News
Variable Group Universal Life: A product for today's market
As insurance products adapt to meet changing consumer needs, brokers and agents find themselves both challenged to keep up with the latest developments and fortunate to have a growing line-up of products from which to choose. One of the latest advancements in the evolutionary line of insurance products is variable group universal life (VGUL) which allows group insurance participants to customize an insurance/investment package by combining the flexibility of group universal life with investment options tailored to meet individual and corporate financial goals.
"It's a product well suited for today's more sophisticated market," noted Bill Markwardt, director of group sales and marketing for Minnesota Mutual, one of the first companies to offer VGUL. The product's unique advantage, he explained, is that with one policy it provides for insurance needs with a death benefit, tax-deferral advantages and investment opportunities.
"Because we use a group insurance approach, our plan is flexible enough to meet a range of individual and corporate financial objectives – beyond what you would be able to offer in most individual programs," Markwardt said. The Minnesota Mutual product, introduced in 1995, includes a cash value account with 19 investment portfolios plus a Minnesota Mutual Guaranteed Account.
"We've had some great successes putting together group plans that are basic and others that are highly complex," he said. "We focus on structuring a program that maximizes an organization's benefit dollars and minimizes taxes. First we do a thorough analysis of the business, and then propose a program that is structured to produce long-term value for both employers and employees."
VGUL in action
Two illustrations of VGUL in action provide convincing examples of how
group plans can sometimes be the preferred vehicle over individual programs.
Earlier this year, Minnesota Mutual landed a valuable account with a Fortune 500 manufacturing company that was looking to make significant changes in its deferred compensation plan. "They had three goals," explained Amy Hennessey of Minnesota Mutual's Group National Sales Office. "They needed to simplify their insurance administration which they felt was out of control, and at the same time provide their executives with higher early-year cash values along with overall better performance opportunities. When we approached them, the company had more than 300 individual policies in place. We were able to fulfill their needs with only one group plan. What this meant for them was easier administration, easier underwriting because of the guarantee issue, and higher potential returns with the variable subaccount options. Many executives are especially interested to find that they have a choice about how their funds are invested." Hennessey pointed out that once the company funds the cost of term insurance, all funds going to the cash value are subject to lower sales charges and loads than individual insurance products. As a result, executives see an impact on their account much sooner than they would with individual variable products.
In another example, Minnesota Mutual worked with a major bank holding company on a group plan to fund their future employee benefits and obligations in a more efficient and cost-effective way. "In this case, the biggest plus for our client was our tax-advantaged method for funding future corporate benefit liabilities," explained Ed Eller, a senior account executive in the Company's Group National Sales Office. He also noted that, unlike the standardized pricing of individual products, the VGUL mortality product rates are tailored to the specific demographics of the client based on factors such as location, nature of business, age and gender mix. "We also tailor all of our service requirements, systems and administration to meet the needs of our clients," Eller said. "We have this flexibility because our systems have all been developed in-house. Offering these special services to our clients sets us apart from other carriers as the leader in the group life insurance industry."
Other features which made the VGUL plan attractive to this client, he said, were the benefits of guarantee issue, group pricing and a wide variety of investment options.
"And then, of course, there is the comfort level," Eller noted. "Our clients know we are committed to this market and have the financial credentials to meet our future obligations."
The company's strength and claims-paying ability are important; however, please note that these ratings do not reflect the performance of the underlying subaccounts of the VGUL product.
A valuable employee benefit
A unique product in the employee benefit market, VGUL has drawn the attention
of those looking for new ways to attract and retain high-quality employees.
Since the passage of the 1993 tax law which significantly reduced the amount of compensation that can be considered for tax-sheltered pension benefits, executives have been especially interested in programs that offer tax-deferred savings features. According to a survey conducted by the Hay Group (1996), under new 401(k) plans, executives receive less in post-retirement benefits, as a percentage of pre-retirement income, than the people they manage.
A product for today's market
Another likely reason for the rising popularity of the variable product
is the wide range of ages and investment needs of today's executives.
The executive-level market can no longer be labeled as white males over
40 with a home and family in the suburbs. "The typical company will have
executives who are relatively young as well as those who are near retirement.
There will be those who want to be conservative with their funds and others
who want to speculate. Investors in the VGUL plan can move their funds
among stock, bond, balanced and guaranteed subaccounts." Markwardt said.
"Furthermore, the needs of the business are going to change over the years
as well, and this is a product that can grow and change along with those
needs. With VGUL, the policyowner can change the premium amount, frequency
of premium payment or face amount at anytime, without rewriting the plan."
Baby boomers – many of whom are now high-level executives – are showing an escalating interest in putting aside funds for their retirement and their children's college education. VGUL can be used for both purposes since employees can accumulate cash on a tax-deferred basis, and access the cash value through loans and withdrawals. Taking money out of the policy will, of course, reduce its cash value and death benefits, but there are no penalties or deferred sales charges. (Depending on the performance of the underlying investment subaccount values, the cash value available for loans and withdrawals and the death benefit may be worth more or less than the original amount invested in the policy.)
Today's employees are also more likely to change jobs than they were just 10 years ago. In fact, statistics show that employees will probably work for at least seven companies during their careers. Consequently, the need for a portable group plan is important to employees. VGUL allows participants in the plan to take their coverage with them if they leave the group or retire.
Agents, too, are looking at the variable group products with greater interest. For one thing, it's a unique product and there are still very few in the marketplace, so there is little chance of the group plan being replaced once it's set up. Also, executives are impressed with the value of the post-retirement life insurance which most other programs don't offer. Employers appreciate the fact that VGUL can be used in conjunction with group universal life and group term life to match the needs of all of its employees – from management trainees to senior executives. And the VGUL plans' larger participation rates and premium amounts very often result in attractive compensation for brokers.
Gaining ground
In 1995, according to LIMRA statistics, variable life insurance accounted
for nearly 20 percent of U.S. life insurance sales – up from a mere
three percent in the early 1990s. Many in the business are predicting
that variable life may eventually account for 50 percent of all life insurance
sales. Obviously, this is a product that has what many consumers want.
Sophisticated advisors, chief financial officers and savvy agents are
considering VGUL as a vehicle to access the potentially higher long-term
returns, with the assumption of higher risk, that variable products may
bring them.
Minnesota Mutual has provided group life insurance for more than 80 years and is an experienced employee benefits provider.
*For more complete information about Variable Group Universal Life, including charges and expenses, send for a prospectus from Securian Financial Services, Inc., Securities Dealer, Member FINRA/SIPC, 400 Robert Street North, St. Paul, MN 55101-2098, 1-800-237-1838. Read the prospectus carefully before you invest.
