6 steps to successful IUL sales

In more than 20 years working as an insurance agent, I saw firsthand the importance of understanding universal life insurance when it was still the new kid on the block, and well before IUL became a real thing in the late 1990s.

IUL is a powerful financial tool that combines life insurance security with the potential for cash value growth tied to market indices.

Here is what I’ve learned during my tenure in the insurance business, including some practical tips for you to start applying today.

Step 1: Gather great information

The foundation of any comparison starts with thoughtful information gathering from each carrier you represent, which includes:

Cap rates. This is the maximum interest rate that can be credited to the cash value of an IUL policy in a given period, usually a year. For example, a cap rate of 10% means the policy's cash value will not earn more than 10% interest, even if the index performs better.

Floor rates. This is the minimum interest rate that can be credited to the cash value of an IUL policy. Tfloor typically is set at 0%, ensuring the policy's cash value will not decline if the index performs poorly. This provides a level of protection against stock market downturns.

Charges. Various fees and costs associated with maintaining the policy, such as mortality and expense charges that cover insurance risk and administrative costs; fixed or variable policy management fees; additional fees for optional benefits or features added to the policy, and a spread or margin percentage deducted from the index performance before it is credited to the policy’s cash value.

Living benefit riders. Optional add-ons that provide additional benefits beyond the basic death benefit, such as an accelerated death benefit rider, a long-term care rider, a waiver of premium rider or a child term rider.

How to present to your client

When gathering policy information, I recommend creating a detailed spreadsheet to compare each carrier’s offerings. This will help you quickly identify the strengths and weaknesses of each policy. You also must request the most up-to-date information, as cap rates, floor rates and charges can change annually.

Step 2: Review cap rates

Cap rates are a critical factor in IUL policies as they determine the maximum potential growth of the subaccount. Higher cap rates offer more potential for growth, but it’s also essential to consider the historical consistency of these rates.

How to present to your client

When reviewing cap rates, consider the following:

• Historical performance. Review how the carrier has adjusted cap rates in the past and how these changes have affected policy performance. For example, if a carrier has consistently maintained high cap rates, it may be a sign of a more reliable choice, especially when paired with strong historical financial strength ratings.
• Market conditions. Understand how different market conditions can impact cap rates and the overall performance of the policy. For example, higher cap rates can lead to significant growth during bull markets.

Step 3: Evaluate floor rates

Floor rates provide downside protection by setting the minimum interest rate your subaccount can earn. A higher floor rate offers better protection against potential stock market downturns. For example, a floor rate of 0% ensures that the accounts will not lose value even if the market declines.

How to present to your client

When evaluating floor rates, consider:

• Risk tolerance. Clients with a lower risk tolerance may prefer policies with higher floor rates to ensure more stable performance. For example, a higher floor rate can provide peace of mind if a client is nearing retirement.
• Market volatility. A higher floor rate can provide peace of mind and protect the policy's value in volatile market conditions. This is particularly important for clients who are concerned about market fluctuations.

Step 4: Assess participation rates

Participation rates determine the percentage of the index growth credited to your account. A higher participation rate means more of the index’s gains are credited to your account, subject to the cap rate.

How to present to your client

When assessing participation rates, consider index options. Some carriers offer alternative index options beyond the S&P 500, providing greater diversification and potential for higher returns. For example, if a client is interested in a more diversified portfolio, look for carriers that offer multiple index options.

Step 5: Compare fees

Fees can significantly impact the long-term performance of an IUL policy. When comparing charges, consider:

• Fee efficiency. Lower fees can enhance the long-term performance of the policy, making it more attractive for clients. For example, a policy with lower M&E charges and fixed policy administration fees can be more cost-effective.
• Transparency. Build trust and satisfaction by ensuring all fees are disclosed and explained to your clients to avoid surprises.

How to present to your client

When comparing associated charges, break down each fee category. Use charts or graphs to help them understand the impact of different fees over time. For example, a side-by-side comparison of total costs over 10 years can be very effective.

Step 6: Examine living benefit riders

Living benefit riders provide additional terminal, chronic or long-term care protection. These riders can be valuable to an IUL policy, offering peace of mind and financial security. Some companies may provide chronic illness riders at no extra charge, while others may charge additional premiums.

How to present to your client

When examining living benefit riders, consider:

• Cost. Determine whether the rider comes at an extra cost or is included at no charge. I have found a carrier offering a long-term care rider at no additional premium can be a significant selling point.
• Flexibility. Evaluate the flexibility and range of options for using the benefits, such as access to funds for health care or long-term care needs. For example, a rider allowing partial withdrawals can be more practical for clients who need ongoing support.
• Historical performance. Review how the carrier has managed these riders in the past and how they have affected policy performance. For example, a carrier that has a history of honoring claims promptly can build trust with your clients.

The big picture: Different strokes for different folks

Remember to gather the most up-to-date information and present a comprehensive and transparent analysis of all factors related to your client's needs and goals. Keep these three primary customer segments and their needs in mind:

• Conservative investors. Focus on downside protection and stability. A higher floor rate of 1% provides better protection against market volatility, aligning with their low risk tolerance.
• Growth seekers. They are more interested in maximizing returns with higher risk options. They tend to choose an insurance carrier with a 90% participation rate, even though it has a lower cap rate of 10%, because the higher participation rate means more of the index's gains will be credited to their account. Historical performance data and a detailed discussion of the potential for higher returns can effectively present options for growth-focused clients.
• Fee-sensitive. The emphasis should be on cost efficiency and transparency. These clients tend to choose an insurance carrier with lower M&E charges and a fixed policy administration fee over another carrier with higher and variable expenses.

As an agent, you sell a policy and provide valuable guidance and support. Use this guide to enhance your knowledge and confidence, and you’ll be well-equipped to help your clients make the best decisions for their financial future.

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Angela Palo is the chief operating officer and co-owner of Pinnacle Financial Services in Warminster, Pa. Contact her at [email protected].