Family Fix For Baby Boomers Needed

Traditionally, annuities have provided for survivorship payout options with the spouse of the annuitant as the person most likely to be the joint annuitant.

Yet, the need of the baby boomers would suggest the role of survivorship annuities should expand to include parents, grandparents, children and grandchildren–particularly when these relatives may need extra care because of physical or mental infirmities.

Perhaps the concept can even be expanded to provide for extra benefits for a dependent family member when the need for hospitalization or long term care arises.

We have not yet thought through the design structure such a product would have to take. Obviously, the nature of the extra benefits will affect the design of the product.

A simple survivorship annuity with relatives in addition to the spouse can be brought to market with little additional design features beyond those that exist in existing products.

However, expanded features like additional payments for hospitalization or long term care will take greater creativity in the design process. It is likely that the easiest method to achieve the objective will be to add these features to existing forms of annuities via riders that can be elected at time of retirement.

The industry will need to think through the tax implications of these features, how the costs for the extra features will be charged and what underwriting requirements may be necessary. The products the industry may use to accomplish this expansion are shown in the chart.

If the life insurance industry can begin to develop products that will address the special needs of the baby boomer generation, it will provide not only a good marketing opportunity, but will help to cement the reputation of the industry with legislators and the general public. Absent the efforts of the industry to solve these problems, the government sector will have to address them, with the resulting expense and bureaucracy that always results from government action–a result no one wants.

It is likely that legislative action may be necessary to resolve some of the taxation and regulatory issues that will result from the life insurance industrys attempts to develop products to resolve these issues. Nevertheless, the result will be well worth the effort and will result in eventual benefit to our society.

Norse N. Blazzard, JD, CLU, and Judith A. Hasenauer, JD, CLU, are principals in the Ft. Lauderdale, Fla., law office of Blazzard, Grodd & Hasenauer, P.C. You can e-mail them at [email protected].

Reproduced from National Underwriter Edition, April 28, 2003. Copyright 2003 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.