Advisor Today - July/August 2015 - (Page 25)

PRODUCT SPOTLIGHT LIFE INSURANCE By Josh Durand Variable Universal Life is Back! New designs and shifting consumer sentiments are helping to fuel this comeback. I t wasn't long ago that variable universal life (VUL) couldn't find its way into the advisor/ client conversation around life insurance. Following its popularity peak in the 1990s, VUL fell out of favor when the stock market had steep declines in the early 2000s, and many policyholders saw policies lapse sooner than anticipated. But VUL has made a strong comeback in recent years, currently experiencing nine consecutive quarters of positive premium growth, according to LIMRA. In 2014, new annualized premium for VUL was 25 percent higher than in 2013. This revival is a result of new designs that address the product's challenges of the past, while still offering a flexible, growth-oriented permanent life insurance solution for clients. Also helping create demand for VUL solutions are shifting sentiments around financial planning. With the economic disruptions of the past decade fresh in clients' minds, along with future uncertainties such as taxes, longevity and long-term healthcare costs, clients are looking for products like VUL that not only help them accumulate assets, but also protect those assets and turn them into income. Part of the VUL appeal is its potential for the client to accumulate tax-deferred savings by allocating premium to equity subaccounts. Those savings can then be distributed income-tax free through policy loans and withdrawals, (provided the policy is not a modified endowment contract). Because the cash value accessed from the policy is not considered income under current law, VUL can provide a compelling source of supplemental funds for milestones in clients' lives such as retirement, with little or no impact to tax expenses, Social Security taxation or Medicare premiums. With some VUL policies, cash-value growth can also potentially allow clients to stop paying premiums and/or extend the guarantee period. Strategies for VUL policies As advisors work with their clients to pursue market-driven growth potential with VUL policies, investment choice, flexibility and restrictions should be considered. Clients have different investment objectives and risk tolerance levels, so it's important that the VUL policies they choose be aligned with their investment approach. For clients focused on longerterm growth potential instead of on timing the market, Dollar Cost Averaging programs may be worth evaluating to help minimize market volatility by allocating premiums over time. To help maximize the cash-value potential, it may be a good strategy for clients to fund the policies in single or short-pay scenarios. This gives the premium longer potential to grow and builds cash value early in the policy to help withstand lower-than-anticipated investment returns. However, most VUL policies are extremely flexible from a premium-paying perspective. Accumulation continues to be one of the primary selling points of VUL, but today's versions of the product are balanced with strong income tax-free death benefit guarantees, in many cases for life. To help ensure that coverage lasts through all market cycles, today it's common for policies to include meaningful guarantee periods should the policy pay a stipulated premium. Policies also commonly offer riders, which, for policies structured properly, provide protection against lapsing with significant loans, thus reducing the concern of a significant unwanted tax hit. In addition to addressing the more traditional life insurance needs, VUL policies are now widely available with different types of riders that help with the financial risks a client potentially faces when he is chronically ill or needs long-term care. Under qualifying conditions, these riders accelerate the death benefit to help fund expenses associated with these unfortunate circumstances. VUL's evolution has created a combination of features that allow policy-holders to build a financial legacy for beneficiaries, while providing a potential source of supplemental income to keep pace with life's changes. While VUL may not be suited for every client, its flexibility can help meet the financial goals of a broad client base, as seen with its recent market revival. Josh Durand is vice president, life business development, for Lincoln Financial Group. In this role, he is responsible for driving growth of Lincoln's Individual Life Insurance business, and product promotion and positioning. 1. Loans and withdrawals reduce your policy's cash surrender value and death benefit and may cause the policy to lapse. Withdrawals and surrenders are tax-free up to your cost basis, provided the policy is not a MEC. 2. DCA cannot guarantee a profit or prevent loss. Clients should consider their ability to continue purchasing through all economic conditions. July/August 2015 | ADVISOR TODAY 25

Table of Contents for the Digital Edition of Advisor Today - July/August 2015

From The Editor
Viewpoint
New Products
How Do You Create the Million-Dollar-Plus Practice?
Traits of Top Performers
The Business Benefits of a Pipeline Mentality
What Does It Mean to Act Ethically?
Variable Universal Life is Back
Sell More LTCI By Selling Less!
Overcoming the Most Common DI Objections
Divorce DI
Mitigating Retirement Risks with Life Insurance
Creating Irreplaceable Capital
Closing the Gap
Financial Future Less than Rosy for Boomers and GenX
Estate Planning and Annuities?
Ignite Your Sales Potential
A Closer Look at BTID
Upholding the Tradition
NAIFA’s Candidates for Election
NAIFA News
Addicted to Rejection
What is Keeping Your Senior Clients Up At Night?
Advertiser Index
Back Page

Advisor Today - July/August 2015

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