#83 | Lincoln WealthPreserve IUL
It’s exceedingly rare to see a life insurance product that is designed to work better in the real world than it does on the illustration, but that’s exactly what Lincoln did with WealthPreserve IUL. It’s simple. It’s straightforward. It has a guaranteed cap for the first 10 years. If the cap goes below 6% after that, Lincoln will waive the surrender charges. WealthPreserve has a 1% guaranteed floor credit. WealthPreserve is a transparent, conservative, buttoned-up death benefit IUL aimed at producers who don’t like IUL – and it’s the best product in the market for that demographic. If Lincoln hasn’t completely squandered its opportunity to sell non-guaranteed products to the same producers who have seen their clients’ crediting rates drop to the guaranteed minimum and their COI charges increase, then WealthPreserve IUL should be at the top of their consideration list for death benefit oriented Indexed UL products.
Indexed UL these days, in a strange way, is like the old Edwin Starr song “War,” where he rhetorically and repeatedly asks the question – “war, huh, what is it good for? Absolutely nothing!” If Starr were to write a similar song about Indexed UL, it might go something like – “IUL, huh, what is it good for? Absolutely everything!” At least, that’s the way today’s life insurance market feels. It wasn’t so long ago that there was a commonly held notion that IUL would always be consigned to a little niche. Now, like kudzu, the invasive Japanese vine flourishing in the South, Indexed UL is spreading everywhere and choking out other options. Rack your brain and try to remember the last time that a carrier released a non-IUL product to much fanfare. Yeah, I can’t either. It’s been a very long time.
This is no more apparent than in the category of death benefit oriented products with limited guarantees. PacLife more or less pioneered the space with its original PIA line, but many other companies and products have followed – John Hancock, AXA, Nationwide, Mutual of Omaha and Minnesota Life, just to name a few. And the rumor is that many other companies have similar products in the pipeline. There’s clearly a consensus that IUL can, and maybe even should, be the solution to the problem of shrinking Guaranteed UL inventory. Whether or not producers buy into that idea will be borne out over time. So far, judging by the limited sales going into these products, they’re still skeptical.
Death benefit IUL products are also starting to take a particular shape and form that stands in stark contrast to their accumulation IUL counterparts. Whereas accumulation IUL products are clearly in an illustration arms race escalated by ever increasing complexity and obfuscation of product mechanics, death benefit IUL products seem to be taking a very different tack by focusing on relatively simple and straightforward designs. Whereas accumulation IUL products are enticing customers to take more risk in exchange for more illustrated return, death benefit IUL products are removing risk factors in order to create more reliable returns. In a lot of ways, the increasing design gulf between the two types of products makes sense. Accumulation products have inherent margin for risk because they’re overfunded, asset-heavy contracts where underperformance manifests in metrics that are supposed to change, like cash-on-cash performance and potential policy income. Death benefit IUL products do not have margin for risk because, theoretically, every basis point in underperformance corresponds to a certain increase in premium, which the client is habituated to paying in the same amount every year. In other words, risk is probably a part of the client’s base expectation when buying an accumulation product, but it’s probably not (even though it should be) when buying a death benefit product. Consequently, reducing risk and complexity in a death benefit product fits the sale – particularly if you’re trying to court advisors that have become habituated to selling Guaranteed UL products.
No product embodies this new death benefit IUL ethos more than Lincoln’s new WealthPreserve IUL. It almost feels like the entire point of the product was to create an IUL that clamps down on all of the usual IUL risk factors. I’ll just rattle off the risk-reducing features. First, it has a 1% floor, which is an unnecessary and costly provision if your goal is maximum illustrated performance, but a valuable feature if your goal is risk mitigation. Second, it has a crediting mechanism that basically gives the client a true-up for policy charges paid through the year prior to receiving the index credit, which reduces risk for the client when policy charges begin to eat up more of the account value. Third, Lincoln guarantees the current 8.75% cap for the first 10 years of the policy, which is no small benefit given that the cost for the option for that structure is probably sitting at around 4% (including the 1% floor credit). Finally, if Lincoln drops the cap to below 6%, they’ll waive the surrender charges, which are pretty steep and last for 15 years. I should note that virtually none of these things make this product illustrate better than its peers, but all of them meaningfully reduce the risk inherent in the policy. Finally, a company that’s competing with features that don’t make fireworks on the illustration but deliver real benefits to clients.
Furthermore, WealthPreserve IUL is a classically simple IUL. It has a single indexed account option, the S&P 500 with an indexed interest cap and the aforementioned 1% guaranteed floor. It does not have a multiplier, interest bonus, persistency credit, Performance Factor or magical unicorn fairydust, like so many of its peers. It has low base charges over the first 10 years that are about half of the industry average for IUL. Its COI curve is in-line for a death benefit product but, as with the other Lincoln IUL products, it disappears at age 100. I typically harp a bit on COI curves that just magically disappear but Lincoln has done this across their lineup, so it’s hard to fault this one product for it.
If this review seems a little short on technical details about WealthPreserve, that’s because this product is WYSIWYG – what you see is what you get. That makes my job easy. In a market full of products with more secret rooms and trap doors than the Winchester Mystery House, WYSIWYG makes your job easy, too. That, more than anything else, is why you should choose to sell WealthPreserve if you want a death benefit oriented IUL.
It would be a mistake, though, to conclude that WealthPreserve is the indication of some new product philosophy at Lincoln that’s centered on simple and transparent products. Lincoln’s general modus operandi is to deliver what it perceives that the market wants – no more and no less. Sometimes they get it right, sometimes they get it wrong, but their decisions are usually not backed up by some grand philosophy or conviction. Lincoln is the ultimate shrewd operator. They just do what it takes to win. In that sense, Lincoln is the purest reflection of the market in which it operates. Consequently, I actually take some encouragement in the fact that Lincoln thinks that a simple, transparent and low-risk death benefit IUL like Wealth Preserve is the way to win the hearts of independent producers used to selling Guaranteed UL. I sincerely hope they’re right.