Although millennials may not exactly fit what we think of as atraditional customer for life insurance coverage, they're known forbeing financially savvy and having an interest in protecting their financial future — twoattributes that lend themselves to receiving sound financialguidance.

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Whether they are risk adverse or simply see the value inplanning for the future, there is great potential to connect withthis demographic and have productive conversations about the manybenefits life insurance can add to their longterm financial goals.

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While term life insurance doesn't immediately come to mind as afresh or “innovative” solution, some new options within thecategory may make this financial vehicle more attractive to youngerconsumers who are looking for protection, but also have an eyetoward needing flexibility as their circumstances change.

Many millennials have a long-term financialfocus

According to the 2017 Generations Ahead Study from my company,Allianz Life Insurance Company of North America, younger Americansare displaying a keen interest in their long term financialsecurity and retirement readiness. Nearly three-quarters (74percent) of millennials say they are currently feeling prepared forretirement and a similar amount (76 percent) say they haveconfidence their income will last a lifetime.

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This is good news for financial professionals as these responsestell us that millennials are thinking about more than just theshort-term financial concerns they get pegged with obsessing over(eating out every night, getting the latest phone, etc.) —they are also focused on the future and therefore may be open tolearning about different strategies that can help them protect andgrow their finances.

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

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

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

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FIUL can help address some of these concerns by providing theopportunity for the policy to build cash value accumulation fromindexed or fixed interest, which may be accessed for variousreasons. Keep in mind, any cash value taken from the policy isaccomplished through policy loans andwithdrawals.  

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

Millennials need flexibility for a changinglifestyle

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

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Lauren needs coverage that is affordable within her budget andprovides an adequate death benefit, but would also like a strategythat can supplement her retirement savings. Term life insurancewith a conversion or exchange option meets her needs since it locksin insurability now while she is young and in goodhealth — but has flexibility to change as her lifestylechanges.

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Because Lauren is on a limited budget, she can't afford theamount of permanent coverage she'd like right now through an FIULpolicy, but through a term policy with an option to convert orexchange, she can get adequate coverage for the present whilesetting herself up for the option of permanent coverage in thefuture.

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Five years down the road, Lauren's financial circumstanceschange and her income has increased. She's decided that she wouldlike to exchange her policy for permanent coverage, and at the sametime, increase her potential to accumulate cash value. So, inpolicy year 5, Lauren exchanges her term policy coverage intopermanent coverage via an FIUL policy — which she can dowithout having to go through additional underwriting.

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Of course, it's important for the client to realize that certainterms, conditions and restrictions exist with this type ofexchangeable term policy — but if they understand theseconsiderations, an exchangeable term policy can be an effectivesolution for some millennial clients.

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As younger people continue to become savvier about saving andfinancial planning, it's important that the industry providessolutions that help meet their needs and help them achieve theirfinancial goals, both now and in the future. Product innovationswithin the life insurance industry are clearly moving us towardthis new reality, helping financial professionals to createstronger, more meaningful connections with millennialclients. 

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