Last week, the Wall Street Journal published a front page article entitled Universal Life Insurance, a 1980’s Sensation, Has Backfired. The article contained points that were valid as far as they went, but were not applicable for the clients we serve under the conditions we create. Providing further understanding of the important differences is the purpose of this email.
Universal life insurance is an insurance contract design that incorporates significant flexibility, essentially allowing clients to create a bespoke insurance contract directly tied to their unique needs. Flexibility in any area can be a help to some and a harm to others; the flexibility of universal life insurance is no different.
For our clients, the flexibility of universal life insurance is a significant help, providing substantial amounts of insurance death benefit through the client’s expected mortality (unlike term insurance) for a relatively modest investment (unlike “whole life” insurance). In fact, contrary to the conclusion of the WSJ article, we believe universal life to be an outstanding financial tool for our clients. Why? Consider these differences from the article:
(i) Today’s illustrated crediting rates are historically low and likely to increase over time, thus increasing the term of the contract instead of reducing it. This is exactly the opposite of the insurance contracts referenced by the WSJ article, all of which were initiated during a period of unusually high rates and have ridden the curve downward.
(ii) Our CSG Annual Policy Performance Review ensures that clients are aware of their insurance contract’s current performance and thus never surprised, a service not provided to any of the policy owners quoted in the article.
(iii) Our clients have sophisticated advisors like you, who can assist them in understanding our initial explanation and ongoing conversations. The quoted owners likely never understood the contract (a situation possibly exacerbated by the referenced part-time insurance agent) and never had further conversations.
(iv) Our clients understand that if our conservative assumptions of investment performance and expected mortality do not prove to be accurate, additional investment in the contract may be required and they are capable of making that investment.
(v) Our M Proprietary Products ensure that M Financial is monitoring our partner carriers’ products from creation to claims payment, so that the internal product assumptions are reasonable, the contracts are sustainable, and the carriers are not forced to increase mortality costs to avoid financial losses.
We understand that the area of life insurance has its own nomenclature and has become ever more complicated. If it would help to discuss further, please do not hesitate to contact us. And, should you encounter clients with severely underperforming policies, we are happy to provide advice.