IUL to the Rescue of Low UL Sales

Indexed universal life (IUL) sales kept overall life insurance sales in the black last year, and also appear to be subsidizing insurers with low fixed UL sales.

Nine of the top 10 IUL sellers had sales increases in the fourth quarter last year compared with the third quarter, according to Wink’s Sales & Market Report.

Seven of the top 10 IUL sellers had double-digit increases in fourth quarter IUL sales compared with the third quarter.

“That’s huge,” said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc., publisher of Wink’s Sales & Market Report.

“Only three companies out of the top 25 sellers had (fourth quarter) sales declines so it’s been a great overall quarter for indexed life, but it can’t remain this way forever,” Moore said.

In 4Q IUL Rises, Fixed UL Falls

For the moment, IUL sellers can enjoy their day in the sun.

Fourth-quarter 2017 IUL sales rose 20 percent to $575 million compared with the third quarter, Wink reported.

Fourth-quarter IUL sales rose 7.6 percent over the fourth quarter of 2016.

IUL sales in 2017 rose 6 percent to $1.9 billion over 2016.

The nation’s top IUL seller, Pacific Life, saw fourth-quarter sales rise 49 percent compared with the third quarter, while fourth-quarter sales rose 64 percent over the fourth quarter in 2016, Wink reported.

Pacific Life IUL 2017 sales rose 58 percent compared with 2016, Wink reported.

Meanwhile, fourth-quarter 2017 fixed UL sales fell 11 percent to $474 million compared with the third quarter, Wink also reported.

Annual 2017 fixed UL sales were $2 billion.

Charges Eat Away at Low Interest

The Wink data points to the following conclusion: Insurers are pulling away from offering expensive no-lapse guarantee fixed UL in favor of IUL, which has lower reserving requirements and is therefore less costly.

As long as interest rates stay low, IUL sales will continue to increase while interest rates on fixed UL, along with heightened reserve requirements, have dampened sales.

The insurance charges on a fixed UL contract visibly eat into the 3.5 percent or 4 percent in interest earned, Moore said.

If the cash or account value in the policy dwindles to the point where it is insufficient to cover a fixed UL policy’s charges for insurance and administration expenses the UL policy will lapse unless the contract contains a no-lapse feature, or what is known as a secondary guarantee.

Consumers typically buy fixed UL for the lifetime no-lapse guarantees.

In the fourth quarter, 67 percent of fixed UL sales were priced to come with a no-lapse guarantee, Wink found.

No matter what happens to interest rates, insurers are on the hook to honor those UL contracts so long as policyholders pay their premiums on time.

No surprise, then, that with IUL sales booming several companies are slated to enter the market in 2018 after new product launches in 2017.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.