The IUL Objection Buster

The IUL Objection Buster
Your Guide to Making the Case for Indexed Universal Life Insurance
AMZ Financial Insurance Services, LLC
866-204-7712 • 866-279-5677 • www.amzwebcenter.com
© AMZ Financial Insurance Services, 2013
FOR PRODUCER USE ONLY. NOT INTENDED FOR USE WITH CLIENTS.
Busting IUL Objections
Why Indexed Universal Life?
As the nation’s leading developer and distributor of Indexed Universal Life (IUL), AMZ Financial Insurance
Services has a proven track record in dissecting the indexed life insurance market and finding the most
effective ways to use the best products available.
The following report was designed to provide insurance producers with the information they need to bust
many of the common objections surrounding Indexed Universal Life. In knowing how to overcome the
common objections, as well as to understand how to structure the policy for it’s intended use, producers
using this guide will be able to more effectively communicate the benefits of IUL
THE INDEXED LIFE LEADERS
The vision of AMZ Financial is simple. We intend to be the Indexed Life market leaders. Our company is
focused on Indexed Life product development as well as the marketing and distribution of both Indexed
Life and Annuity products. We search for partners, insurance companies, marketing firms and agents who
have a desire to market these innovative products. AMZ provides the knowledge and resources agents need
about life and annuity products so they can make the best choice for their clients.
An Independent Spirit and Philosophy
Originally founded in 2000 as an independent marketing organization, the company maintains an
outstanding track record and performance history. Since its initial inception, the company continues to lead
the market in the distribution of Indexed Universal Life, and smashes premium goals year-after-year. As an
independently owned company, you know when you speak with the experts at AMZ Financial, that you will
hear the unvarnished truth.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
2
IUL Is Too Expensive
The Most Common Objection that is Easily Addressed with the Right Products
The fact is, if you’re selling cash-value life insurance, every life insurance policy you sell has fees,
COI charges, loads, expenses and surrender penalties. In general, Indexed Universal Life is no
different than many of the other cash-value policies out there. A benefit to using a Universal Life
based product is that all the fees, loads, expenses and charges are completely laid out for the
consumer, unlike Whole Life policies, where all these fees are bundled into the product.
To sell Indexed Universal Life, you need to understand the appropriate product applications, and
the markets this product serves. First, as a cash-value life insurance product, it maintains all of
the current tax-advantages of other cash-value life insurance products under Section 7702 of the
Internal Revenue Code, such as Whole Life, Universal Life and Variable Universal Life.
Remember, IUL is designed to provide life insurance protection. While the interest-crediting
options available within the IUL product are attractive for cash-value accumulation, your client’s
fundamental objective in buying this product should be for the peace of mind that the life
insurance protection provides.
So when you are marketing this product, present it to those individuals seeking both death
benefit protection and the ability to generate cash values within the life insurance policy for a
future distribution need. If you are purely looking for the most efficient way to pass wealth at
death, and your client is not interested in generating cash values that they may harvest at some
time in the future, typically there are products that are more ideally suited for those needs, such
as level premium term or minimally funded lifetime guaranteed UL. One of the first things you
need to ask yourself is, why would a client want to purchase an IUL over other cash-value
products, if all life insurance policies have fees, COI charges, loads, expenses and penalties?
GAME-CHANGING PRODUCT DESIGN
AMZ Financial invented a new and unique death benefit option called the Cash Value
Amplifier™ which positively enhances cash-value performance of a life insurance policy. The new
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
3
patent-pending 1 feature allows an insurance company to amplify a policyholder’s cash value
without violating the product’s tax advantages, carrier profitability or producer compensation.
The Cash Value Amplifier significantly reduces the death benefit costs within the insurance
contract. These lower costs directly lead to considerably higher cash values. Those higher cash
values, and the available tax-advantaged income, will appeal to customers seeking both death
benefit coverage and tax-advantaged distribution of income. When a client adds the Cash Value
Amplifier to the product, it becomes the most efficient accumulation oriented product.
Cumulative Death Benefit Costs
Without Cash Value Amplifeider
23% Lower Average Death Benefit Cost
50
Value Cumulative Net Amount At Risk
With Cash Value Amplifer
55
60
65
70
75
80
85
54% Lower Average Net Amount At Risk
50
55
60
65
70
75
80
85
1 This feature has a patent filed by AMZ Financial Insurance Services, LLC
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
4
Without IPA
With IPA
Cumulative COI Charges
82% Savings in Cost of Insurance Charges
50
55
60
65
70
75
80
85
Policy Accumulation Value at Age 90
Over $215,000 Additional Value
$1,663,819
$1,448,152
Now when you present an IUL product with the Cash Value Amplifier, the objection that IUL is
too expensive is easily overcome.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
5
Underwriting Causes Too Many Problems
The Right Products Alleviate Your Concerns
The reason a lot of producers shy away from selling cash-value life insurance products is because
they require too much underwriting of the proposed insured. The fact is, all cash-value policies
require medical and financial underwriting. There are three main issues that can pop up and
cause issues. The first is clients that waited too long to purchase their policy. The second issue is
the client who engages in a guilty pleasure, like smoking cigars. The last issue is when a client
appears outwardly healthy, but once in underwriting additional health issues are discovered.
With the right products, all of these issues can easily be overcome.
Waited Too Long
Guilty Pleasures
Health Issues
Waited Too Long
Let’s consider two individual that have the same underwriting classifications, premium
commitments, index caps, growth rates and assumed loan rates:
Andrew
Michael
Standard/Non-tobacco
Standard/Non-tobacco
Premium:
$25,000 for 10 years
$25,000 for 10 years
Index Cap:
13%
13%
Growth Rate:
7.5%
7.5%
Assumed Loan Rate:
5.5%
5.5%
Class:
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
6
Andrew
Michael
Year 11 Results
Cash Value
$258,613
$270,699
Annual Loan Amount:
$20,139
$26,338
43
55
Age:
In this example we see that even though Michael, who is 12 years older than Andrew, and uses all the
same assumptions, his policy performs better because he chose a policy with the revolutionary Cash
Value Amplifier.
Guilty Pleasures
Sometimes smokers are unfairly treated like second-class citizens. Well we just think this is
wrong. In fact, with the right products, your clients who smoke could generate a whopping 22%
more loan income than a non-smoker when using the right product.
Non-smoker Without
Cash Value Amplifier
Smoker with
Cash Value Amplifier
Standard NT
Standard Smoker
$10,000
$10,000
Assumed Crediting Rate:
7.00%
7.00%
Assumed Loan Rate:
5.25%
5.25%
Initial Death Benefit:
$543,526
$432,021
Death Benefit @ 65:
$543,526
$432,021
Loan Income @ 65:
$25,160
$30,658
Underwriting Class:
Premium:
When you consider that a standard smoker generates 22% more loan income than a standard
non-smoker, using all the same assumptions, can you imagine how strong a product with the
Cash Value Amplifier would be for your non-smoking clients too?
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
7
Health Issues Arise
When unknown health issues arise, how do you get your case back on track? If you’re like most
agents, you’ve seen it all. Sometimes when you meet a client, they appear healthy, but after
underwriting that’s not the case, and it happens more than you think.
You could easily see abnormal lab results, abnormal blood pressure or even elevated weight to
height ratios among the common health issue that pop up. With the right product, you can easily
get these cases back on track
Original
Illustration before
underwriting
Revised
Illustration after
underwriting
Illustration with
Cash Value
Amplifier
Standard NT
Table 4
Table 4
$20,000
$20,000
$20,000
Assumed Crediting Rate:
7.50%
7.50%
7.50%
Assumed Loan Rate:
5.50%
5.50%
5.50%
Initial Death Benefit:
$428,912
$337,236
$337,236
Death Benefit @ 65:
$1,1911,863
$1,063,969
$1,125,428
Loan Income @ 65:
$73,516
$63,851
$82,772
Underwriting Class:
Premium:
Here we see that the product with the Cash Value Amplifier not only outperforms the illustration
after you find out about the health problems, it also beats your original standard illustration by
almost 12% for producing loan income at age 65. Can you imagine how strong that product
would be at Standard? Using the right IUL product can help overcome the underwriting
objections.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
8
Using Aggressive Illustrations
Set Realistic Expectations — You Don’t Need to Use “Crazy” Numbers
Indexed Universal Life is almost always “sold” using some sort of carrier illustration to provide
an example of how the policy will perform over the long term. The objection many clients might
make is that your assumptions in the IUL policy are just way to high. Unfortunately the reality is
yes, many insurance producers use aggressive illustration numbers.
The key to overcoming this objection is setting realistic illustration growth and loan rates. When
presenting IUL growth rates to consumers we encourage you to use the table below to help you
set a realistic average crediting rate that could be supported by historical results. Note that past
performance is no guarantee of future results.
S & P 5 0 0 C A P R AT E
H I S T O R I C A L LY
C O N S E RVAT I V E
ANNUAL POINT-TO-POINT
P O S S I B L E AV E R AT E
A S S U M E D R AT E
15.0%
8.4%
7.4%
14.5%
8.2%
7.2%
14.0%
8.0%
7.0%
13.5%
7.8%
6.8%
13.0%
7.6%
6.6%
12.5%
7.4%
6.4%
12.0%
7.1%
6.1%
11.5%
6.9%
5.9%
11.0%
6.6%
5.6%
Source: Yahoo Finance
Setting Your Crediting Rates
Ultimately when setting the assumed average crediting rate for your illustrations we suggest that
you become comfortable with a crediting rate that falls somewhere between the historically
average rate and the conservative rate. The decision on what crediting rate is assumed is
ultimately up to you and what you are comfortable illustrating, but being conservative in your
illustrated rate will help you overcome the objection that you’re using over-inflated numbers.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
9
Why Locked in Variable Loans Can Be Deceiving
A few years ago, carriers started to promote a feature within the variable loan structure, where
the carrier identified and set a cap on the variable loan rate they would ever charge. For example,
the carrier indicates that at no time in the future would the charge for the loan be greater than 5%
annually. Initially producers looked at these locked-in variable loan rate caps as a way to provide
some certainty in their variable loan illustrations. Granted, this feature does produce certainty,
but only on one side of the equation.
Within the variable loan structure there are two sides to the equation, the rate the company
charges and the index cap that is credited. The major issue in having a cap on the variable loan
rate charged to the client, is that if the economic conditions decline, the carrier is ultimately
“handcuffed” in what they can do. If economic conditions would warrant a prudent carrier to
increase the loan rate, in turn they will be forced to look at other variables that are in their
control, such as the index cap.
Losing money on a loan portfolio is not something that a carrier will accept on a non-guaranteed
product. Therefore, what a carrier will likely be forced to do if these economic conditions persist
is to drop the cap so drastically, that either the variable loan is operating with a negative arbitrage
(the index cap is less than the variable loan rate), or drop it to match the variable loan rate,
essentially making it a wash loan. Remember carriers are not going to lose money, they are going
to need to make up those locked-in loan losses somewhere in the policy.
What you should consider is that products with a variable loan cap will have to make significant
adjustments to maintain the integrity of the product and the carrier’s finances if economic
conditions warrant it. Look to carriers that do not lock in the variable loan cap as it gives them
more flexibility to maintain a competitive product over the long term.
Using Products with Uncapped Variable Loans
When a carrier offers variable participating loans and does not place a “cap” on that loan rate, it’s
up to you the producer to select a loan rate for your illustration. The biggest issue we see again
with these variable loan rates in the illustration is some producers creating too much arbitrage
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
10
between the crediting rate and the loan rate. IUL is a strong product when compared to other
cash-value policies and our belief is that you don’t need to be overly aggressive on the growth or
loan rates to make the case to the client. It may be wise to under-project, below their “worst-case
scenario” to have them realize the strength of this product. Over inflated assumptions just create
red flags for many consumers.
Variable loans
With variable loans interest credited during the loan is not fixed. Instead loaned cash values
remain in the policy and are “working” as the crediting factor is based on the policy’s actual
index growth. The loan owed to the company also grows at a variable rate based on Moody’s
Corporate Bond Yield (CBY), or some other similar factor. Therefore, the cost equals the
difference in the average credited rate and average loan rate (loan spread). Since the difference
between the average policy year’s index growth and the average Moody’s CBY can often times be
a net positive, the chance for arbitrage is equal to the upside potential. See example below:
• Average Moody’s CBY: 6.0%
• Average index credit: 8.5%
• Benefit of borrowing: 2.5%
However, their is a chance to get upside-down on a year-to-year basis. So when everything is
said-and-done, the key difference is the loan cost. With cash-value products, you don’t have to
pick a loan option until the client actually needs the money. However most producers want to
show loans coming out in pre-sale illustrations. We recommend running both fixed and variable
loans and showing the client the options. The most important issue in running variable loans is
setting realistic expectations. A big risk in variable loan illustrations is that many agents set
unrealistic and far too aggressive loan assumptions. With the added risk inherent in the variable
loan, you should be very conservative in loan factors (spread no greater than 2%) and fully
disclose the added risk.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
11
IUL Is Too Complicated
Explain Things Simply First - But The Reality Is - All Life Insurance Is Complicated
If you’ve ever tried selling anything, you know that being able to relate to your prospects and to
show them the benefits your product provides is the single most important factor to sales
success. In the life insurance industry, we’ve come to rely on third-party software programs to
help illustrate why life insurance may be a good way to supplement retirement income, which is
an important reason most people purchase a cash-value IUL policy. Unfortunately most of these
programs have a few issues going against them:
• First, there are just too many inputs for the producer … it takes you FOREVER to figure out
how to get the data into the program, then
• They create so much output that it overwhelms the consumer and creates “paralysis by
analysis”. Providing too much information causes prospects to shut down and not make a
change.
Well the whole point in offering a software program should be to get the client to make a
decision. Seeing there was a need for a better way to present IUL to a prospect, at AMZ Financial
we created a software program called The Family Retirement Plan App that gets the client to see
very clearly that it may not be the amount of money they are saving, but where they are saving it
that matters most. How do we do that?
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
12
First, our software creates a comparison — in real dollar-and-sense-terms — across the places
people traditionally set aside money for retirement, then compares that to an Indexed Universal
Life product. We have also taken great care in creating a software selling system that has
substantial conservatism built into the program. What this means is that when you’re presenting
to the consumer, the result you show them from the software will be conservative against the
ultimate carrier illustration you put in front of them.
Therefore, when an advisor walks through our software with a prospect, the client comes to the
conclusion … on their own … that they should purchase an IUL policy. We also make this very
easy for a producer to use by offering simple inputs. In fact, the average producer can get all of
the data for the software from the client in under 60 seconds. We then provide the agent with
extraordinary outputs (see the sample output above). Putting this all together allows a producer
to inform and educate the client, and make more sales with less selling. Combine this software
selling system with the right product that efficiently builds wealth and you quickly overcome
most objections raised by prospects.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
13
What About all the Non-guaranteed Elements?
IUL is a Product that is Dramatically Different from Whole Life
One objection that is pretty common is, “How does a product like IUL which has a lot of nonguaranteed elements stand up against a product just filled with guarantees, like Whole Life?”
First, the two products serve different needs and it’s best to understand where they fit. It’s not
that one product is better than the other, they just serve different client needs.
Whole Life is a very solid guaranteed cash-value product, and more importantly it’s priced
accordingly to provide those guarantees. What that means is the expense charges in a product
with guarantees are a lot higher, and typically that makes them very expensive products.
Where we see a lot of people using Whole Life is when the client is dumping monster premiums
into the policy, and wanting to know at any point in the future what their guaranteed cash value
and death benefit will be in the future. If you’re working with clients that are going to fund these
cash-value policies like a traditional retirement account, where they’re making monthly
premiums, what you’ll see is that the expected income distribution from a Whole Life product is
going to be significantly less than an IUL.
Whole life is also a bundled product, so you can’t pull the policy apart and see just how much as a
client you are paying for mortality, expenses, how much interest is being credited each and every
year. That’s the downside of a bundled product like Whole Life.
Unbundled Indexed Universal Life
Conversely, IUL is an unbundled product, which means you can directly see in each year how
much of your premium is going to pay for mortality costs, or expenses. When it comes to the fact
that cash values and death benefits are not guaranteed in an IUL, you need to realize that the
basic structure of the policy provides some relief. Having a cap on your downside exposure, such
as the minimum guaranteed crediting rates allows you to show some long-term growth even if the
market sustains long periods of negative returns. Whats more important than the minimum
guaranteed crediting rate is the strength of the carrier issuing the policy. A significant factor is to
also use conservative illustration assumptions, which we’ve already discussed.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
14
Now, let’s be honest, there are carriers out there that have built IUL products with benefits and
features that are just not sustainable or supportable in today’s economic and fiscal climate so be
careful when choosing a product or carrier. Work with experts who will help you conduct your
due diligence on the carrier’s track record and policyholder treatment.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
15
IUL Sounds Too Good To Be True
If The Insurance Company Can Do It … Why Can’t I Replicated it Myself?
One of the first things many prospects say when they hear about how IUL is that, “it’s too good
to be true.” And the truth is, “Yes, if you don’t promote the product conservatively, it is too good
to be true, just like any other cash-value life product that is over-illustrated.” The most important
aspect in overcoming the “too good to be true” argument boils down to these main issues.
Disclose All Costs, Charges, Fees, Surrender Penalties
If you clearly lay out for the client all the costs, charges, fees and surrenders penalties in the
policy, the client gets a very good understanding that there are a lot of benefits being provided
for the premiums they are submitting. It’s not just about accumulating cash, it’s first and
foremost a product that offsets the impact of death and the financial hardships that can create.
However, you need to also consider using products available today that can dramatically cut the
cost of some of those expenses, like the Cost of Insurance Charge, which makes the policy even
more efficient.
The Underwriting Process and How You Overcome Issues When They Arise
The biggest concern for most clients is the fear that comes along with going through the health
underwriting associated with a cash-value life insurance policy. Your goal is to conduct a simple
field underwriting during the sales process so that your illustrations appropriately reflect the
underwriting classification. There are products available in the market today that can help you
overcome some of the most common issues, such as waiting too long to purchase they policy,
engaging in guilty pleasures, or finding unexpected health issues after the application is
submitted.
Setting Realistic Illustration Assumptions
It’s easy to make IUL look awesome by simply playing with the assumed growth rates and
showing artificially low variable loan rates. The simple truth is, you don’t need to aggressively
illustrate IUL to make a compelling case for the product. By showing the client realistic
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
16
assumptions in both your growth and loan rates, you quickly overcome the objection that it’s just
too good to be true.
Use Real-World Examples to Illustrate Product Applications
When you start promoting IUL, you need to use real-world examples and stories to help
illustrate how the product works, and why this strategy may be better for the client than the
alternatives they are considering. Use software comparisons — in real dollar-and-sense-terms —
that illustrate the power of IUL on a basic level.
Once the client sees the basics of how IUL works and the benefits it provides, ease them into all
the required disclosures and information. Jumping onto the jargon bandwagon too early creates
confusion for your clients. If you can walk a prospect through easy-to-use software that
highlights the product benefits, often times it leads the client to the conclusion … on their own …
that they should purchase an IUL policy. Don’t force the product on people. If they see the
power and benefits it provides, often times they decide that IUL will solve many of their financial
needs with one product.
Explain the Non-guaranteed Elements
Many cash-value life products are sold through the use of an illustration. Realize that the nonguaranteed elements need to be supported by carriers and products that have a track record for
treating policyholders appropriately. Carrier ratings and financial stability are also important
factors in this discussion. The benefit of IUL, even though there are non-guaranteed elements,
the product can provide outstanding results over the long term.
The bottom line is, if IUL is over-illustrated with a carrier that won’t be able to back-up the
product design or features, it is too good to be true. Work with a distribution partner that will
help you find the right products for the right clients at the right time.
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
17
About AMZ Financial Insurance Services, LLC
The Indexed Life Leaders
The vision of AMZ Financial is simple. We intend to be the Indexed Life market leaders. Our company is
focused on Indexed Life product development as well as the marketing and distribution of both Indexed
Life and Annuity products. We search for partners, insurance companies, marketing firms and agents
who have a desire to market these innovative products. AMZ provides the knowledge and resources
agents need about life and annuity products so they can make the best choice for their clients.
A Full-Service Offering
While the primary focus at AMZ Financial involves indexed products, we understand that one product
doesn’t fit every need. That’s why we’ve developed partnerships and strategic alliances with many various
organizations and distribution outlets to provide our producers with a full array of products and services
including:
• Indexed Universal Life
• Second-to-Die Life
• Term Life
• Annuities
• Universal Life
• Long-term Care
• Whole Life
• Single Premium Whole Life
Our ability to provide you with great contracts and top-notch carriers — regardless of the type of product
— means you have a one-stop-resource to help you solve all your client needs under one roof.
An Independent Spirit and Philosophy
Originally founded in 2000 as an independent marketing organization, the company maintains an
outstanding track record and performance history. Since its initial inception, the company continues to
lead the market in the distribution of Indexed Universal Life, and smashes premium goals year-after-year.
As an independently owned company, you know when you speak with the experts at AMZ Financial, that
you will hear the unvarnished truth.
Midwest Office
West Coast Office
14225 University Avenue, Ste 210
4944 Windplay Drive, Ste 115
Waukee, IA 50263
El Dorado Hills, CA 95762
toll-free: (866) 204-7712
toll-free: (866) 279-5677
fax: (515) 327-1191
fax: (916) 939-7764
Hours: M-Th 8am-5pm, Fri. 8am-noon
Hours: M-Th 8am-5pm, Fri. 8am-noon
FOR PRODUCER USE ONLY. NOT INTENDED FOR CLIENT USE.
18