Some producers say the so-called “transformational” products are just what todays clients ordered. Others say the designs are too complex to bother with.
Either way, theyve arrived, and their ranks are growing in slow but steady fashion.
For producers, that presents several questions: What are transformational products anyhow? Why are they here? Should I promote them? Can I promote them?
In general, transformational products start out focused on one needsay universal life insurance or disability income insurance–but they can morph into, or be used for, other needssay, long term carelater on.
The idea is not new. For many years, term life policies have often included a “conversion” feature that allows owners to convert to permanent coverage later on. And deferred annuities typically allow policyholders to “annuitize,” thus turning a savings tool into an income tool.
Even the withdrawal options in annuities and withdrawal and loan options in ordinary life policies can be seen in this light, for they give the contracts liquidity features.
But, in recent years, morphing has expanded, giving financial products more functions and longer lifespans.
A few DIs can now switch into LTC later on, for instance, via conversion or some other method. Increasing numbers of life policies offer LTC and critical illness benefits or allow death benefit acceleration for those medical events. Many deferred annuities waive penalty fees for LTC and terminal illness. Some immediate annuities allow access to remaining values via “commutation” rights. At least one annuity has a LTC benefit.
The concept is showing up in non-insurance sectors, too: Some securities firms now offer a death benefit with certain securities accounts. And reverse mortgage companies say their product lets older homeowners “reverse” the direction of their “forward” (traditional) mortgage arrangement.
Whats behind it? In life insurance, marketers formerly thought of buyer need as something static, says Paul Ramseth, region vice president-insurance at American Express Financial Advisors, Minneapolis.
“Now we see that people have changing needs. Society has changed dramatically and people are more informed. The trend is more holistic. People need solutions that are flexible and adjustable.”
This has stirred resurgent interest in conversion features in term policies, he contends.
“People are recognizing that life really is a series of temporary needs,” Ramseth continues. In their early years, people tend to buy the maximum amount of term insurance, primarily for survivor needs. But as they age, they need life insurance for other needs (debt, taxes, etc.). Converting the original term policy to permanent helps make that possible, he says.
“Its the continuum of needs, from cradle to grave,” that transformational designs are addressing, he maintains.
Robert Littell, principal of Littell Consulting Services, Atlanta, agrees. “The trend towards life continuum planning is definitely at the root of this,” he says. The industry is “definitely more interested in developing products that follow the phases of life.”
Even automatic rebalancing features in variable products are part of this, he says: “They help keep the policy owner on track with goals, and they make it so you dont have to keep telling your client to rebalance.”
He is so convinced of the value of transformational products that he has partnered in developing a transformational model involving CI insurance (either CI riders or stand-alones). These can “flip” to a paid up LTC policy at an older agesay, 65 or 70.
Such contracts should appeal to younger people, in their 40s and 50s, who often ignore LTC insurance, Littell says. “It gives them a simple way to do something to take care of their continuing needs.”
“The lifetime coverage concept is pretty simple,” contends Mark Ameigh, partner at Disability Insurance Specialists, Bloomfield, Conn. “You get one kind of coverage for your working years and another when you are in retirement.”
His firm has designed a DI to LTC product thats now wrapped by two carriers. “Its one policy issued for the whole of life, but with different benefit triggers. Up to age 65, its a traditional DI, with a definition of disability based on inability to perform occupational duties. After age 65, the benefit trigger is inability to perform activities of daily living.”
This is a way to get LTC into the portfolios of younger people, Ameigh says. “The presentation is simple. Its a comprehensive lifetime program, regardless of health changes down the road.”
Its “one product and one sale,” Ameigh says.
This bundling trend is being pushed along by other factors, too. For one, transformational features provide producers with a reason to go back to the client, Littell says.
In addition, they help insurers enter new markets. Say, if a life company starts offering a policy with a LTC rider, that should help the company get a footing in the LTC market, and possibly at the desirable younger ages, he says.
Aging baby boomers are a key factor, too, Littell says. “Theyre entering their mature years with loads of debt. Theyre also living longer. So they risk facing substantial financial demands at a time when they may suffer a disabling illness.” Traditional products werent designed with this in mind, he says, so designers are now trying to find ways to transform traditional coverages to do double or triple duty.
As things stand now, some older homeowners dont have enough income to stay in their house and also do the financial and other things they want to do, points out James Mahoney, CEO of Financial Freedom, a reverse mortgage lender in Irvine, Calif. That, too, is fueling transformational thinking, he says.