by Kasey Gammons, LifeTrends Sr. Analyst
Many producers have considered guaranteed universal life (GUL) as the go-to strategy for a simple, straight-forward sale, and for good reason. These products provide the rock-steady assurance of a long-term guarantee and premiums which have essentially remained competitive, despite significant pressure from a consistently lower interest rate environment. While this is certainly a powerful weapon in a producer’s arsenal, it might not be the “one-size fits all” answer for every client. On the other hand, indexed universal life (IUL) has been gaining more and more traction within the industry. The market has seen steadily plummeting premiums, improved inherent guarantees, and the cash-value accumulation that has always been integral to the IUL proposition. However, it can come across as incredibly complex and volatile to some producers, and as a result, they stick to the more tried and true methods rather than a venture into the IUL unknown. What if there were products that could meld some of the best aspects of both worlds – tying down a significant and simple story of stronger guarantees, while also providing real and substantive accumulation potential? Well, if there were (hint: there are), then they might just be the bridge some producers need to cross over into a very specific type of IUL sale.
This special class of protection-specific indexed “Bridge Products” help ease the traditional GUL producer into the emerging IUL world by taking a very competitive NLG premium and applying it to stronger protection IULs. If it meets the criteria, as five currently do, the result is a healthy marriage between guaranteed and non-guaranteed benefits. Specifically, what defines a bridge product and makes the narrative so compelling are the following three factors: their story is a simple one grounded in their ability to protect the death benefit, they remain structurally sturdy/sound, and they provide a generous exit strategy.
GUL’s narrative is incredibly simple. If the insured pays the premium, the beneficiary receives the death benefit, guaranteed. For the conservative-minded producer, any alternative must provide some strong guarantee as the backbone of support for the sale. Bridge products provide exactly this, but instead of a dialable and specified guarantee duration, they make use of strong primary guarantees to at or around life expectancy (generally at least age 85). The guaranteed nature of the bridge products provides a solid foundation for those who question the broader complexities inherent to IUL. Additionally, bridge products offer further protection on a non-guaranteed basis since illustrations under even conservative interest assumptions will often reach maturity.
While GUL may seem more sure-handed, as a practical matter, bridge products may offer greater assurances to many clients. GUL’s promised guaranteed protection is largely dependent upon timely premium payments, and missing even one, could lead to potentially dire policy consequences. In one of the no-lapse guarantee to lifetime scenarios we examined (Male, 55 years old, best non-smoker risk class, $1 million death benefit), the average GUL loses nineteen years off the guarantee if the premium is missed in year nine. In some cases, the policy may even lapse. Bridge products, by contrast, are far sturdier under the same lens, losing at most two years off the guarantee for this scenario. As a result, they really exhibit far more tolerance to the ebbs and flows of life compared with many of their more traditional cousins.
Most GUL products have no meaningful way to surrender the policy should clients want or need to down the road. In other words, the client is absolutely locked-in. IULs, however, maintain a strong cash accumulation component by nature. With bridge products, clients have a ready exit strategy based solely on the policy’s cash value. By year 20, there is generally enough cash surrender value under conservative interest rates for a full and clear money-back exit. Clients are not limited in surrendering the bridge policy and may do so any day of the year and will have the chance to capitalize on the opportunity for a significant period of time.
Crossing the Bridge
So, if you are looking for a strong alternative that really blends the guaranteed and non-guaranteed worlds in a significant way, bridge products might be just the answer you are looking for. They provide clients with a level of versatility and options unavailable in GUL while still maintaining strong guarantees. Paying premiums at a level consistent with the best in lifetime GULs, a client making the bridge product crossing can bank on: a high-powered protection narrative with both guaranteed and non-guaranteed elements, a structurally sound policy that can take a hit or two in case life gets in the way and a payment needs to be missed, and a long exit window based solely upon cash value if client needs change.
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 The exception to this is seven GUL products offering the guaranteed refund option (GRO) or return of premium rider. These provide a small window of time in which a client may surrender the policy for a partial or full refund of premiums paid into the policy. Please see our POINTS piece titled “Guaranteed Refund Option Resurgence” for more information.
 In contrast to GROs.