A fellow financial advisor called me yesterday, she is quite concerned on a viral video of a famous "FINANCIAL GURU" warning of an imminent recession-induced stock market CRASH happening very soon, how do we advise prospective policyholders in scenarios like this?
VULs have gained popularity in the last decade because it allows policyholders to have direct exposure to the capital markets, while this may result to above average returns, it exposes the policyholders to investment risk!
To know more on Investment Risk, read this.
The 8 Main Types of Investment Risk Explained (einvestingforbeginners.com)
How confident are you that in 10 to 15 years' time, the VUL that your clients bought will really adequately provide for their financial needs? are you 100% sure? 75%? or not even sure?
The answer is provided by another financial advisor who I talked to last night (a fellow PIFAAP trustee), she said that her client is not so much concerned on returns anymore, he just wanted to ensure his capital does not deteriorate in case of a market meltdown, so he bought a "Traditional" product.
Both VUL and Trad products guarantees the sum insured, Trad products goes one step further by guaranteeing policy value and in some cases guaranteed payouts, the returns may not be as "exciting" as VULs, but it is GUARANTEED! The Life Insurance Company in this case takes on the investment risk in behalf of the policyholders!
While it's true that over the long-term, capital markets investments almost always outperformed other types of investment, But it still carries a certain amount of uncertainty.
So whether the predicted bear market comes to pass or not, maybe it is better to err on the side of safety and pass on the investment risk!
All the best my friends!
#acgadvice