Recent advances within term life insurance products offer more ways for millennials to address future uncertainty with their money. Among the newest options are exchangeable term policies, which allow policyholders to exchange their term policy for another type of permanent policy that has more flexibility – such as a fixed index universal life (FIUL) insurance policy — but may be too expensive for a younger client on a limited budget.

Although FIUL may not be affordable for millennials right now, it can help them address future concerns such as protecting their loved ones (especially if starting a family is a priority) with the death benefit that is generally income-tax-free to beneficiaries. The death benefit can also be useful for future considerations like income replacement, a college funding strategy, paying down a mortgage or other debts, estate tax coverage, final expenses, and business succession.

Millennials have significant concerns about their ability to deal with the effects of rising costs as they get older. According to another study from Allianz Life on Americans' perceptions of the effects of inflation, nearly four in 10 millennials (39%) report being either “very concerned” (34%) or “terrified” (5%) that the rising cost of living will affect their retirement plans.

FIUL can help address some of these concerns by providing the opportunity for the policy to build cash value accumulation from indexed or fixed interest, which may be accessed for various reasons. Keep in mind, any cash value taken from the policy is accomplished through policy loans and withdrawals.  

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Thankfully, a term policy with the option to convert or exchange to a permanent policy can help younger clients who want to lock in insurability now, with the flexibility to adapt as their life changes. These policies give the client the option to convert or, in some cases, exchange a portion or, over time, all of their term coverage into permanent coverage without additional underwriting. The client will maintain their desired death benefit amount, and if they convert or exchange into an FIUL policy, they will also have permanent coverage and the potential to accumulate cash value for the future.

Millennials need flexibility for a changing lifestyle

Consider the example of Lauren, a hypothetical client who is 30 years old and in good health. She's a recent law school graduate in her second year at her new firm. Since she is young and healthy, Lauren thinks it would be an appropriate time to get life insurance protection. She anticipates a significant increase in her income as her career advances. But in the meantime, she has modest income while making payments on student and auto loans, and contributing to her 401(k) retirement plan.

Lauren needs coverage that is affordable within her budget and provides an adequate death benefit, but would also like a strategy that can supplement her retirement savings. Term life insurance with a conversion or exchange option meets her needs since it locks in insurability now while she is young and in good health — but has flexibility to change as her lifestyle changes.

Because Lauren is on a limited budget, she can't afford the amount of permanent coverage she'd like right now through an FIUL policy, but through a term policy with an option to convert or exchange, she can get adequate coverage for the present while setting herself up for the option of permanent coverage in the future.

Five years down the road, Lauren's financial circumstances change and her income has increased. She's decided that she would like to exchange her policy for permanent coverage, and at the same time, increase her potential to accumulate cash value. So, in policy year 5, Lauren exchanges her term policy coverage into permanent coverage via an FIUL policy — which she can do without having to go through additional underwriting.

Of course, it's important for the client to realize that certain terms, conditions and restrictions exist with this type of exchangeable term policy — but if they understand these considerations, an exchangeable term policy can be an effective solution for some millennial clients.

As younger people continue to become savvier about saving and financial planning, it's important that the industry provides solutions that help meet their needs and help them achieve their financial goals, both now and in the future. Product innovations within the life insurance industry are clearly moving us toward this new reality, helping financial professionals to create stronger, more meaningful connections with millennial clients.