Enough Riders To Make Heads Spin

There are plenty of other life insurance riders, too: critical illness, secondary guarantees, disability income, unemployment, income benefit, and all of the variable and indexed life insurance riders that offer some protection from stock market volatility.

All these riders are enough to make heads spin. This includes heads of insureds, producers, underwriters, compliance officers, policy owner service representatives, and pricing and valuation actuaries. It’s not just their number that is confusing; it’s also that the riders keep changing.

One way the worksite marketing industry is trying to combat this confusion is to offer packages of benefits. The concept is to move away from the kid-in-the-candy-store choices and into carefully wrapped gift packages. This concept of carefully packaging benefits may start to move into the mainstream marketplace.

The variety of benefits also creates many challenges in the home office environment. The compliance officer that previously concentrated solely on the life insurance benefit now has to think through the policy form language of long term care and disability income benefits.

Likewise, the underwriter has to consider the impact that specific diseases have on debilitating the insured.

The pricing actuary has to make sure the assumptions properly cover the benefits and the policyholder behavior given the specific rider. For example, the lapse rates on a term policy with a ROP rider are drastically different from the lapse rates on a term policy without the rider.

Also, although the pricing actuary may be very comfortable measuring the mortality risk, he or she may not understand the risks involved in covering long term care or disability income riders.

For some riders, like the unemployment rider, there is not enough available experience on insured lives for the actuary to become comfortable with the utilization of the rider. Because this rider has not commonly been offered, there is also not much information on acceptable policy form language or underwriting issues. All of this makes it difficult to understand the proper relationship of rider charges and benefits.

All these riders are probably here to stay. They likely will continue to expand into other benefits, and variations will show up in other product lines. So, insurance professionals everywhere will need to lock on to the changes as they come out, just to keep their heads from spinning.