It comes as little surprise that life insurance sales have slowed during 2011, according to LIMRA’s U.S. Individual Life Insurance Sales report.  The downturn in individual life insurance sales is related in part to the exodus of carriers from the no-lapse UL market, says Ashley Durham, senior analyst, product research at LIMRA. “Part of the slowdown in growth is a reflection of a few companies moving away from lifetime death benefit guarantee universal life (UL) products,” she said in a press release.

Universal Life carriers are exiting the lifetime death benefit guarantee UL (“no lapse UL”) market in spite of the product’s popularity. Sun Life, for instance, exited the market in 2010. Where no-lapse universal life represented 97% of its life business in 2007, today it makes up only 32% of its business. Many carriers that are staying in the no-lapse market are raising their rates, increasing the likelihood of no-lapse’s continued decline.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of universal life in Advisor’s Journal, see Can Term Life Coupled with a Mutual Fund Investment Replace a Variable Universal Life Policy? (CC 10-77).

For an in-depth description of variable universal life policies, see AUS Main Library: Section 25 B—Variable Universal Life (VUL).

Fixed income annuity contracts are a great hedge against longevity risk that can help provide retirement income sufficiency in an increasingly uncertain environment. But even with a fixed annuity, income sufficiency is a tricky goal to attain when you’re walking uphill against inflation.

Since a $100,000 annuity pays the same $650/month in January 2032 as it does in January 2012, it must be paired with a strategy that hedges against inflation. Writing for Forbes earlier this month, Stephen Horan, PhD, discussed the lesser-known cousin of the fixed annuity, the inflation-protected annuity.

An inflation-protected annuity is generally a “fixed” annuity that includes a component that ratchets up payments each year to account for inflation. There are two general types of inflation protected annuities: (1) those that account for inflation by increasing payments by a fixed percentage (e.g., 4%) each year to account for inflation; and (2) those with a variable increase that is tied to an inflation indicator like the Consumer Price Index (CPI).

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see Annuities: They Get No Respect (CC 11-120), Annuity Respect: Earning It! (CC 11-150), & How Much to Allocate to Annuities: A Critical Analysis (CC 11-109).

Upheaval in the long-term care (LTC) market has drastically increased premiums and reduced consumer choice. In the last couple years, many LTC carriers left the market or dramatically increased their rates when they discovered that they had dramatically underpriced coverage.

MetLife, for instance, eliminated its long-term care insurance products at the end of 2010, saying that interest rates, among other things, made the product line impossible to continue. At the same time, John Hancock announced that it was raising premiums on in-force policies by 40%.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of long-term care insurance in Advisor’s Journal, see Long-term Care Insurance Reform Act of 2010 (CC 10-46) & Long-Term Care Insurance—A Desirable, Tax-Advantaged Employee Benefit (CC 08-28).

For in-depth analysis of long-term care insurance, see Tax Facts: Long-Term Care Insurance.

Your questions and comments are always welcome. Please post them below or call the Panel of Experts.

The National Underwriter Company Presents:

Advanced Markets Case Study

Beginning next month The National Underwriter Company will begin its case series for wealth managers. The case studies will be in addition to our daily articles. Check back in September to see the new content.

The case studies have expert commentary and analysis to help wealth managers with common planning issues.

Here’s a sneak peak of what is to come…

When your clients roll over a retirement account into an annuity, stay alert. They could lose significant tax benefits if they don’t document their investment in the contract.

Gains realized on surrender of an annuity are taxed as ordinary income, but the entire amount received on surrender might not be taxed, since a taxpayer is entitled to receive their investment in the contract back tax-free.

Keeping track of investment in the contract is simple enough when a person pays premiums out a checking account into the annuity—the total amount of the premiums will constitute investment in the contract. But when a rollover is made from a pre-tax retirement account like an IRA, things get more complicated, and documenting investment in the contract is essential to preserve its tax benefit.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities  in Advisor’s Journal, see Annuity Respect: Earning It! (CC 11-150), IRS Streamlines Partial Exchanges of Annuities (CC 11-153), and GAO Report Touts Annuities in Uncertain Retirement Environment (CC 11-141).

For in-depth analysis of the taxation of distributions from an annuity, see Advisor’s Main Library: A—Amounts Received As An Annuity & B—Amounts NOT Received As Annuities.

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Please join us next month as we discuss the modern trends surrounding captive insurance. Wealth managers who have an interest in captives will likely find the information and presentation useful. CLICK HERE TO REGISTER

For additional information on captives see, Advisorfyi.com–States Competing for Captives Insurance Business, Alternative Risk Transfer Revisited, Captive Market Continues to Grow, LLC Series and Cell Companies, Group Captive Insurance Companies and Year End Tax Considerations, and A Dollar Saved…Captive Insurance Company Costs

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Agent’s Sales Journal and Agent Media, products of Summit Business Media’s Life and Health Insurance Network, announced the results of the 2011 Life Insurance Market Study in the July issue of Agent’s Sales Journal. This year’s study is a result of a collaborative effort between Agent’s Sales Journal, Agent Media, and the LIFE Foundation.

The annual Life Insurance Market Study asks agents nationwide about their experiences in the life insurance market. Producers were randomly selected from Agent Media’s database of 1.8 million life, health and annuity agents, and were asked about their challenges in the market, their most valuable lead resource for new prospects, the type of life insurance they sell the most, and more.

“As the results show, agents are looking forward to a significant rebound in the life insurance market in 2011, and say they’re feeling good about the year ahead, especially when it comes to sales of term life,” explained Andy Stonehouse, editor of Agent’s Sales Journal. “The survey also demonstrates the importance of educating clients on their potential life insurance needs, and to prompt them to act earlier, rather than later.”

Highlights of the 2011 Life Insurance Market Study include:

• 53% of agents say Term Life is their top selling product, making it the bestseller
• Despite studies showing that active life insurance policies had reached new lows, 2010 was a strong sales year, with 38% of agents saying their sales increased last year.
• 76% of agents expect sales to increase in the coming year

The top challenges facing the industry involve consumer awareness. These challenges include:

• 56% say their clients procrastinate
• 36% agree that clients don’t recognize the need for life insurance
• 38% say their biggest challenge is prospecting/finding new clients.

Results were featured in the July issue of Agent’s Sales Journal, and complete survey results are available online at ASJOnline.com.

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ABOUT AGENT’S SALES JOURNAL
Agent’s Sales Journal provides sales-oriented how-to information to help independent insurance advisors expand their life, health, and annuity practices. The magazine’s ongoing market research program allows the editors to quickly identify and respond to readers’ needs and challenges in a rapidly changing marketplace. Comprehensive selling guides, unbiased insight from industry experts, timely feature stories, and a dynamic online presence give readers the information and ideas they need to grow their practices.

ABOUT AGENT MEDIA
Twenty years ago, Agent Media set out to build a reliable database and marketing solutions company to serve the life, health, and annuity segments of the insurance industry. Today, the database has grown to over 1.8 million producers, representing nearly every licensed agent and registered representative in the U.S. Agent Media is now the industry leader — a one-stop marketing resource for a wide range of direct marketing needs.

ABOUT SUMMIT BUSINESS MEDIA
Summit Business Media is the leading B2B media and information company serving the insurance, financial services, legal and investment advisory markets. Summit strives to be “The Next Generation of Business Information” for executives and practitioners by providing breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data. Summit services the information needs of its customers through numerous channels, including digital, print, and live events. For more information, please visit SBMedia.com.

The United States recession has forced service providers to look across the ocean for new clientele. We see markets emerging abroad selling premiums once only offered to the Western World. With less money invested in U.S. business, a recession still underfoot, massive layoffs across the nation and continued outsourcing; citizens of the U.S. just don’t have the money to invest in these premiums.

Life insurance is an optional premium, and with any optional purchase it needs to attract to those who can afford the non essential.  According to a study by LIMRA in 2010,“[T]he percentage of U.S. households with life insurance coverage is at its lowest in 50 years. Only 44% of households have an individualized life insurance policy.”^[1] In the business of life insurance, markets with excess income are attractive. Increased population creates more clients, equates to more business, and increases profit. Ipso facto new market growth.

A quick glance at Bloomberg and one can track the new business model. U.S. stocks have fallen significantly. “[T]he 9.4 percent [drop] since July 22 dragged the S&P 500’s valuation to 13.4 times reported earnings, the cheapest level since April 2009”. ^[2] As for the Asian market, “the yuan strengthened beyond 6.4 per dollar for the first time in 17 years”.^[3]

When it comes to life insurance premiums, the wealth managers production relies on his/her ability to find new clients and place new business. The trend for business to move overseas is underway within the life insurance policy market.^[4] India is one of the newer markets selling life insurance. As of June 30, 2011 there are presently 24 life insurers registered to sell policies in India.^[5] Within the U.S. there has been a decline of agents. ”[I]n 2010, there were 184,873 “affiliated agents”, down from more than 246,000 two decades ago”.^[6]

In India, insurers provide somewhat of a hybrid to their policy holders. Current trends provide sales of a combination coverage called unit linked insurance policies, ulips. An almost mirror image to the variable universal life insurance policy, existing in the U.S. Both allow for flexible terms, however differ in that the ulips allow for the combination of risk cover and investment.^[7]

There is also the magic word consumers love to hear, a guarantee. Lest the insured have an issue with the insurers policies, the Indian Insurance Regulatory and Development Authority (IRDA), provides an ombudsman to mediate grievances.^[8] (Different from the standards in the United States). Strict guidelines are followed to appoint each ombudsman, and in office an ombudsman will be forced to leave if found partaking in any misconduct pursuant to the rules set forth by IRDA.

So, what say for the U.S. life insurance market? Will the U.S. begin offering services similar to those in the new foreign markets? Will the recession affect the U.S. life insurance market so much that it becomes obsolete? One thing is for certain, insurers fortify their continued dominance in the U.S. market with confidence, “…uncertain economic conditions continue to play to [our] greatest strengths.”^[9]

Contribution by: Morrissa Handy, J.D. Candidate, Thomas Jefferson School of Law

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

^[2] Rita Nazareth, BLOOMBERG, U.S. Stocks Fall as S&P 500 Posts Worst Slump Since March 2009, http://www.bloomberg.com/news/2011-08-04/u-s-stock-index-futures-decline-s-p-500-may-fall-for-eighth-day-in-nine.html (posted Aug. 04, 2011, 11:39 a.m. PT).

^[3] Fion Li, BLOOMBERG,China’s Yuan Strengthens Beyond 6.40 Per Dollar for First Time Since 1993, http://www.bloomberg.com/news/2011-08-11/china-s-yuan-strengthens-beyond-6-40-per-dollar-for-first-time-since-1993.html (posted August 11, 2011, 2:17 a.m. PT).

^[4] HSBC,Ins., http://www.hsbc.co.in/1/2/personal/insurance (accessed Aug. 10, 2011, 4:59 p.m. PST).

^[5] Ins. Reg. & Dev. Auth., Life Insurers, http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=RL&mid=3.1.1 (updated 20, June 2011).

^[6] USATODAY, Households With Life Insurance Hits Lowest Level in 50 Years, http://www.usatoday.com/money/perfi/insurance/2010-12-03-1Alifeinsurance03_ST_N.htm (updated Dec. 03, 2010, 2:21 p.m.).

^[7] Id. at, Frequently Asked Questions, http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo261&flag=1&mid=FAQs (accessed Aug.11, 2011, 8:51 a.m. PST).

^[8] Id. at Functions of Ombudsmen, http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo233&mid=7.1 (date 11, Aug. 2003).

^[9] Aurthur Postal, Natl. Underwriter, U.S. Rating Downgrade: Insurers Emphasize Continued Strength, http://www.lifeandhealthinsurancenews.com/News/2011/8/Pages/US-Rating-Downgrade-Insurers-Emphasize-Continued-Strength.aspx?k=life+insurance (published Aug. 9, 2011).

The Texas state securities board is the latest government agency to pile onto Life Partners Holdings, with Texas Securities Commissioner Benette L. Zivley suing the life settlement provider for failing to respond to subpoenas issued by the State Securities Board.

The life settlement provider is suspected of misleading investors who invested in life insurance policies and not individuals who sold their life insurance policies to Life Partners.

The lawsuit asks the Travis County state district court to force Life Partners to respond to the subpoenas, which would require the company to divulge records of its marketing and sale of investments in life settlements.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Life Partners Holdings mess in Advisor’s Journal, see Life Partners Holdings Hit with Class-Action Lawsuit (CC 11-36), Life Settlement Provider Accused of Falsifying Life Span Reports (CC 11-23), & Life Settlements Funds Performance Fees under Scrutiny (CC 10-116).

For in-depth analysis of life settlements, see Advisor’s Main Library: A—Life Settlements—Introduction.

Think that the rising stake of e-commerce in retail sales isn’t a threat to insurance agents and investment professionals?

Think again. Although the old maxim that “life insurance is sold, not bought” still holds, an increasing number of customers are doing the research and making purchasing decisions without the assistance of a professional. For those customers, carrier marketing materials are a dominant source of information instead of an in person agent.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of insurance and advisory business in Advisor’s Journal, see Can Typecasting Your Clients Grow Your Advisory Business? (CC 11-64) & Are Portfolios-To-Go Threatening Your Business? (CC 11-77).