November 3, 2008

SOURCE: InsuranceNewsNet, Inc.

The investment component of the variable universal life products requires its policy owner to have a basic understanding of stocks, bonds and securities because its future value depended on its underlying investments. Any uninformed or poor investment decisions could actually trigger a higher price of the premium or cause the policy to lapse if it's not properly funded.

In late 2002, the collapse of the Internet bubble forced many VUL policyholders to put in more money to keep their contracts from lapsing. As a result many insurance agents and financial advisors relegated traditional VULs to the back seat. Traditional VULs stayed there even during periods of strong equity returns from 2003 through 2005 because these products were widely seen as lacking competitive product guarantees.

In 2007 some carriers sought to revitalize flagging variable universal life (VUL) insurance by introducing hybrid VULs.  The big difference between the two VULs is that the hybrids provide the opportunity for significant contract growth without the risk of policy to lapse without paying more premiums in the event of negative returns due to a faltering market.

Unlike traditional VULs, hybrd VULs have built-in features, particularly a downside protection, extended no-lapse guarantee, death benefit guarantees and minimum distribution guarantees that resonated with both investors and producers. These new guarantees and riders are credited for jumpstarting VUL sales despite the unpredictability of the equity markets.

The following are basic information about some features of hybrid VULs:

These and other features have made hybrid VUL more attractive to consumers based on the rebounding sales figures. But they have their downsides, too.

Typically, most of the add-ons are available at a cost and some, particularly long-term care protection, can be very expensive. Assembling a hybrid VUL should be done with great care so that the insured doesn’t end up paying for something that is unnecessary. They can also add a layer of complexity to a policy that may already be complicated for certain consumers with limited investing experience.

But when a producer does his or her homework, hybrid VULs can be the ideal vehicle for suitable clients and prospects.

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