Indexed Life: Illustrating at Nearly 14%
August 4, 2019 by Sheryl J. Moore
Do I have your attention?
I know it feels like I am beating a dead horse with this topic, but continued interaction with salespeople using indexed life in their sales tells me that further education on indexed life illustrations is not only needed, but additional disclosure should be required.
You know, one of the most viral articles I have ever written in my 20 years in this business was about how insurance agents should choose their Brokerage General Agent (BGA) or Field Marketing Organization (FMO). What readers pull away from this article is that the only thing that truly differentiates the 300+ distributors in this country is a single thing.
Click HERE to read the original story via NAILBA.
If you pay attention to this article closely, and learn how to best-educate your agents on the matter of indexed life illustrated rates, you will get to the heart of how to attract and retain agents through the ONE thing that differentiates all distributors: your relationship with your agents.
The Problem
How are your agents illustrating indexed life today? What rate are they assuming for their illustrated rate? Oh, six percent you say? Would you be surprised if I told you that you are wrong, that they are actually illustrating 9.30% on that product, where you think the illustrated rate is 6.00%?
If this comes as a surprise to you, you are not alone. I have spoken with thousands of agents over the past year that are in the same boat.
In fact, not one agent I have spoken with in the past year understood that multipliers are escalating the rate at which non-guaranteed values are accumulating on IUL.
Not one!
I see this as an opportunity for distributors who are willing to put-in-the-work, and educate their downline agents.
The Math
So, in our example above, the illustrated rate on the indexed life product is 6.00%. However, there is a multiplier on the product that credits an additional 55% of any indexed gains to the contract. So, if the illustration assumes a credited/illustrated rate of 6.00%, we actually need to perform some math to see which rate the non-guaranteed cash values are actually accumulating at.
6.00% x 155% = 9.30%
If your agent REALLY wants to show their prospect an illustration assuming a credited/illustrated rate of 6.00%, on the aforementioned product, they would need to lower the “illustrated rate” to 4.03%.
Just, to help out, I put together a “cheat sheet” chart, illustrating how to “back into” an illustrated rate of 6.00% on some of the most competitive indexed ULs available today.
The Beef
Would your agents find 9.30% to be a “reasonable” expectation for gains on an indexed UL each year? Probably not.
Do your agents know to drop the illustrated rate on this particular product to 4.03%, to actually assume that 6.00% is being credited to the non-guaranteed values on the illustration. No, they don’t.
Referring back to our table, would your agents find 13.79% to be a reasonable expectation for gains on an indexed life contract each year? I struggle to find a single agent who can answer affirmatively. And yet, this is one of THE best-selling life insurance products available on the market today!
Are you seeing a problem? I am.
Our agents do not even know what they are selling!
The “illustrated rate” column was historically an indicator of what rate was being assumed for the growth of the non-guaranteed values on the contract. Today, that is no longer the case. Is there another field telling the agent that the illustration is accumulating at 9.30%, rather than 6.00%? No.
It is expected that the salesperson will understand how the multiplier works, and do the math themselves.
This is not enough. Based on conversation, webinars, teleconferences, and round tables, and keynotes, I can assure you that our agents do not understand this.
Our indexed life distribution needs help understanding this issue NOW. They need to be experts at the products that they are communicating to their prospects. Nobody is in a better position to prepare them than you are.
The Solution
Look- multipliers are not “good,” nor “bad.” They are a tool. The question is- are we ensuring that our field force understands the tools that they’ve been given?
Ultimately, this all comes down to a 30-page packet of paper called an “illustration.” The only thing an illustration does is prove that ink can stick to paper.
If you want your agents to feel confident in their indexed life sales, educate them on this important nuance of illustrating indexed life with multipliers and bonuses. Conduct webinars on the matter; send them emails, explaining the math!
I promise, not only will they thank you for it, but their sales will thrive and GROW.
Sheryl Moore is President and CEO of the life and annuity market research firm of Wink, Inc. Her company provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at sjm@indexedrockstar.com.
