Astute advisors always keep in mind that prospective clients have a variety of investment opportunities other than life insurance, particularly when compared to those that appear more attractive and lucrative. But it may be the intangible quality of life insurance that raises doubts with even the best prospects. Talk about “peace of mind” and “when you’re no longer” can seem less-than-compelling reasons to buy life insurance.
It’s not surprising that many consumers view life insurance as either an optional or even a “luxury” purchase. One way to help clients look beyond such a mindset and to see it as a responsible and safe investment is by using the Internal Rates of Return Report that’s available on all permanent life insurance products.
As we all know, premiums are paid to the insurance company in exchange for a promise to pay a certain amount of money at death. A life insurance policy’s Internal Rate of Return (IRR) represents therate that the cumulative premiums paid thus far would have to equal the amount represented by the death benefit when paid in a given year.
When the IRR drops to 0.00%, it symbolizes that, if the client were to die, the death benefit would equal the amount of premiums paid. In other words, there was no gain from having paid all those premiums for all those years, which is a major issue with clients when considering the purchase of a life insurance policy.
This is a legitimate concern to say the least, and there’s no need to attempt to sidestep it because there’s much more to the story. It’s important for consumers to understand how life insurance, particularly permanent products, can bolster the IRR and give them “peace of mind” based on knowing that they have made a prudent investment.
First, a unique feature of a permanent life product is the guarantees. They’re commonly known as guaranteed universal life (GUL) polices, along with the less commonguaranteed indexed universal life (GIUL) policies and you find them on the IRR. These guarantees separate a permanent life policy from other asset classes so that they become “uncorrelated.” Now, before you try to explain “uncorrelated assets” to clients and lose them for sure, just make it simple and say, “Unlike otherasset classes such as securities, real estate, or even education, a guaranteed universal life policy will not waiver. The numbers you see in the ‘guaranteed’ columns of the insurance illustration are nearly infallible, putting them in the same category as bonds, but with potentially much higher yields, and that other thing that keeps coming up because it’s so important to all of us, ‘peace of mind.’ When other asset classes rise and fall with the tide of the market, guaranteed universal life policies stay the course.”
The second feature that allows GUL products to stand out from other asset classes is its tax benefit. Unlike gains in securities, bonds, or almost any other asset class, the death benefit and, potentially, dividends while still alive (FiFo), is that they’re tax-free.
So, while an IRR of, say, 3.5% at age 90 (a very reasonable mortality age) doesn’t make the impression of a projected9.0% by that age for a mutual fund, the post-tax gains suddenly become comparable. Here’s the important message for clients: one is a solid guarantee, while the other is unpredictable.
There are many seemingly more appealing asset classes vying for your clients’ attention than permanent life insurance, so use the IRR report to move life insurance to the top spot in their thinking.
Because IRR reportscan be applied to any asset class, it’s a convenient, straightforward way to explain to your client why the purchase of a guaranteed universal life policy is the wise choice to meet their needs.
If “peace of mind” is not a client’s top priority, that’s O.K. There are GIUL policies out there that never dip below 0.00%, so that even in a bad year, they maintain the potential for relatively lucrative gains.
No other asset out there can offer the combination of tax exemptions, guarantees, and the ability to ensure that if one were to have an untimely death, their loved ones will be accounted for. For there are only three guarantees in this world: death, taxes, and guaranteed universal life insurance policies – and there’s an IRR report show for it.
• For more about Internal Rate of Return Reports, please visit this thread on Insurance Forums: Whole life… Why not to love it?
Peter Sullivan, an Illustration Specialist, is a member of the Internal Sales Group at First American Insurance Underwriters, Inc., an insurance brokerage that specializes in supporting agents in all 50 states with life insurance, long-term-care, and annuity products from more than 30 insurance companies. Sullivan can be reached at[email protected] or 800-444-8715.