Insurer Ties New Product To 10-Year Treasury Notes

March 07, 2013

By Robert Dixon


Lincoln Financial Group has introduced a new indexed universal life product tied to the performance of the 10-year U.S. Treasury note, the company announced.

The Lincoln Treasury Indexed Universal Life (IUL) policy is “designed to capture the benefits of a potential rise in interest rates,” Mike Burns, senior vice president for insurance solutions at Lincoln Financial, told InsuranceNewsNet in an interview. Tying the policy to the U.S. Treasury note yield gives the product a well-known benchmark. The product was created to provide “an affordable, baseline death benefit, with the flexibility to improve and customize coverage over time based on the performance of the 10-year Treasury yield.”

The product is unique because it is the first of its kind tied to the Treasury index, rather than the stock market indices that are more often used. Today’s current low rates force insurers to “think out of the box” and create attractive products, Burns told INN. The Treasury note index “is very visible, a good indicator of the macroeconomic situation, and offers a good degree of stability,” he said in the interview.

“The highly-watched 10-year Treasury yield remains historically low, making this a difficult market environment for policyholders seeking guaranteed sources of investment return,” said Ellen Cooper, chief investment officer for Lincoln Financial Group, in a company statement. “We believe launching a protection product dynamically tied to this key benchmark reinforces the importance of offering solutions that meet our clients' objectives in current and future market environments."

“The Federal Reserve is likely to remain accommodative with the knock-on effect of interest rates remaining artificially low until the economy shows consistent positive momentum,” she added.

"Advisors are more than ever looking for low-cost, death-benefit solutions to address interest rate risk and tax issues," said Tom Tooley, head of insurance solutions for Lincoln's distribution unit, in the release. "The uncertainty in today's environment underscores the importance of taking advantage of some of the options available in the marketplace."

The policy is “designed to provide advisors and clients who believe rates eventually will rise, with an opportunity to secure affordable levels of guaranteed coverage today, and to cost-effectively extend that coverage or reduce out of pocket premiums over time by capturing a potential Treasury 'upswing' in the future,” Burns said.

Lincoln Treasury Indexed UL policyholders will select their initial duration of guaranteed coverage at issue, and receive a guaranteed schedule of earned credit factors that correspond to different levels of 10-year Treasury yields, according to the release. Assuming they are paid up, policyholders have four options. They can apply the credits as a premium election to extend coverage, reduce out-of-pocket premiums for the initial coverage period, withdraw the credits as cash, or leave the credits in the policy account value, the company said.

Policy owners receive a "credit" in every policy year. The credit in the first five years will be, at a minimum, set to the credit generated by a 4 percent 10-year Treasury yield, even if interest rates are not that high. In years six and beyond, the size of the credit grows in any year that the 10-year Treasury yield meets or exceeds 2 percent. Once the credit in any year is earned, it becomes vested and will continue to be paid in every future year that the policy is in force, according to the company statement.

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