By Joe Cochran
First things first: I sell conceptually, keeping things simple. While many of my sales involve complex estate or business cases, I try not to present myself to clients as a walking encyclopedia of complicated planning techniques. Instead, I try to connect with clients and discover their needs. My job is to help my clients understand the advantages and disadvantages of various life insurance products.
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I don’t answer the question “Which policy is right for me?” until I’ve explained them all. |
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For my sales to result in a client relationship that persists, I focus on three things:
- I don’t push a single product or company, but help the client buy the right kind of life insurance protection for his needs.
- I provide full disclosure and extensive education on the features and benefits.
- I document everything we’ve said and agreed to do.
After we’ve uncovered my client’s need for life insurance, and he’s agreed to act now to try to obtain it, then the education process begins to determine what type to buy. At this point I explain my continuum of life insurance products, pointing out key features about premium cost, guarantees, policy cash values and flexibility to meet future changing circumstances. (See chart 2.)
On chart 1, starting on the left is term insurance, and on the right is whole life. These represent the two extremes. Term insurance with return of premium, universal life insurance and variable universal life insurance lie along the continuum and represent variations of the two archetypal policies. Slightly above UL and VUL sits hybrid VUL, which is neither UL nor VUL alone, but contains aspects of each.
The numbers indicate the order in which I discuss each product type. Along the way, the client usually has questions, which I answer right away. However, I don’t answer the question “Which policy is right for me?” until I’ve explained them all.
What makes this approach successful is that it’s low-key, conceptual and empowers the client to make the choice. If I do my job well in explaining each product type’s salient features and benefits, the client lets me know which type of policy is most appealing to him. From that point, we can concentrate on how much the client can comfortably pay and the source of those premiums, the nuances between two or three products from highly rated carriers and the application process.
Hybrid VUL
For those clients who express an interest in learning more about the newest generation of VUL, I discuss conceptually the features and benefits outlined in the chart below, which compares typical UL, VUL and the new generation VUL products.
(1) COMPARISON OF PRODUCT FEATURES |
| Features and benefits |
UL |
VUL |
New Gen. VUL |
| Guaranteed death benefit for life of insured as standard feature? |
Sometimes; varies by company and product |
No* |
Yes |
| Policyowner choice of investment options? |
No |
Yes |
Yes |
| Unlimited growth potential through investment options? |
No |
Yes |
Yes |
| Mortality and expense charges reduced or eliminated from investment options? |
N/A |
No |
Some |
| Guaranteed interest fixed account option? |
Yes |
Yes |
Yes |
| Tax-deferred growth of cash or account values? |
Yes |
Yes |
Yes |
| Federal income tax-free death benefit? |
Yes |
Yes |
Yes |
| Flexible premium payments? |
Yes |
Yes |
Yes |
| * If lifetime secondary death-benefit guarantees are offered, generally they are offered as an optional rider. |
Because change is the norm in society, in business and in our personal lives, my younger and middle-aged clients often tell me that flexibility must be a key element in all aspects of their financial plan. A good hybrid VUL policy offers that, as it:
- combines the best features of a UL and a VUL policy
- provides guaranteed lifetime death-benefit protection, regardless of policy performance, as a standard feature, not as a rider
- takes all policy expenses (including for the guaranteed death-benefit protection) from the UL-side fixed account
- has no mortality and expense charges taken from the variable subaccounts, but rather takes them out of the UL-side fixed account
I also make sure my clients understand that the best hybrid VUL policies offer two outstanding features:
- guarantees inherent as a standard feature
- the reduction or removal of the mortality and expense charges (at least from the variable subaccounts)
Death benefits are the cardinal reason for the purchase. The guaranteed death benefit as a standard feature, rather than an optional rider, assures my clients that even if their subaccounts fail to perform as expected, their life insurance death benefits will remain intact. As to the second feature, my clients are sensitive to investment charges and fees for transactions or account changes, whether we’re discussing the charges and fees in a mutual fund or a VUL product. By taking the mortality and expense charges from the UL-side fixed account rather than from the VUL-side subaccounts, more of the hybrid subaccount values remain intact to compound and grow. That’s powerful.
These are such strong benefits compared to those in current VUL policy designs that I’ve begun requesting insurance reviews with my existing VUL clients. For preretiree Baby Boomer clients who need both additional life insurance protection and wealth accumulation for retirement, this new hybrid VUL design can potentially be an effective strategy to accomplish both aims.
Variable products not for everyone
Though clients with wide differences in age and economic status are interested in buying hybrid VUL, variable products are not for everyone. Who should be discouraged from purchasing hybrid VUL? Those clients who have no demonstrable need for life insurance, those who have a short time horizon before they’ll need access to policy values for income or those who express a low tolerance for equity market cycle volatility.
(1) Product comparison chart courtesy of Larry L. Cox, CLU. Reprinted with permission from the author.
Joe Cochran is president of the Joe Cochran Agency Inc., in Ft. Wayne, Ind. He has been in the business since 1983 and holds Series 6, 63, and 26 licenses. Active in NAIFA, Cochran is the past-president of the Kosciusko County chapter and was recently named its Independent Agent of the Year. Founders Financial Securities, LLC (member FINRA, SIPC) is his broker/dealer.
February 2008
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