Life Lines

Getting a Read on How the New Economy Is Changing the Future for Whole Life, UL and Premium Financing.

The new economy has completely changed the game when it comes to planning for retirement and securing the financial future of American families. This month, we feature experts who explain how to craft solutions with whole life insurance, universal life insurance, and premium financing. Taking a Second Look at Whole Life
by Bob Passero, CLU, ChFC

Whole life has had a resurgence in popularity since the uncertainty of the financial markets affected the liquidity of many clients’ assets. Producers are now looking for products that offer both guaranteed death benefit and cash value.

Until recently, it was common for producers to sell guaranteed death benefit universal life. These products offered low premiums, similar to having a term insurance benefit. they became an attractive option for older clients who were no longer eligible for term coverage because of their age. While giving low cost guaranteed death benefit protection, these universal life policies usually offer little or no cash value. As a result, these products may offer little or no flexibility for meeting premium payments or having cash value available for short-term needs. Either of these events would cause a reduction in the length of the guaranteed death benefit period and a subsequent increase in the premium to restore the original guarantee period.

As an alternative, whole life offers additional financial planning flexibility. Once some of the premiums have been paid, the client can take advantage of its flexibility by using policy values for either paying premiums or meeting short-term cash flow needs. Whole life premiums are required to be paid every year and they offer both guaranteed cash value and death benefit.
Besides the guarantees available, participating whole life also offers non-guaranteed dividends.

These dividends may be used a number of different ways:
• Purchase additional insurance – This allows the policy owner to use policy dividends to purchase additional insurance on the insured’s life. The paid-up additional insurance is issued on the same plan as the basic policy and in whatever amount of coverage the dividend can provide for at the insured’s attained age.
• Reduce premiums – A policyholder can use their life insurance dividends to pay policy premiums. This reduction can be considerable over a period of years, making premium payments easier to handle.
• Paid in cash -- A policyholder can have their dividends paid in cash. The life insurance company will send a check each year if the owner chooses this option.
• Dividends to accumulate at interest -- Many people like this dividend option since it operates similar to a savings account. If left to accrue interest, the accumulated dividends could grow into a large sum of money. Of course, the amount depends on the size of the policy you own. However, the interest earned in this account is taxable. Of these, the most efficient option may be purchasing paid up insurance. It avoids current taxation, increases the death benefit, has cash value, and it may also be referred to as additional insurance. The dividends are not guaranteed, but the benefit is guaranteed once the death benefit is purchased. Purchasing paid-up additions is the dividend option of choice for the person who is looking for cash value and death benefit performance.

Let’s talk about paid-up addition riders before we discuss the different options whole life can offer in a sales situation. All companies that offer participating whole life policies also offer these riders. They will help in paying premiums by releasing policy values sooner or increasing the death benefit. These riders have a guaranteed death benefit, guaranteed cash value, and non-guaranteed dividends.

Illustrating participating whole life paying premiums every year can be an attractive approach to meeting your clients’ planning needs. Even on a guaranteed basis, the cash value growth is very strong. In the later years, it is greater than the premiums being paid. The non-guaranteed current values accrued by using dividends as paid-up additions are also attractive. Increasing the death benefit from age 85 to 90 may increase the original guaranteed death benefit by 140% to 180%. Of course, this increase can vary by age, underwriting class, and face size.

The premium-offset meth-od is a popular way to limit premium payments is. This method depends on the non-guaranteed dividends. When the current accumulated paid-up dividend cash values and anticipated future dividends are sufficient, they are used to meet the future scheduled premiums.

No pre-mi-ums are paid out of pock-et once elected premiums are paid with policy values and current dividends as long as dividends and accumulated dividend cash values are sufficient. Any future reduction in the applicable dividend scale may require further out-of-pocket cash premiums to keep the policy in force. Typically, this can be for 12 to 17 years depending on age, underwriting class, and face amount. These time frames may also be shortened by use of a paid-up addition rider.

Another option is to use a guaranteed paid-up whole life policy. Some companies offer specific policies that are paid-up at certain years or ages while others offer the paid-up rider to get to the same place. This second method offers more flexibility and the ability to pay more or less premiums depending on the clients’ objectives. If current performance is good, either policy could be paid-up sooner. However, only the policy using the paid-up additions rider offers the ability to make additional payments. More payments could generate more death benefit and cash value for changing planning goals.

Both these policy options lend themselves for many sales designs:
• Buy Sell Agreements offering cash value that can be used for buyout, supplemental income, and corporate asset
• Qualified Plans – defined benefit split-funded plans
• Estate Planning
• Supplemental retirement income designs
• College tuition planning
This is just the beginning of what participating whole life can offer your clients. For more detailed information on how this product may fit your clients’ financial needs, contact your local brokerage agency.
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Bob Passero, CLU, ChFC is a senior advanced sales consultant for MetLife Investor’s Wealth Advisory Group in Bloomfield, CT. He can be reached at RPassero@MetLife.com.