John Hancock announced today that sales of their Protection Whole Life product will be temporarily suspended “due to the ongoing low interest rate environment”.
Protection Whole Life has a guaranteed interest rate of 5%, slightly higher than industry average for whole life, so will we be seeing an industry move to tighten interest rates even further? Even if that’s not the case it does throw a whole different light on a couple of other products that are interest sensitive and not guaranteed, indexed universal life and variable universal life.
Both of these products are still being marketed and sold with illustrations based on interest rates of 7% to 9%. Variable UL’s don’t have any quarantees at all, but the indexed UL’s are generally showing guaranteed interest rates of 2% to 3%, so while it may be expensive to guarantee that type of policy, it can be done.
Now that I’ve touched all of the parameters, let me share my take on what this means in the whole scheme of things going forward. If one of the more conservative companies, John Hancock, is suspending sales because they feel their 5% guarantee is too aggressive in today’s environment, what does that really say about companies who are openly trying to suck in new business by getting customers to buy into pie in the sky rates as high as 9%. They aren’t going to guarantee it so you can’t ever come back on the contract and say, “but you said”. They have no commitment at all to those unrealistic interest rates but there isn’t a day that goes by that I don’t see it advertised.
At least John Hancock did what I consider to be an honorable thing. When their guaranteed interest rate started looking unsustainable, they quit selling the product. They aren’t changing any in force policies so those are still fully guaranteed at 5%. Something about that smells a whole lot better than a company trying to sell you on an interest rate they already know isn’t sustainable.
I know! Some of my fans?? are jumping all over this and saying, “Look, Hinerman is saying good things about a whole life policy”. Well, my stance on whole life hasn’t changed, but all of you out there with permanent life insurance policies should see this bit of news as a warning shot. John Hancock is a fine company and they certainly didn’t make this decision lightly or without serious consideration about what was best for their customers. That is so much more than I can say about companies who don’t even talk about what, if anything, is guaranteed in their permanent policies.
Bottom line. When it comes to interest rate sensitive life insurance, always insist that agents talk about guaranteed, no assumed rates. If they don’t guarantee some bottom line in a policy or if you don’t find the guaranteed bottom line acceptable, don’t buy it. With no lapse guaranteed universal life and term insurance you have all of the life insurance tools you need. No smoke and mirrors, just solid guarantees.