When Talk Turns To How Valuable Riders Are
As much as possible, I keep my ears open for conversations about insurance products and the industry.
As interesting as it is when these discussions take place among insurance professionals, it is more intriguing still when such dialogue occurs among those outside our industry. The comments provide a constant reminder of how complicated the industrys products have become and of how much a producers job is client education in addition to sales.
Of particular interest are the times when discussion turns to the “poor value” provided by insurance and annuity products. Often such disparaging comments come from proponents of competing industries (espousing alternate financial vehicles, perhaps), but sometimes they come from more objective sources (such as well-known, personal finance publications).
What brings this to mind are several exchanges about the added value of specific riders to insurance products. The conversations of particular interest were about return of premium riders on level premium term life insurance and the various guarantees available on variable annuities.
In both cases, one view in the discussions was that the rider(s) in question add little value for the additional cost. In the case of the ROP rider, one argument was that additional unnecessary premiums were paid when, in all likelihood, the contract would lapse before full realization of the extra benefit.
In the case of VA guarantees, the case against these riders centered solely on the increased mortality and expense charges levied against policyholders choosing one or more guarantees.
Among all the conversations about the “poor value” of insurance products or insurance riders, however, few have included arguments against the basic ideas of protecting life value or accumulating money for the future.
The arguments instead tend toward finding “less expensive” means of providing life insurance or investment options. Examples are the often heard “buy term and invest the difference” and the equally prevalent “variable annuities are mutual fund investments that just cost more.”
Such advice might be a difference maker for some. If a consumer lacking life insurance or an accumulation vehicle is motivated to purchase a term policy or a non-annuity investment instrument based on these arguments, so be it.
These contentions otherwise seem to miss the point. How can anyone aside from the purchaser determine the value of a product and its riders? The purchasing act itself determines value more directly than merely pointing out the cheapest alternative. It is simply verification of perceived value in the eyes of the customer.
For consumers who linger in uncertainty caused by a lack of knowledge or information, insurance products and riders can be the best possible solution and a catalyst for action. These people require education and exposure to options, all of which can be provided by a producer.
For these individuals, riders such as ROP on term insurance or the guarantees available on VAs might be just the grease on the skids to get these consumers over the hump of inaction and ready to purchase the financial services products they need.
Does that make policies with these riders the cheapest alternative? Probably not. Is there value added by the riders? Lets seelife insurance where there was noneaccumulation vehicles where none existedabsolutely!
Robert P. Stone, FSA, MAAA, is assistant vice president and associate actuary with American United Life Insurance Company, a OneAmerica Financial Partner Company in Indianapolis. His e-mail address is Rob_P_Stone@aul.com.
Reproduced from National Underwriter Edition, June 4, 2004. Copyright 2004 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.