We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • The Great Life-Insurance Temptation

    April 4, 2014 by Leslie Scism at leslie.scism@wsj.com

    Wesley Bedrosian

    Life-insurance policies have gotten a surprising sales boost from a rising stock market. But if share prices sag, customers could be in for a shock.

    The recent rally has increased the appeal of two types of life insurance that link benefits to stocks: “variable universal life” and “indexed universal life.”

    Last year, when the S&P 500 gained 32%, including dividends, sales of variable universal life jumped 24% and indexed universal life rose 13%, by one measure of premiums, according to Limra, a research firm in Windsor, Conn., funded by the industry. Overall, life-insurance sales were flat.

    Both types of insurance offer traditional death benefits. Yet policyholders also can log gains on money deposited into tax-deferred accounts, depending on how the stock market performs. Those gains, in turn, can help customers cover the often-steep annual policy costs down the road.

    Buyers of variable universal-life policies are directly exposed to gains and losses on mutual-fund-like investments. Policyholders can place bets on stocks and bonds, though stocks feature prominently in many agents’ marketing pitches.

    With indexed universal-life policies, policyholder money isn’t directly invested in the markets. Instead, insurers hold the money and typically pay interest into the policyholder’s account based on the performance of a benchmark index, often the S&P 500.

    The policies can be useful for well-heeled consumers in certain circumstances, experts say. But they need to view the products primarily as life-insurance policies, not investment vehicles.

    Variable universal life can benefit investors in the highest tax bracket who already have socked away the maximum allowable amounts in tax-deferred retirement accounts and similar savings vehicles.

    Indexed-universal life policies can be helpful to a wider range of affluent buyers making long-term financial plans. For example, some policies allow for the death benefit to be used to cover long-term-care expenses.

    Yet the products aren’t appropriate for many middle-class households, and even well-to-do consumers should be wary, according to experts and state regulators.

    Insurance agents and brokers can collect rich commissions for selling variable universal life and indexed universal life, which means they can have a powerful incentive to promote the products.

    Furthermore, the marketing materials can feature rosy projections of potential gains.

    For example, the Securities and Exchange Commission and the Financial Industry Regulatory Authority allow insurance agents to show prospective buyers of variable universal life how the policies will perform if stocks return as much as 12% a year. Agents also must show what happens if returns are flat, and make clear the return figures are hypothetical, among other restrictions.

    The more optimistic projections might not match reality. The compound annual return on the S&P 500 has failed to top 12% over the past 10, 20, 30, 40 and 50 years, through December, according to Chicago-based investment-research firm Morningstar. The past five years have been more favorable, with the index generating an 18% annualized return. Yet over 15 years, the figure has been a modest 5%.

     

    “Beware of the sales illustration,” says Glenn Daily, a fee-only insurance consultant based in New York. “It is far too easy for agents to make a policy’s projected performance look good.”

    The risks are significant: If the market underperforms—or worse, share prices drop—a policyholder may need to cough up additional cash to pay annual costs.

    Projections that reflect investment gains are “a tool to help a consumer understand” how the policy works, but “are not a guarantee of future performance,” says Alyce Peterson, a vice president at Pacific Life Insurance Co., which is based in Newport Beach, Calif., and was one of the top sellers of variable universal-life and indexed universal-life policies last year.

    Term or Permanent

    For consumers seeking financial protection for their families, a type of life insurance known as “term” is usually the best option, according to many financial advisers and the Consumer Federation of America, an advocacy group in Washington.

    Term life pays out a death benefit if the policyholder dies during the term of the contract, often 20 years. Insurers are able to keep premiums relatively low because few policies sold to people in their 30s and 40s ever pay out. Buyers of term life are often content to go without coverage once their children have graduated from college or gotten jobs, financial advisers say.

    But consumers who want life insurance in place for the rest of their lives may be better off with what is known as “permanent” life insurance.

    With permanent life, policyholders deposit money into an account from which the insurer deducts commissions, administrative and other fees, and the “cost of insurance,” akin to the annual premium for term life.

    The remaining money in the account grows tax-deferred, which agents often promote as a way to help pay for the rising cost of the insurance as the policyholder ages.

    The most basic forms of permanent life credit interest to policyholder accounts based in large part on the performance of insurers’ investment portfolios, which typically emphasize high-quality bonds.

    The risk in those policies has become clear in recent years as bonds have delivered paltry returns. Many policyholders were counting on stronger gains to help cover the annual charges in their later years and some have been stunned by meager interest payments that have left them short of what they need. As a result, many face a dilemma: Pay more into the policies, cut the death benefit to reduce the annual charges, or drop coverage, experts say.

    Low interest rates also help explain why some agents now emphasize variable universal life and indexed universal life, which are permanent-life policies linked to the stock market. U.S. stocks now have generated positive returns for the past five years in a row, as measured by the S&P 500. The return on the index so far this year is 1.4%.

    An insurance specialist recommends buying directly from TIAA-CREF, a money manager and life insurer. Associated Press

    Variable Universal Life

    For consumers who need life insurance, are in the highest tax bracket and have ample financial resources to smooth over any rough spots, variable universal life can make sense, according to financial advisers.

    Insurers typically offer a menu of investment options, often managed by well-known mutual-fund companies. Policyholders choose how to allocate the money in their accounts among those options, and have the ability to change the allocations, as with a 401(k) retirement-savings plan.

    The risk is that the investments could tank and the insurer would still be deducting annual charges. Policyholders should regularly assess how the investments are doing.

    In addition, consumers should think carefully before taking advantage of a widely promoted feature of the policies: the option to skip some annual payments with the intent to make them up down the road. Those missed payments can quickly throw off growth projections, because there is less money in the account to generate investment gains.

    Consumers often complain that agents pitch the policies as retirement-income or college-savings plans, according to Finra’s arbitration files.

    Keith Kriewall, a 51-year-old software developer in the Seattle area, says a financial adviser pitched him a variable universal-life policy as “a new kind of investment vehicle that allowed tax-free growth” and other benefits, with insurance that was “incidental.”

    Much of his money subsequently “was lost to the ‘inconsequential’ life insurance premiums, which turned out to be anything but,” he says in an email.

    He filed a claim against the adviser and his firm, Centaurus Financial. A Finra arbitration panel last year ruled against the adviser and the firm, awarding Mr. Kriewall about $42,000. A lawyer for Centaurus, which denied the allegations in its filings, declined to comment.

    James Hunt, an insurance specialist at the Consumer Federation, recommends buying directly from TIAA-CREF, a money manager and life insurer located in New York, or Ameritas Life Insurance, located in Lincoln, Neb. Those options allow consumers to avoid some sales charges typical of the industry.

    Indexed Universal Life

    Consumers who opt for indexed universal life don’t have as much of an opportunity to benefit from a stock-market rally as variable universal-life policyholders, but they get protection from market losses.

    The interest that the insurer credits to the policyholder’s account typically is linked to stock-market benchmarks, but the interest generally is capped. The caps currently average about 12% a year, according to Moore Market Intelligence, a consulting firm in Pleasant Hill, Iowa, specializing in indexed products.

    Policies also typically let consumers opt to have their money generate an interest payment that isn’t tied to stock-market performance, but policyholders tend to allocate only a small amount to that strategy, at most, according to Moore.

    If markets decline, insurers promise to protect policyholders from any declines in the benchmark. That largely insulates policyholders if the stock market plunges, as it did in 2008.

    Insurers are able to provide such guarantees because they back the policies mostly with high-quality bonds and purchase a sliver of financial derivatives to help provide payouts tied to stocks, according to experts. In addition, insurers generally reserve the right to make certain changes, such as lowering caps on the payouts, in an effort to protect themselves.

    Though buyers get protection from market losses, their indexed universal-life policy accounts still can decline in value because fees and insurance charges still come out.

    There are other catches, too. For example, insurers typically exclude reinvested dividends when determining how much of the gain in a benchmark index to credit to policyholder accounts.

    Thomas Santolli, managing director at advisory firm Paradigm Financial in Parsippany, N.J., says he recently sold a $6 million Pacific Life indexed universal-life policy to a wealthy couple.

    “The first thing I told them was that the insurance company reserved the right to lower the cap to 3%” from 12%, he says.

    He also reviewed how the insurer could seek regulatory approval to raise the cost of insurance, among other potential drawbacks. “Then they bought because they knew and understood the downside and it fell within their risk-tolerance levels,” Mr. Santolli says.

    But many consumers don’t understand indexed universal-life policies, regulators say. Iowa Insurance Commissioner Nick Gerhart says he has “several complaints on my desk, as we speak.”

    Customers aren’t the only ones who struggle to get it. “We’ve had situations where the agents don’t understand the product,” he says.

    In December, Mr. Gerhart urged the National Association of Insurance Commissioners, a group of state regulators, to discuss whether to establish new rules on growth projections and agent training. Discussions on growth projections are under way already.

    Nevertheless, he says, indexed universal-life policies can be useful to people who need a permanent-life policy, provided they aren’t counting on robust gains to subsidize the policy’s future costs.

    Mr. Gerhart helped his mother-in-law, Rita Dette, buy an indexed universal-life policy in 2012. Ms. Dette, who worked in the insurance industry for 41 years, says she “was flabbergasted” by the complicated sales and policy documents.

    The materials included a projection of what would happen if the stock market marched steadily upward, Mr. Gerhart says. His advice to her: “Don’t even look at this column.”

    Originally Posted at The Wall Street Journal on April 4, 2014 by Leslie Scism at leslie.scism@wsj.com.

    Categories: Sheryl's Articles
    currency