'Senior Supplements' On The Rise In Life Insurance Applications

Agents who write life insurance on seniors are increasingly being asked to submit “senior supplements” or “senior supplemental forms” with the senior’s application.

One such form inquires about the senior’s intended use of the policy (e.g.: do you plan to sell it; did someone induce you to buy this; who will fund it; etc.).

Another seeks the senior’s permission to be tested for cognitive function (e.g., repeat back a sequence of words; what is today’s date; draw a square or a clock; etc.) in a fashion somewhat similar to cognitive tests done in conjunction with long term care insurance applications.

Typically, carriers require this information on applicants age 70+ (sometimes 65+) who are seeking policies with large face amounts (the actual amount varies by carrier).

The practice is relatively new. The owner’s intent form began showing up 1-2 years ago but it rapidly became commonplace, says Douglas Mishkin, chief-of-staff/chair-elect of the National Association of Independent Life Brokerage Agencies, Fairfax, Va., and president and CEO of Algren Associates, Inc., New York.

The cognitive testing piece is just now on the rise but more carriers will be adding it, says Jan Pinney, a BGA who is CEO of Pinney Insurance Center Inc.-LifeMark, Roseville, Calif.

Producers don’t always understand the need for these forms, says Craig B. Berson, president, Berson-Sokol Agency, Inc., Cleveland, Ohio. The same thing happened when life insurers started requiring new types of blood work or other requirements. “If the agents aren’t used to it and if they don’t know what or why it is, they do tend to view it as unnecessary,” he says.

In response, BGA firms like Berson-Sokol and Pinney Insurance Center are devoting time and resources to educate the field about the new requirements. “We also talk about how to present the questions to the clients,” says Berson, noting that some seniors don’t know that life policies can be sold, what the term “cognitive test” means, or why they need to answer these questions.

What, exactly, are the reasons for the forms?

“They help protect the insurance company, agent and customer,” says Berson. For instance, the information they provide helps the companies avoid taking on risks they shouldn’t as well as pricing correctly the risks they do take, he says. And discussing the questions with the senior helps the client become informed about the purchase and the process.

Furthermore, the statements of intent should help protect companies from taking on cases involving stranger-originated life insurance (STOLI) and investor-owned life insurance (IOLI), says Mishkin.

“Carriers don’t want to be offering coverage where third parties who have no relationship to the insured are involved,” he explains. The companies use the statements of intent to help gauge the senior’s true situation, he says.

“They want to ensure the seniors, want the insurance for personal or business purposes, not for speculation on their own lives,” he says, adding that the mere presence of the questions should help deter clients and agents from submitting speculative cases.

Pinney agrees. The companies are trying to eliminate STOLI cases financed with non-recourse loans, he says. Such business is detrimental to the insurance industry, he maintains, adding that, “if we (in the life insurance industry) don’t stop it, we could lose the tax-free build up in life insurance.”

Pinney’s firm does not do STOLI/IOLI business so he says it sometimes seems like a waste of time to fill out the statement of intent form anyhow. Still, he says, “life insurance shouldn’t be sold as an investment option. You should sell a policy if you don’t need the insurance any more.”

Where the cognitive test is concerned, Berson says the reason that some insurers have begun requesting it is to refine the underwriting of senior clients. People age 75+ are closer to their mortality, he says. To be successful in this market, “you’ve got to get them into the right (underwriting class) and screen out those who make inappropriate decisions,” he says.

The cognitive test results, along with the medical information, help the company do that, “and I support it,” Berson continues.

How are the supplemental questions incorporated into the life application process?

The statement of intent forms differ by company. Some are external forms, to be attached to the policy. But increasingly, carriers are incorporating them right into the policy application, says Berson.

Some of the statement of intent forms may have only 2 questions, while others will have 8-10 questions, says Mishkin. But most address issues such as: Have you ever been offered money up front to purchase insurance? Have you ever discussed selling your policy or transferring ownership? Do you plan to sell your policy in the next 2 years? Did you arrange financing for this?

The questions are for the client, so the client typically fills out the answers, Mishkin continues. Even when an agent assists in filling in the answers, it must be the client’s answer that is written down.