According to information gathered on life insurance sales, two distinct trends are clear.  Overall, life insurance sales are mostly flat – up less than 0.5%. (1) However, sales are up with two product lines: variable universal life and equity index universal life. In 2018, sales of VUL policies were up 9%, while sales of EIUL policies set a record. (2).

Total universal life insurance sales were actually down, the surge in VUL and EIUL coming because the life insurance market has shifted with the vast majority of universal life products being sold as income accumulation, not death benefit, sales. Sales for those agents in the estate planning market (a death benefit sale) have slowed dramatically.

We have seen firsthand how this combination of trends has affected TOLI policy management. For the TOLI trustee, it is time to be extra vigilant, especially when taking in new policies or when replacing policies in your portfolio.

The shortage of new sales in the estate planning market has led to a new focus for some agents: the replacement market. Over the last two years, we have seen an increase in “bad replacements” – situations where the trust was not made more efficient by a change in the asset. In fact, in some circumstances, it would have been much worse. Case in point: we received a replacement inquiry from an agent suggesting the client replace a portfolio of whole life insurance with a single equity index universal life policy. The concept was sound; the insured did not need as much life insurance and wanted to reduce his cash outlay with a lower death benefit policy. However, the process was flawed, as the agent did not look at all aspects of the transaction. While the new EIUL policy would have carried $3M of death benefit out to a reasonable life expectancy, with no additional premium other than the 1035 Exchange from the existing policies, it did not carry the policy to maturity. The assumptions made in the new policy were not guaranteed and were based on a rate of return that may not have been met. Had the agent (and the trustee) inquired about the options on the WL portfolio of policies (as we did), they would have found that the carrier would have provided $3.9M in death benefit in paid-up policies – policies contractually guaranteed to run until policy maturity with no further premium due. This transaction could have easily landed the trustee in hot water had it gone through, and if litigation had ensued over the loss of almost a million dollars of death benefit, the trustee would have had little chance to prevail in court.

The use of EIUL and VUL policies bring another area of vigilance (and possible liability) for the TOLI trustee: the assumptions made in cash value rate of return in the as-sold illustrations. Agents can illustrate VUL policies with rates of return of 12%, and EIUL policies can be shown with credited rates around 7%. Both of these assumptions will be hard to meet, and because a higher rate of return allows the agent to show a lower premium need at the sales table, you, as trustee, may be the one who has to go back and ask for more premium when the returns are not met. In the cash value accumulation sale, the policies are overfunded, and a missed rate of return may lower the cash value, but the policy will probably still stay in force. In the TOLI sale – a death benefit sale – the policy premium projections are typically set lower, making the policies much more vulnerable to a policy lapse if the policy underperforms expectations.

It is not easy being a TOLI trustee, and trends in the industry are making it even harder.

Be careful out there.

  1. Variable Universal Life Won Life Insurance in 2018, Allison Bell,, March 14, 2019
  2. Indexed Life Sales Shatter Records In 2018, Wink Reports, From Staff and Wire Reports,, March 15, 2019