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Life Health > Life Insurance

Enough Riders To Make Heads Spin

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The good old days of just offering a few life insurance riders that have been around for 50 years are over. Today, companies are offering a plethora of riders that cover everything from unemployment to critical illness.

Common riders such as waiver of premium, guaranteed insurability options, accidental death and dismemberment, and term riders have been around the industry for a long time.

The waiver of premium rider always has been the most popular rider and still is today.

However, new riders are coming to market and others that were only offered in the niche markets are quickly gaining in popularity in the mainstream marketplace.

The accelerated death benefit rider started innocently enough more than 15 years ago covering terminal illness. It now has branched out to chronic illness (inability to perform two of six activities of daily living) and critical illness. It is difficult to find a life insurance product today that does not offer an accelerated benefit rider.

From accelerated benefit riders, the benefit evolved into long term care riders. Additional riders were added to these riders such as the extension of benefit rider, benefit restoration rider and residual death benefit rider. While these last riders are currently sold more often in the worksite marketing arena, they are beginning to be more popular in the mainstream marketplace.

The return of premium (ROP) rider has been around for a long time in the mortgage term market, going almost unnoticed by many in the insurance industry. Then, about 10 years ago, a couple of the leading term writers started offering ROP, and it has swept across the industry since then.

Some life companies are selling the ROP rider on 75% of their term products. Almost all that have the rider available are selling ROP riders on at least 20% of their term products.

Recently, a company expanded its ROP rider to include an enhanced cash value rider. The ROP feature is also showing up in other product lines as guaranteed cash back or you-get-your-money-back features. This trend is sure to continue evolving and expanding.

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.


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