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At Fleming Financial Services, Inc., our role is to assist our clients in defining and realizing their financial objectives and goals. We work with our clients to implement personalized plans designed for their unique situations. Our areas of concentration are: Retirement planning, Estate and Wealth Transfer strategies, and Business Continuation planning. We emphasize the importance of conducting our business with integrity and professionalism. As a member of PartnersFinancial, an independent national financial services company, we are able to provide access to sophisticated resources for the benefit of our clients. Some of the professionals with our firm are currently registered to conduct business through NFP Securities, Inc. With those additional resources in place, we help facilitate the complex corporate and personal financial decisions our clients must make.
INDEXED UNIVERSAL LIFE: Mechanics and Capabilities-Part 7
Celeste Moya, AVP, Product Management, NFP Life Another issue surrounding participating loans has been the “abuse” of loan interest rates in some IUL illustrations that sell clients on inflated and unrealistic income distributions. Abusive illustrations project very little out-of-pocket cost for the client and outlandishly high income streams that seem to provide “free insurance.” For most clients, a fixed loan may be a better option when accessing their policy values, as it provides stability and more predictable outcomes.  However, a participating loan may be an attractive option to clients who understand and can financially tolerate the potential risks of a participating loan.  Regardless of what loan option clients elect, they need to be educated on all of the implications of a loan in a life insurance policy, be shown various potential outcomes, and expect to fund the policy in a suitable manner. Policy Monitoring IULs are definitely not a “set it and forget it” type of product. After an IUL policy is in force, it will require frequent review from the agent and client to ensure the policy is performing as expected.  It is important that an agent regularly review the statements provided by the insurance company and educate the client on what the various sections of the statement reflect. Due to the structure of the product, it is inevitable that the actual performance will not exactly replicate the original projections, and for that reason close policy monitoring is imperative. Exhibit 6 Example based on same insurance company’s fixed UL and indexed UL product: male, age 55, preferred non-tobacco risk class, $1 million death benefit, increasing death benefit (to keep net amount at risk constant), full pay, endow at maturity, both at same crediting rate of 5 percent. <ahref="http://blogs.imms.com/flemingfinancialservices/files/2014/09/Exhibit-6B.png">Exhibit 6B Example based on same insurance company’s fixed UL and indexed UL product: male, age 55, preferred non-tobacco risk class, $1 million death benefit, increasing death benefit (to keep net amount at risk constant), full pay, endow at maturity, both at same crediting rate of 5 percent. Conclusion As with all life insurance planning, it is important to establish suitability when recommending IUL to a client. IUL is not the right product for every client. Although IUL has evolved since its inception in the market and now has various sales applications it is still predominantly a cash-accumulation-oriented product. With an IUL, a client should expect certain levels of volatility and plan for potential changes in the projected performance of the policy. From an agent perspective, it is important to understand the client’s goals related to life insurance coverage and assess their risk tolerance, investment time horizon and liquidity needs to ensure IUL is a good option. It is also the agent’s responsibility as the client’s insurance advisor to educate the client on the mechanics of IUL and ensure they thoroughly understand the investment they are making. More and more insurance companies are entering the IUL market, and the growth of this product type continues to be exponential. Since this is a trending insurance topic, anyone involved with financial or insurance services should thoroughly understand this product so they can recommend it to suitable clients and be well-prepared to speak about it when the topic arises. Sources 1. LIMRA. “U.S. Individual Life Insurance Sales Fourth Quarter 2011 Report.” www.limra.com. 2. AnnuitySpecs’ “Indexed Sales & Market 4th Quarter 2011 Report.” www.annuityspecs.com. 3. www.standardandpoors.com. 4. Ibid. Copyright © 2013 NFP. All rights reserved.