Indexed universal life insurance sales continue hot streak

Sales broke a record last year despite rules that observers believed would slow them down

Mar 15, 2019 @ 5:00 pm

By Greg Iacurci

Insurers sold indexed universal life insurance policies at record levels last year as consumers sought a measure of protection from stock market volatility and more insurers offered product.

Indexed life insurance sales of $2.1 billion last year bested their previous record, set in 2017, by 11%, according to Wink Inc., a market research firm. (The indexed life insurance category includes both indexed universal life and indexed whole life insurance, but overwhelmingly skews toward the former, which represents 99% of the available indexed products.)

IUL sales have shot up noticeably over the past decade, following a similar trajectory to their indexed-annuity cousins. In 2008, insurers only sold $539 million of indexed life insurance, according to Wink.

"Indexed universal life has been growing pretty strongly over the past decade," said Karen Terry, assistant managing director of insurance research at Limra, an insurance industry group. "It's been with few exceptions the hot product in the life insurance industry."

(More: Universal life insurance lawsuits underscore product risk)

IUL is a type of universal life insurance that offers an insurance benefit paired with a cash account that can be used to pay policy premiums. In an indexed product, the cash portion is tied to a stock market index like the S&P 500. Insurers credit interest to consumers based on market performance; interest is capped on the upside, but insurers can't give less than 0% interest in the event of a down market.

Advisers and consumers turned more to indexed universal life last year amid the volatility that seized the stock market late in the year and pushed the S&P 500 to its first down year since the 2008 financial crisis, said Sheryl Moore, the head of Wink Inc.

Investors also have turned away from fixed universal life insurance products in favor of IUL, given the potential to earn a higher return, Ms. Moore said. Fixed UL policies are crediting an average 3.5% today, Ms. Moore said, while investors on average have the opportunity to earn up to 11% with an IUL policy.

IUL represented 66% of all universal life insurance premiums last year, a proportion that bests all previous years, according to Limra.

Companies have also pivoted away from other forms of universal life insurance because IUL is more profitable for them and easier to sell because of its marketing pitch — downside protection with upside potential — Ms. Moore said.

Whole life insurance, however, remains the industry breadwinner, comprising 35% of overall life insurance sales last year versus 24% for IUL, according to Limra.

In 2015, the National Association of Insurance Commissioners issued a rule — Actuarial Guideline 49 — to tamp down on overly rosy insurance illustrations that life insurers used to sell products to consumers. Critics say the rule didn't curb the practice. Now the NAIC is revisiting the issue and contemplating an update to AG 49, which could negatively impact sales.

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