If your practice includes people in their 20s or 30s, you know that cash-value life insurance products can be a tough sell. This type of insurance can be difficult to explain, and many younger clients don’t see a need for life insurance in general until they become parents. In fact, a recent LIMRA study found that nearly three out of 10 millennials prioritize saving for a vacation over purchasing life insurance.
But universal life in particular can be a good choice for your younger clients, given the balance it strikes between term, which is limited to a death benefit, and whole life, which could be cost-prohibitive. The major advantage for younger consumers is the ability to adjust universal life premium payments as their budget changes.
Here are five reasons why universal life could be an important part of your client's planning strategy, and why it could make sense to buy a policy sooner than later:
It will never be cheaper than it is right now
Be sure to let clients and prospects know that their premiums will never be lower than they are today. They’re young. They’re healthy. And while they might not fully appreciate that fact, insurers do. No one knows what the future holds. Buying a policy when they’re young and healthy guarantees their insurability.
Also, don’t forget that your clients may be parents themselves. If they appreciate the long-term value of life insurance, they might be interested in buying a cash-value policy for their child early on, with the assumption that their son or daughter will one day take over those premiums.
They can figure payments into their budget
Universal life policies offer a lot of value, but they’re a more significant financial commitment than a term policy. Before signing on the dotted line, it’s important to weigh the costs and long-term benefit. Underscore for your clients that they should double-check the numbers to make sure they can fund the policy appropriately, and ensure they understand how the policy will benefit them throughout life.
Remember also that life insurance needs evolve over time. As circumstances change (marriage, property, children, etc.), your client's policy may need to be adjusted, so it’s a good practice to include an assessment of life insurance coverage in their annual financial review.
It’s beneficial at every stage of life
Some single professionals might think they don’t need life insurance because they are the only ones relying on their income. They may not realize that any outstanding debt in their name could have a profound financial impact on someone they love. For married couples or parents with additional dependents, life insurance can cover final expenses and help the family maintain its lifestyle should there be an unexpected death.
Your younger clients have yet to see their kids head off to college, but chances are good they’ve already started worrying about the cost. The cash value they’ve built up in the policy can be used for education expenses and (bonus) is not included in the assets listed on the Free Application for Federal Student Aid (FAFSA).
Finally, although it may seem far away to them, millennials will retire one day. The money they’ve accumulated in a universal life policy can help supplement other sources of retirement income. It can be used as a slush fund, to pursue a hobby, travel or start a new business venture.
The cash is theirs (and their family’s) to keep—tax-free
Many of your clients may not be aware that the cash value in a universal life policy grows tax-deferred. In most cases, it can also be accessed without a tax penalty via loan or withdrawal if an unexpected expense or emergency arises. Policy death benefits are also generally exempt from income tax.
Oftentimes, a combination of two policies—term and cash-value coverage—is an efficient way to maintain protection and flexibility up to and through retirement. This makes sense particularly as the need for the death benefit varies over time. People typically need more coverage when their children are young, and less as they become self-supporting adults. The term insurance can end after the children leave home and the cash-value insurance can stay in force to provide added flexibility during retirement. As an alternative to long-term care insurance, certain policy riders can also be attached when the policy is purchased, allowing your clients to access the death benefit for nursing home care or rehabilitation.
As you work with clients to find the right fit, focus on education. Most millennials (and even your older clients) lack a deep understanding of cash-value life insurance, which is both a challenge and an opportunity. Arm your clients with the information they need to decide what’s best for them and the people they love. Framed in that way, what was once a tough sell could become a lot easier.
David Wilken is president of Individual Life for Voya Financial’s Insurance Solutions business.