Under Funded UL or Term with Conversion Cred?

[scagnt83]

In theory your idea would work. The problem is that it is a dangerous thing to do imo. People forget, plans arent able to come to fruition, life changes, etc. 10 or 15 year from now if they forget that increased premiums are needed you could have a pissed off client. Yes, you can call and keep in contact but it takes 2 to do a yearly review... and not all clients will be eager to review their policy each year.

If they cant afford permanent then go with term. Once they can afford perm then convert. It is the safest thing to do.

 

[rousemark]

You can also try finding an additional market that has more income.

Somebody needs to be working the non HNW market..

 

[WinoBlues]

Not GUL but current UL that can be overfunded at a later date. The consensus is that it is a bad idea so I guess I will stick to selling term to the youngins and shooting for conversions.

I agree that would be the best route. You could maybe build in conversion points by laddering term.

 

[Stevekobrin]

Under-funding a UL sets the stage for the product to implode. Your client would then be one unhappy camper. What is to be gained with that strategy as opposed to selling term with the conversion option you mentioned? What is the downside there?

 

[Cash]

I agree that would be the best route. You could maybe build in conversion points by laddering term.

I tried to work it out with Voya's illustration system and with interests rates below 4% it just wouldn't make sense to under fund a UL for more than a short period of time. Even then I wouldn't be comfortable doing it unless I knew the client had lots of cash, which if he had lots of cash there wouldn't be a reason to under fund. How does building in conversion points work? Is it doable to go from term to a permanent product that is just as well designed from scratch? My experience has been converting to small FE types of policies.

Steve - I guess the reason to entertain the idea would be to sell someone what they want now. If a UL is showing growth in the guaranteed column then it will still grow and stay in force. However, with interest rates so low it just wouldn't make sense. I guess that is why we need to educate the prospects.

 

[WinoBlues]

I tried to work it out with Voya's illustration system and with interests rates below 4% it just wouldn't make sense to under fund a UL for more than a short period of time. Even then I wouldn't be comfortable doing it unless I knew the client had lots of cash, which if he had lots of cash there wouldn't be a reason to under fund. How does building in conversion points work? Is it doable to go from term to a permanent product that is just as well designed from scratch? My experience has been converting to small FE types of policies.

Steve - I guess the reason to entertain the idea would be to sell someone what they want now. If a UL is showing growth in the guaranteed column then it will still grow and stay in force. However, with interest rates so low it just wouldn't make sense. I guess that is why we need to educate the prospects.

Like everyone else I do not think the underfunded UL is viable long term.

Short answer is you show them the advantages of owning the permanent policy. You understand that they have more need than budget for that at the moment. However, you can put coverage in place today with planed points to convert smaller amount in the future. You ladder the term amount. Say, 10, 15, 20, 25 and 30 year plans bundled to total the full amount they need today. Explain to them that every five years they will need to convert at least the plan that is terming out. Make sure to add waiver of premium and child riders.

While I have sold a lot of 30 year term it can be a trap long term. as people get very used to that low premium and tend to rely on that plan then wake up 30 years later at 70 years old and need to by at a much older age.