LIFE
Beyond Price: How Honesty Will Help Win Every IUL Sale ocusing on the policy’s probF ability of success, instead of the cost, will get your client to say yes. By Ron Sussman and Richard Weber
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et’s face it, no one wants to pay any more than they have to for life insurance. So it’s no wonder that when shown a spreadsheet of calculated planned premiums for comparable policies, the customer’s inclination is to select the product with the lowest shown outlay. If it works for choosing flat-screen TVs with similar screen qualities, it should work for life insurance. Right? What we know from a behavioral standpoint is that price is the logical tie-breaker when not much else is known or can be appreciated about a TV — or a sophisticated life insurance policy intended for lifetime use. 30
Further exacerbating the problem of “pricing” a modern life insurance policy, indexed policies are perhaps the most complicated form of universal life, incorporating many moving parts and many hidden costs that will vary over time. Planned premiums are almost always based on a calculation assumption of constancy (the illustrated rate chosen by the producer — up to what the carrier allows in the software). Meanwhile, the success or failure of the policy over time depends on the sequence of returns within a “collar” of a guaranteed minimum crediting rate (often 0 percent) and the cap/participation rate. While we know indexed universal life’s producer-specified illustrated crediting rate assumes a linear constancy, in reality IUL products will be significantly impacted by market volatility and will
InsuranceNewsNet Magazine » March 2017
more likely be an “all or nothing” pattern within each portion of account value. Expressed over long periods of time, the uneven returns — and factoring in the policy’s internal costs, such as mortality and expenses — produce a sequence of returns and charges. This sequence becomes the driving force of the policy toward success or failure to sustain coverage as long as the insured is alive. After a number of years of testing, we can say with certainty that when the planned premium is based simply on the highest illustrated interest rate a carrier allows, the illustration may win the day – but the client and ultimately the producer will lose. Such an outcome isn’t intentional. As insurance professionals, we haven’t had a better way to assess the difference between policies based on their calculated planned premiums. Until recently!