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.
Usually, the insured, policy owner and agent all sign the completed form, says Mishkin. (When the statement of intent is included in the app itself, separate signatures aren’t required.)
Typically, the form is submitted with the application or before the formal underwriting approval, says Mishkin.
The cognitive supplement works a bit differently. It is not so much a form but rather a request to the senior to allow a cognitive test to be performed.
Such tests are conducted by a paramedic firm or tele-underwriter. “The agent has to have the client sign a form allowing the test, says Berson. “But agents never administer the cognitive test because they have a vested interest in the outcome.”
Daniel Laulettta, a financial planner with Lincoln Financial Advisors, Cleveland, Ohio, works with many clients aged 85-90. He notes that, although he doesn’t do the testing, he does prepare the senior for the test. “We go over things like why the company is asking for this information, what kinds of questions might be asked, how long it will take, and what is a good time of day to be tested.”
Then he asks the senior to repeat back what was said, to ensure understanding.
Laulettta also stresses that the client is still in control, even when being tested. That’s important, he says, because “this is a time of life when people are losing their freedom. Some can’t drive any more, and some live in assisted living facilities or need help with daily activities.”
The cognitive approach varies by company. Some insurers test all seniors at a certain age and face amount, says Pinney. Others test only if underwriting raises a question. The arrangements also depend on the insurer’s capacity and its reinsurance and retention levels, points out Berson.
The questions asked also vary. Some ask the senior to draw a square, name the current president, give the date, sequence words, etc., while others are more extensive, says Pinney.
Why do carriers require supplemental information like this for older-age seniors seeking large face amounts, and not for everyone seeking large face amounts?
Because there are more seniors than ever buying life insurance, says Berson.
The senior’s advanced age means mortality issues are front and center. So the carriers want to know the applicants are healthy enough to enable the companies to make a profit on the business, adds Pinney.
Normal medical underwriting ferrets out a lot of the senior’s medical history and risks bearing upon life expectancy, sources agree. But the new tests also spotlight mental awareness of purpose and function.
“The question is, does the client fully understand what is going on,” says Laulettta. “The cognitive issues have an impact on mortality as well as morbidity at the older ages,” he explains. For instance, it’s possible for someone with cognitive problems to leave the stove on, causing a fire in which the person is injured or dies.
Indeed, an indication of memory loss on these applicants “makes some company underwriters nervous,” says Berson. If that comes up, “it will need to be explained properly” before coverage could be issued.
Cognitive issues also impact what happens in the planning and application process with seniors, notes Lauletta. “It’s not enough for the son or daughter who is in the interview with the senior to get it; you have to be sure the insured gets it.”
Meanwhile, discussing the statement of intent helps illuminate the senior’s understanding of the purpose for the insurance, say sources.
An underwriter may see something in the cognitive results that triggers requests for more information, explains Pinney. In many instances, the parties can work together to get the case issued, he adds, but the discussion will still need to occur.
In the older age market, a lot of cases are for wealth preservation and wealth transfer, says Mishkin. The cases involve high premiums due to the advanced mortality. He says this makes the underwriters want to know: Does the client have any skin in the game, either collateral or out-of-pocket? Certain questions in the statements of intent help address this point.
Mishkin’s firm does a lot of business in the senior market. He thinks it’s a “tremendous” market when the client understands the coverage, his or her need for the coverage, and how he or she will fund the premiums, which can be substantial. But he also thinks carriers should know if the client has been told there is a way to get the insurance essentially free or through inducements, etc. The forms help with that.
Lauletta, the financial planner, says it is very important that the client understands what is going on. Similarly, “our job as financial people is to get a clear idea of what is going on (with the client) and to be good stewards of the senior’s assets,” he says. In his view, addressing questions raised by senior supplements has now become part of that process.