Hello all,

By the time this gets published, Q1 will have come to an end. Where has the time gone? Don’t get me wrong, I really like the fact our workdays fly by, but it does get a little daunting at times.

As you can appreciate, at the ACES group, we many questions about all aspects of the insurance and financial planning industries. To be more specific and to get to the heart of this blog, one of the most asked questions by advisors is “what is the best policy to suggest to my client?”. On the surface, this is a very reasonable question, but one I am afraid is not as easily answered.

If you think about all the features one single life policy can have, I am sure you will begin to understand how complex a life policy can be and that there may not be one single winner where one size fits all. Now, I am a firm believer that HUB advisors do a fantastic job for their clients and I truly appreciate the sentiment of the question, but if we think about it for a moment, there may not be a truly cut and dried answer.  

As you are all aware, there are many different types of insurance policies. I will limit today’s comments to life policies only as well as the different attributes of each policy. For example, there is term vs permanent (UL or WL). I have always worked under the premise that a permanent need should have permanent coverage and a temporary need should have term insurance. The problem with this line of thought is that not all needs are easily classified as temporary or permanent and needs will almost always change over time from term to permanent. In addition, this line of thought is also largely impacted by the client’s willingness or ability to pay for coverage. Even though a permanent solution may be indicated, the client may not want the more expensive premiums. 

Let us assume that at the initial sales interview it is agreed upon between client and advisor that the need is temporary in nature. This would lead us to a temporary or term insurance solution (i.e. mortgage coverage). However, as is well known, there are several types of term insurance, 10 Year Term, 20 Year Term or 30 Year Term, etc., which give the insured more choice but not necessarily one definitive answer. The one suggestion I would make is that coverage should be renewable and convertible, such that if the client’s need changes the coverage, can be modified to suit the new need.

If the client interview suggests a more permanent solution is warranted (i.e. estate protection) they now have the choice of UL or WL. Here again, the client is faced with a myriad of choices such as increasing death benefit or level death benefit, level COI or YRT, or quick pay vs life pay.  

It is my opinion that the choice between UL or WL is much more of a personal choice by the broker and client. I think both policies can be used effectively in most situations. UL is basically a deconstructed WL, for a client or advisor that wants to be able to see all the moving parts and to be able to alter parts of the plan. I would suggest the use of UL might be best left to clients and advisors wanting a very “hands-on” approach to managing the insurance portfolio. The client and advisor must be prepared and willing to monitor the policy and see that it achieves the returns modeled from the start. This means the client needs to be prepared to reallocate assets to make sure proper returns are attained. Unlike a WL where there is one fund, a UL policyholder could have as many as 200 investment choices and that depending on the client’s risk tolerance could obtain higher returns. On the other end, they could also be faced with negative returns. One of the major differences between UL and WL is that there is a distinct possibility that the advisor may put the client into investments that will lose previous returns in any given year. WL on the other hand, acts as a “safe haven” in that all previous investment returns credited to the policy cannot be lost. 

If we turn now to WL coverages, we find a much more restricted but stable policy. WL policies were created over a century ago and until the mid-1980s were the mainstay of the industry. In my opinion, where WL policies look best is from the “stability” of the policy. The main economic engine of a Participating WL policy is its Par Fund. Some companies have Par Funds that are very old (Canada Life, established 1846) but have long and stable returns, unlike UL policies that are much newer and offer more investment choices, good or bad.  

If we look at the structure of the two very different types of policies, you can see how complex the issue can be. I agree that a UL policy could be constructed to look and perform like a WL but there is still much scope within the UL to make changes. 

I have not even touched on all the different variations that come with a UL policy. It is my position that you can change the internal workings of a UL policy and get significantly different performance results. Take for example, the existence of a no fee versus fee product. Over the lifetime of the contract, the difference between the two options could be very significant. Getting back to WL, there are not as many variables to adjust to hopefully increase the policy’s performance. This is UL and WL at a very high level and does not consider the different features of either policy.  

In summary, I trust I have touched on the many variations an insurance policy can take. Given all life insurance policies we sell, the potential for putting the client into the wrong policy is limited. Further with the ability to renew and convert a term policy, the client can change the nature of the policy almost for life. I would suggest that with all the life policies on HUB’s product shelf, you would be hard-pressed to find a bad policy. All life insurance policies will provide some level of protection but the label of “best policy”, given the choices involved, is probably not a reasonable thing to suggest. All the coverages you recommend to your clients should be considered good. However, given the intricacies and complexities outlined above, you can see that “the best” does not really exist.

Keep well.