• By Pat Sheridan

As an independent insurance agent, you have your pick of products — which is a good thing for you and for your clients. But it can also be difficult to find the right indexed universal life (IUL) product to sell, given all of the options. There are a number of factors to take into account when making this decision — and chief among them are product design, carrier attributes, and client needs.

Product design elements
Product design is where you can get under the hood of the IUL and see how it works. Certain design elements can affect the product’s performance, benefits, and flexibility, and your ability to understand and explain the pros and cons of each is where you earn your money as an agent.

Index selection is something some clients are picky about and that others couldn’t care less about. Most clients will be happy using the S&P 500 as their underlying index selection, but others may want to diversify into other indices or use an international element, such as the Dow Jones EuroStoxx. The ability to combine returns from multiple indices can be another marketable option.

Sweep frequency determines how long the client’s premiums must sit in a fixed account before they are applied to the index. Some products allow them to sit for up to two weeks; others, as long as a year. The ultimate in sweep frequency would be daily sweeps, where a client’s premiums are allocated to an index selection the day they are received so they never sit in a fixed account.

Many products are now built to use either the guideline premium test (GPT) or the cash value accumulation test (CVAT). While the GPT often works better over the long run, there are times when CVAT allows the client to fund in ways that GPT doesn’t allow. Having a product that can be used either way can be of value.

Variable or participating loans are an important part of a competitive IUL product. Most companies offer variable loans that are tied to an external rate, such as the Moody’s corporate bond rate. Having an external tie is nice because it gives the client some peace of mind knowing that the carrier isn’t arbitrarily determining their loan rate.

Another element very similar to variable loans is some sort of protected death benefit feature. This feature (if available) would protect the policy from lapsing because of excessive loans. This is a very valuable benefit and should be seriously considered when considering IUL for the purposes of supplementing retirement or in any situations where loans in excess of basis are illustrated.

When looking at the guaranteed death benefit, it’s important to understand the client’s main objective. If the main goal is securing a guaranteed death benefit at the lowest price, non-indexed UL may be better. An IUL that is overfunded may provide the highest cash value while providing a guaranteed death benefit, but it will not offer the cheapest coverage.

Expense charges are part of every life insurance policy and should be looked at as part of the whole in the product design. A policy with a 0.25 percent account value expense charge is not necessarily better or worse than one with no account value expense charge. The same can be said with premium load, policy fees, etc. Sometimes a fee allows for higher caps or participation rates and better performance.

Carrier attributes
There are many things to look for in an IUL carrier — beyond their product offerings — that will help you determine if it’s the right company for you. Important factors include rating, integrity, underwriting, communications, and how easy they are to work with. Some of these can only be truly understood with experience, so try to rely on other producers or financial professionals for referrals or advice. Of course, you’ll want to also look at the commission level of the products to make sure they’re in line with the competition.

Client needs
Finally, and perhaps most importantly, you must identify the client’s primary and secondary goals for the product. Some common ones include:

• Low-cost coverage
• Income at retirement
• Specified death benefit with cash value being a supplemental concern
• Guaranteed coverage for a period of time
• Early cash value for such needs as college funding or premium financing
• High levels of flexibility and control
• Maximum cash value at a specific point in time

Additionally, some clients are more conservative and others more aggressive in the assumptions they are willing to accept. By understanding the client’s needs and concerns, you can identify the features that will be most important to them and choose the appropriate policy to meet most of their needs.

Pat Sheridan is the director of life sales at Senior Market Sales Inc. He can be reached at pat@seniormarketsales.com.