What Life Insurance Producers Can Look for in 2010
by Kenneth A. Shapiro

Here are seven significant ideas that can help meet the challenges and opportunities created by clients who are both cautious and optimistic for 2010.

1. The flexibility offered by UL/permanent life products has a strong appeal as more consumers recognize the value of cash, which makes the tax deferred feature of UL/permanent life insurance particularly attractive. If a policyholder needs money, it can be available tax-free (as long as it doesn’t exceed what has been paid on the policy) as a withdrawal or a loan. This is far more preferable than running balances on high-interest charge cards. The over-loan features on some policies provide additional flexibility. Even though the market delivered solid gains, investment vehicles, such as UL products, that offer a floor as well as a ceiling give skittish consumers a needed level of security. Permanent life products offer the flexibility that many are looking for today.

2. Survivorship life products are continuing to make an appearance after declining for several years. The proceeds of this type of life policy are given to the beneficiary upon the death of the surviving spouse, so there’s no question about it winding up in the hands of the tax collector. This is a simple and useful estate-planning tool. The cost is generally less than insuring two separate lives.

3. Closing long-term care sales, particularly individual policies, remains stubbornly difficult. Many consumers don’t purchase LTC coverage because of the cost. While LTC riders may not be the perfect solution, they generally accelerate the benefits of the life policy to help cover long-term care expenses. If the rider is not used, the full benefits of the life policy remain intact.

4. In 2009, the notices began arriving from insurance companies indicating that they were re-pricing certain guaranteed UL products or withdrawing them. The re-pricing appears to increase premiums from 3% to 12%, depending on the carrier and the policyholder’s age and health.
Return-of-premium term products are following a similar pattern, along with the longer durations, generally 25-year and 30-year guaranteed premium term life. Some companies have left the 30-term market and others may certainly follow along. Premium increases began occurring in 2009 and it’s prudent to expect that trend to continue. These products are being affected by changes in long-term interest rate assumptions that threaten profitability, substantial increases in the cost of capital reserve requirements, and returns that are not meeting minimum objectives.

5. With corporate profits rebounding, companies will be looking for ways to reward valued employees for their loyalty. At the same time, the recent layoffs have spotlighted the issue of portability and will be an attractive feature for insurance buyers of many small- and medium-sized companies. As businesses emerge from recession pressures, they will be looking to regain financial stability. Without question, many will be seeking other than traditional sources after having been rather severely burned. Finally, companies will be seeking cost-effective solutions for rewarding and retaining key employees, such as defined benefit plans and for funding business continuity programs. Business owners and managers are consumers, too. And that’s why UL products can be so effective, whether providing cash growth, executive bonuses, financing needed projects or supplemental retirement savings.

6. Consumers are expecting all their advisors to be far more proactive. With changes in life insurance policies, the economy, and the life events of policyholders, annual policy reviews are an essential service of advisors. Like every other investment, life insurance policies require regular attention and maintenance and that includes a review meeting with their policyholders. Even relatively new life policies need regular scrutiny. Life underwriting is more liberal since we are living longer. Clients who bought policies just a few years may be able to purchase more coverage for less. The annual policy review is the opportunity to deliver this good news. Consumers are far more aware of policy performance, particularly for policies that have been in-force at least 15 years. If a policy isn’t performing on the assumptions of the original illustration, the review is the time to discuss options with a client. It’s an enormous opportunity to be of service to clients.

7. Consumers certainly have benefited from lower life insurance costs resulting from updated mortality tables; more appealing products; and marketing strategies such as table shaving. After several years of surprisingly low prices, the pendulum began to swing in the other direction in 2009 and the upward trend will most certainly continue in 2010. The change is mainly due to weakened investment returns, tighter margins, higher reinsurance costs, and the need for insurance companies to add to their reserves. This is a reflection of the economy following the recent recession.

With a clear upward pricing trend, it’s incumbent on advisors to let clients know there is a cost attached to waiting. These conversations can certainly include policy reviews to make sure their existing life program continues to meet their objectives. If there is an overriding message in all this, it is that advisors are well positioned with products and strategies that fit the economic times and the expectations of clients.
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Kenneth A. Shapiro is the president of First American Insurance Underwriters, Inc., a Needham, MA-based national life brokerage firm specializing in serving high-end producers and working on complex cases. He can be contacted at 800-444-8715 or kshapiro@faiu.com.