

Of course, WL is the guarantee of all guarantees.
But there are plenty of UL products that have guaranteed illustrations that rival any WL; plus, a UL can leverage more DB for a client than WL can.

Im not saying one is better than the other, they both have their pros and cons.
But there is a big difference between a properly funded UL, and an underfunded UL that crashes before 80 on the guaranteed side.

ULs are appropriate for many clients. And to not educate yourself on the use, design, and how to position them is doing you and your clients a disservice.

There will always be uneducated or unscrupulous agents out there selling poorly designed ULs. And these policies will always stand out, since these clients will need the assistance of an agent on down the line.
But the millions of properly designed and serviced ULs do not stand out since they need no new agent...
 
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