How long is ‘forever’ when it comes to permanent life insurance?

When presenting permanent life insurance solutions, clients frequently ask how long they will need to make premium payments. When products are sold based on covering a specific need, such as a mortgage or college for kids, once clients are in their retirement years with a paid-off mortgage and grown kids, they may wonder what the options will be to minimize or eliminate payments on a permanent policy.

Clients may like the idea of permanent protection but the idea of paying forever can be a daunting proposition, which is why discussing options to stop paying should be part of the initial conversation.

Participating whole life with reduced paid-up option

Reduced paid-up riders through a nonforfeiture option give clients the option to purchase a lower guaranteed death benefit and the ability to stop paying premiums and use the existing cash value as a single premium. That death benefit is guaranteed for life and no additional premium payments are needed.

Beyond that, clients still receive all the benefits of participating whole life since the paid-up policy has guaranteed cash value and guaranteed growth of cash value. The paid-up policy can earn dividends, which can be used to increase the guaranteed cash value and the guaranteed death benefit. When clients choose an RPU rider, all of this happens automatically, delivering a guaranteed paid-up policy that continues to grow for the rest of their life.

Options with indexed universal life policies

For clients with IUL policies, creating options to keep coverage in force forever without payments is also doable and should be an included part of the sales discussion so clients can appreciate the options available as they age and their needs change.

Option 1: Create your own RPU. Insurable clients with cash value in their IUL policy can create their own RPU-like solution with single premium whole life. If the insurance was purchased for a specific need that has since been met (mortgage, college), instead of terminating the policy, clients can use the cash value to purchase a single premium whole life policy with a guaranteed death benefit without needing to pay any more premiums.

Option 2: Solutions for an underperforming IUL. Clients with underperforming IULs have options too. They also can purchase a single premium whole life policy and receive guaranteed cash value growth with the potential for more growth through dividends. And the best way to avoid under-performing policies is to select carriers that offer products that are guaranteed to perform. That way, the first day of your single premium whole life policy is the worst day it will ever have, as it only gets better from there, with possible dividend payouts, which will make the guaranteed side of the illustration even stronger.

RPU solution: Imperfectly flexible

When choosing RPU, clients lower their death benefit, and potentially decrease the cash value growth in the policy. This might not be the perfect solution for all clients, but it does provide flexibility to meet clients’ changing needs.

1. It protects clients by letting them keep some level of coverage instead of losing it altogether.
2. It allows clients to benefit from an insurance plan that achieved its initial purpose and has the potential to do more.
3. It helps agents answer clients when they ask, “Do I have to pay forever?”

This imperfectly flexible solution gives you another reason to look at participating whole life and the ability to provide forever coverage without paying forever.

Marc Barnes is a sales director at Mutual Trust Life Insurance Solutions, the U.S. life insurance division for Pan-American Life Insurance Group. Contact him at [email protected].

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Marc Barnes is a sales director at Mutual Trust Life Insurance Solutions, the U.S. life insurance division for Pan-American Life Insurance Group. Contact him at [email protected].