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VUL: Persistency and Practice

VUL sales are on the rise, and persistency is the key to keeping them floating.

By W. Thomas Cross, CLU, ChFC

Financial advisors are selling variable universal life (VUL) contracts in ever-increasing numbers. Reports from LIMRA International show that 34 percent of all insurance premiums sold in 2001 were for VUL contracts. This is a 6 percent increase over 2000. In comparison, new premium market share for products in 2000 were as follows:

  • Traditional whole life accounted for 24 percent, down from 54 percent in 1990.
  • Term life accounted for 22 percent, up from 13 percent in 1990.
  • Universal life accounted for 17 percent, down from 26 percent in 1990.

Source: LIMRA International

As you can see from this chart, VUL has gained in popularity over the past 10 years. However, these policies could have severe persistency problems unless representatives and issuing companies take the appropriate steps now to address the following issues.

Why are VUL contracts at risk?
VUL contracts are designed to remain in force until the client is 100 years old or older. To stay in force until that age, the contracts need to be adequately funded with an appropriate level of premium. The necessary amount of premium is determined based on the return in the contract as well as the insurance charges imposed by the issuing company.

When an individual purchases a contract, it is based on certain assumptions. All too often, the client, and sometimes even the rep, does not receive adequate service information after the sale relevant to the contract and to the available options.

Clients and their advisors need to have information systems available to help them understand the surrender-to-basis and loan options so as not to have the contract lapse, which could trigger phantom income.

What needs to be done
Stay in touch with your clients. It is your responsibility to keep clients informed. Insurance companies need to do a better job providing critical data after the sale to assist in whatever services you need. Information on paying off loans, the impact of not paying off a loan, and better information provided to policyowners on their annual statements go a long way in improving your client's understanding of the contract.

One way to foster understanding is to provide clients with an interactive website that gives current in-force illustrations, real-time account values and a look at their cost of insurance. Clients today want to be more interactive in managing their investment-related products, and they want to do it when it is convenient.

Traditionally, the predominant compensation on life insurance product sales was an upfront commission with renewals paid only on subsequent premium payments and no payment on assets. Newer product designs, however, offer trail payments if that option is selected by the rep and provided by the carrier.

Compensation options need to be better addressed to provide revenue to reps for the ongoing services they are required to provide to their clients. This needs to be addressed especially for older contracts that did not have service-level compensation available at the time of sale.

Equity markets
The current state of equity markets makes it critical that reps evaluate how they advise their clients about the investment choices they made within the sub-accounts of their variable life contracts. Since most variable life policies have allocation programs available, reps need to assess the use of such programs to better protect their clients' assets within these products. Clients will have questions about their accounts, so there is the need for information around the clock, easy-to-understand statements and product information brochures.

As we look to the future of VUL, reps and issuing companies must consider the cost of adding new clients vs. the benefit and long-term revenue potential in retaining existing clients. Some projections show that the long-term growth of assets in variable life-type policies may actually surpass the dollar value of qualified 401(k) or 403(b) plans. If these assumptions prove valid, it is important that the sale and service of variable life products meet the expectation of individuals making these purchases.

W. Thomas Cross, CLU, ChFC, is senior vice president of product distribution at Securities America, Inc., Omaha, Neb. You can reach him at


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