To Age 100 Features Proliferate In Life Insurance And Annuities
Methuselahs may not exist, but plenty of centenarians do. The U.S. Census Bureau projected that, in November 2000, roughly 68,000 Americans were age 100 or more.
Thats up from the 59,000 projected for July 1999, and 48,000 projected for July 1995. (See chart.)
These numbers arent lost on insurance product developers. Increasingly, they are inserting “to age 100″ and/or “lifetime” features of one kind or another into their products–to appeal to clients who think they may live a very long time.
Whole life insurance has always been structured to endow at age 100, of course. But now, the “to age 100″ concept is also popping up in other policy types–in universal life insurance, variable UL insurance, and annuities.
Some of those contracts, and a number of long term care policies, also sweep in “lifetime” features.
Notably, most disability income insurers have all but dropped “lifetime benefit” options from their policies, points out Mark Ameigh, a partner with Disability Insurance Specialists in Windsor, Conn. (That change followed the DI industrys claims difficulties in the early 1990s.)
But many other lines are seeing steady tinkering with to age 100 (and beyond) provisions.
“Its a necessary development,” says Edward Brown, an investment advisor rep with InterSecurities in Missoula, Montana.
Brown has been selling insurance and securities products for 20 years. Over that time, he says he has watched the debut of ULs with “endow to 95″ followed by “endow to 100″ features. More recently, hes seen ever-longer UL secondary guarantees come out, a number of them now to age 100. He has also watched the introduction of extended maturity dates (which keep ULs in-force until death, no matter what the insureds age), and the gradual pushing out of the maximum annuitization date on various annuities (even, in some cases, removal of such a date).
These changes, combined with the impressive longevity of his parents–now ages 90 and 92 and still dining out–have convinced Brown “its important for financial products to have these choices.”
Take the life insurance extended maturity feature, he says. “If we try to sell life insurance as a tax-free death benefit that will be there when the client dies, but use a policy that doesnt offer extended maturity, you have to ask: What have we done to the client?”
If the client lives beyond the policys maturity date, the policy will endow and the elderly client will have to pay a big tax bill on the policy gains, he says. “That messes up the boat.”
Its the same if a producer sells a UL without long death benefit guarantees, preferably to age 100, he says. That sets up a scenario where the UL may not achieve its purposes, he explains, noting many of his clients buy life insurance to ensure there will be money to take care of their spouse and also to pass on to their children. Without the guarantee, that might not happen.
His response? “I make sure the guarantee is there.”
In life insurance, producers “absolutely have to look at the tax consequences when the policy endows,” agrees Ameigh.
Consumers rarely ask about this, he notes, alluding to his own contact with clients and those of colleagues. “But distributors need to be doing this. Its part of their job–to anticipate the issues that may affect their clients.”
In particular, distributors “need to assume that not all clients will die before age 100. The census data makes that clear, and with advances in health care, there will probably be even more people reaching age 100 and up in the future.”
Many producers already have gotten the message. In the UL arena, for instance, “the market demands no limits on policy death benefit guarantees,” points out Shawn Hartnett, life product officer at Ohio National Financial Services, Cincinnati, Ohio.
By market, he says he means producers and third-party advisors to clients (such as accountants and attorneys).
The UL death benefit guarantees have been evolving over the past several years, adds Carolyn Nightingale, vice president-marketing support at Ohio National. Originally, companies started offering UL no-lapse and secondary guarantees that lasted for one, five, and then 10, 15, 20 and 30 years. Now, a number of ULs offer guarantee options to age 100.
Ohio Nationals new Virtus 100 UL policy is an example. It guarantees the death benefit to age 100, based on lifetime or limited pay premiums. It also has a built-in extended maturity feature; if the owner pays the guarantee-to-100 premiums, this feature guarantees full coverage past age 100 with no additional premiums, regardless of surrender value.
The company built the policy this way, says Nightingale, “because people are looking for guarantees–to age 100 or for a lifetime.”
It takes care of the “worst case scenario,” Hartnett says, referring to how ULs with insufficient value could lapse without such guarantees.
As for the maturity age–100–he says this is the traditional maximum age for maturing a life policy. A few years ago, Ohio National used age 95 as its UL maturity age, but now its 100.
“We think its important to have a stated maturity age for tax reasons–to have the UL categorized as life insurance,” and enjoy the tax privileges that allows, Hartnett says.
However, having coverage continue beyond maturity is also important for policyowners who live beyond 100, he says, so thats why Virtus 100 also includes an extended maturity provision.
Its increasingly important to build ULs this way, says Nightingale, because of increasing longevity. “People are observing others who are living longer than in previous eras, and advisors are raising questions with clients about what happens if they are among that group,” she says, so awareness is heightened.
Competitive forces are also at work, Hartnett says. “Today, if an insurer offers a death benefit guarantee to only age 90, say, the market will view that as restrictive or less competitive.”
And, economically, the ULs with to age 100 guarantees can provide an affordable alternative to whole life insurance, Nightingale says. The UL premium might be 40% to 60% of the cost of WL, she says. The cash value is not guaranteed in a UL as it is in WL, she allows, but for someone who is concerned about price as well as guaranteed death benefits, “the UL would be an attractive option.”
In fact, she says, “were finding that even some traditional WL producers are offering the to age 100 UL product because the guarantee goes to the heart of the matter for many clients.”
Many of the same issues are in play in the VUL universe. For instance, Allmerica Financial Life Insurance and Annuity Company is marketing a guaranteed death benefit rider with a single premium VUL.
This rider guarantees the death benefit to age 100, and if the rider has not been terminated by that time (due to loans, etc.), an extended maturity provision automatically goes into effect, says Kevin G. Finneran, vice president-national director of life sales at the Worcester, Mass. insurer. The owner must pay 100% of the guideline single premium.
Allmerica also has a newer flex-pay VUL that also addresses age 100 issues. This VUL has a built-in provision that says, if the cash value is at least one dollar by age 100, coverage will continue with all charges waived (except for M&E expenses), Finneran says. In addition, it has an optional rider that provides a secondary death benefit guarantee to age 100 if the owner pays an annual required premium.
“I think consumers are starting to think it is more possible today to live to age 100,” says Finneran. “And producers are leading them into discussions about what might happen if they do.”
In fact, he says he has noticed that the more experienced producers are no longer talking about such features as “nice to have” options. Some, he says, are saying, “you have to have this in order for me to sell this VUL to you.”
Younger buyers, in their 30s and 40s, probably dont focus very much on living to age 100, says Finneran, and so they may not be as concerned about the policys impact on them when they are age 100. “But older buyers, in their 50s and 60s, do look at it.”
Another “to age 100″ approach is the to age 100 annuitization option in the new Guardian Investor Income Access VA from Guardian Insurance and Annuity Company, New York City. This option guarantees the owner will receive variable income payments to age 100. If the annuitant dies before age 100, the remaining payments go to the beneficiary.
Its like a period certain to 100 option, says Peggy Coppola, vice president-business development. However, this feature also offers liquidity–i.e., if annuitants want to withdraw some money, they may do so by making a withdrawal (via “commutation”) against the remaining future payments
These partial withdrawals will lower the future income payments and the value of the remaining future payments, Coppola notes. “But if the person needs that lump sum, he or she can get it.”
Its a feature that gives peace of mind, she maintains.
But perhaps people who believe they may live a very long time–beyond age 100–should “choose a lifetime income option instead,” Coppola adds.
Why did Guardian choose age 100 as the guarantee date? “This was an arbitrary number,” she says, but adds that by having the income guarantee go to age 100, “annuitants are assured they will have at least 10 years of payments” (if they annuitize at the maximum age of 90.)
Also, if the guarantee were to go longer, each payment would be smaller, she says. By contrast, with a to 100 guarantee, the person is sure to receive “a substantial number of paymentsand at a reasonable amount.”
What about LTC insurance? There are no “to age 100″ provisions in that line, says Ameigh, but LTCs do have features that resonate with “age 100″ concerns. For instance, many offer “guaranteed renewable” premiums, with no age limits, he says.
In addition, many offer “lifetime benefit options,” meaning the benefit payment will continue for as long as the insured lives, even if beyond 100. These options are more expensive than three- or five-year plans, and not every client will want, need or be able to afford a lifetime option, Ameigh stresses.
“But, ideally,” he says, “LTC producers should at least be able to offer clients the choice.”
In designing policy structures and benefits, he concludes, “the insurance industry needs to recognize that some people will live a very long time. It needs to make various choices available, including to age 100 and lifetime,” so people can choose what they think might be best for them.
Financial advisors do, and will, play a strong role in all of this, contends Nightingale of Ohio National. “They make suggestions to the client, and point out the value the client gets for the feature.”
Hartnett agrees. Advisors are often the people who define the clients longevity issues, he says. And some may actually be educating the companies about it.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 26, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.