What factors are driving the interest in whole life among advisors and their clients? Brigitte Breton, a consultant with managing general agency Copoloff Insurance Agencies, says the main reasons are the increase in Term to 100 (level COI rates) and the low guaranteed interest rates offered in the investment funds of universal life insurance.
"If the cost for the insurance component is too high and the potential rate of returns… are low, why would you want to invest a large sum of money in a vehicle where your funds are captive for a long period (i.e. due to surrender charges, etc)…Yes, you gain on the deferred tax of the UL, but when the returns are low, your savings are not that significant."
Ms. Breton thinks that the trend toward whole life will continue. "In the short to medium time horizon I believe that whole life type products are one of the few alternatives for permanent coverage as it becomes more and more difficult to sell UL products."
She adds that insurers are trying to push YRT COI universal life products "but unless your insurance need reduces in the future, it becomes very expensive at a time where your retirement funds should be used to cover your living expenses and not your insurance costs."
In terms of whole life product trends, however, she does see a trend of insurers passing risk on to the policyholder. For example, she sees that whole life non-guaranteed type products are making a come back.
Lawrence Geller of L.I. Geller Insurance Agencies says there is a trend of insurers starting to cut back on policies, particularly limited pay periods.
"It used to be that we could pull up 20 policies that were 10-pay whole life. Now I don’t know if we could get two or three."
Insurers have mostly moved to 20-pay periods as a limited pay option, he notes. This change is related to the decline in long term interest rates, he says.
With respect to universal life, Mr. Geller does not recommend this product to his clients. "I have yet to meet any client who saw universal life perform to their expectations…"
Mr. Geller is a long time proponent of whole life non par insurance because it delivers on its promises. "It’s much easier to advise your clients when everything’s guaranteed. You know what you’re advising them."
At the same time, he says he is not suggesting that anyone’s insurance be one type or another. For example, buying insurance for the dependency period of your children is probably not a permanent need, whereas buying it for a spouse may be a permanent need. This is something that the client has to decide for him or herself.
"My job is to ask people enough questions that they can figure out what they think they need and then to help them learn enough to make an informed decision based on the choices available to them…The only way to determine what is suitable is for clients to determine it, not us."
That said, he also informs his clients that he will not offer them universal life and why. They will have to go elsewhere if they are looking for UL, he says adding that he doesn’t gamble or encourage anyone to gamble.