Banks and other financial services providers are increasingly marketing variable universal life insurance as an investment option that can address the financial needs of retirees, particularly those interested in transferring wealth, according to industry observers.
Banks can bolster their investment product lineup with this type of insurance, they said, though its complexity may require extensive education for sales representatives.
Variable universal life insurance combines lifetime insurance protection with the ability to generate investment returns. Earnings accumulate on a tax-deferred basis, and policyholders can allocate a portion of their premiums to various investment options or to a fixed-rate general account option.
Variable universal life is particularly well-suited to investors who want market returns but also want to pass on their savings to heirs, said Carmen Effron, the president of the CF Effron Co. bank insurance consulting firm in Westport, Conn. The policy can be structured so that beneficiaries receive the proceeds free of estate and income taxes, and the death benefit is exempt from probate.
High-net-worth investors can use variable universal life insurance to supplement their 401(k) plans or other qualified retirement investments, said Bob Primmer, the senior vice president for life distribution and sales at Phoenix Cos. in Hartford, Conn.
“It’s particularly appropriate for affluent boomers who don’t qualify for a Roth IRA or a standard IRA,” Mr. Primmer said. “It’s the most tax-efficient vehicle for people to do their retirement planning in.”
Investors seeking retirement income can take withdrawals tax-free and incur no penalties on them, said Naveed Irshad, a vice president of product management at the John Hancock Life Insurance unit, in Boston, of Manulife Financial Corp. Most variable universal life insurance also allows for policy loans, Mr. Irshad added.
Though financial services providers are increasingly viewing variable universal life as a retirement planning tool, the insurance industry has not yet made a concerted effort to educate advisers and their clients about the product’s tax efficiencies and death benefits, according to Mr. Primmer.
“During the boom years of the 1990s, it was promoted as cheap life insurance because of market returns,” he said. “The insurance industry can get myopically focused.”
The complex features of variable universal life insurance require extensive education of bank sales representatives and their clients, Mr. Primmer said. Phoenix and other insurers have tried to simplify the product for the bank and financial adviser channels.
The Phoenix Express VUL policy lets advisers sell the product without a client medical exam or lengthy underwriting. While applying, clients need answer just four medical questions and seven other qualifying questions.
John Hancock also offers simplified underwriting for the bank channel that lets advisers issue the policy quickly, Mr. Irshad said. The insurer sends wholesalers into banks to explain variable universal life insurance in detail, he added.
The product can be viable in the bank channel, Ms. Effron said, though it is probably too complex to be sold by platform representatives, most of whom focus on traditional banking products.
“I think it can be sold through the bank channel if you are very clear on what the charges are, how the policy really works, and what the benefits are for the buyers or their heirs,” she said. “It’s a more complicated product than term life insurance or variable annuities.”
Policyholders may be charged underwriting fees for additional premium payments, she noted, and the insurance guarantee period may vary depending on the age of the buyer at issuance.
