The Ideal Client For Variable ULI
Yet they are clearly not for everyone. “They are not the ideal policies to cover traditional families,” insists Matthew Jehn, a certified financial planner and managing partner at Royal Oak Financial Group in Columbus, Ohio. “Whole life and term life offer better coverage.”

To be sure, variable universal life is expensive and requires a long time horizon to offset market volatility, in addition to a stomach for risk. “Think of a person who is 45 and looking to protect his/her family from a premature death but also needs to save for college tuitions and retirement,” says Steve Roche, vice president of product solutions at Prudential’s Individual Life Insurance division. “This vehicle provides a death benefit for the family, but also an ability to grow cash value for future use, all with powerful tax advantages. Newer features also offer access to the tax-free death benefit if you become chronically ill as you age.”

For affluent, risk-tolerant clients under 50, Thomas Santolli, managing director at Paradigm Financial in Parsippany, N.J., recommends actually overfunding variable universal life. “By overfunding, you’re creating an internal hedge that puts a lot more cash in the policy than is needed,” he says. “So if there is great investment loss, you might not end up in a negative position.” (While state insurance departments set the minimum premiums carriers can charge, he says, the IRS sets the maximum you can overfund.)

Beware Misrepresentations
Concerns have been raised, however, about unscrupulous brokers who use overly rosy illustrations to lure in unsuspecting customers. Santolli emphasizes the importance of “stress-testing your illustrations,” he says. Don’t forget to include periodic random crises. “If the client can handle a 30% loss in the fifth and 15th years, say, that’s great,” says Santolli. “If not, maybe it isn’t the right product.”

This sort of stress testing goes beyond time horizon and risk tolerance. “Present a personalized illustration with conservative assumptions,” says Alyce Peterson, a vice president at Pacific Life Insurance Co., in Newport Beach, Calif. “Have the client look at the life insurance product under different sets of assumptions to understand how volatility or changes might affect the policy. Review and select services that might help manage volatility, such as dollar cost averaging, an earnings sweep from a fixed interest account, or designating a specific account for deduction of policy charges. Diversify premium allocations across multiple choices for the cash value that fits the client.”