In a life insurance market where many of the sleek new policy designs, riders and wrinkles are associated with permanent products, it?? 1/2 s easy to overlook term insurance.
After all, term life is a straightforward, highly commoditized product that has changed relatively little over the decades outside of a few notable exceptions, such as the widespread move in the early-to-mid-1990s to level premium products. By nature, term life is a product not especially accommodating to innovation.
But insurance carriers can be a creative lot, and these days, their efforts to innovate aren?? 1/2 t limited to permanent insurance products. Carriers continue to bombard the marketplace with a huge array of new features designed to make universal and whole life products sexier to the masses. But they are also quietly sprucing up the old term chassis as well, adorning it with new riders and more flexibility while also making it more consumer-friendly in the areas of pricing and underwriting.
Some of these enhancements have already hit the market, while others loom on the not-too-distant horizon. Slowly but surely, term products are adapting and evolving, which suggests to insurance experts like Marvin H. Feldman, CLU, ChFC, RFC, that it may be time for advisors to take a fresh look at their clients?? 1/2 insurance portfolios. ?? 1/2 There is additional pressure on [insurance] companies to continue designing new, creative [term] products,?? 1/2 says Feldman, president and CEO of LIFE, the Life and Health Insurance Foundation for Education in Arlington, Va. ?? 1/2 It?? 1/2 s going to be an exciting time for advisors because we will have so many more options available to us. For advisors, it means there will be a lot more flexibility to really massage the [insurance] program so it better fits our clients?? 1/2 needs.?? 1/2
One of the newest developments with term products is the availability of health riders on certain policies. ?? 1/2 A handful?? 1/2 of companies have begun offering critical illness and disability riders on some term policies, according to Marianne Purushotham, research actuary for LIMRA International, a Connecticut organization that tracks trends in the life insurance market. While the benefits associated with those riders ?? 1/2 aren?? 1/2 t huge,?? 1/2 she says they?? 1/2 re substantial enough to help people cover mortgage costs and other obligations.
Having already made a splash in the annuity and permanent insurance markets, additional combination products soon could find their way into the term marketplace as well, says Feldman. ?? 1/2 You will see term policies with a long-term care [insurance] feature and health riders. It?? 1/2 s going to happen.?? 1/2
?? 1/2 Products seem to be moving in the direction of one-stop-shopping.?? 1/2 adds Purushotham, ?? 1/2 You can buy one product to insure for multiple risks.?? 1/2
Term contracts used to come exclusively in 10- and 20-year lengths until the 1990s, when carriers began offering policies for 5, 15 and 30 years. Today, not only are some carriers introducing 40-year term products, they?? 1/2 re also poised to roll out term contracts with flexible lengths that can be tailored to the specific needs of the policyholder, according to Feldman. ?? 1/2 Say a client has a mortgage that has 12 years left to run. They want term insurance to protect their spouse?? 1/2 s ability to pay the mortgage but a 10-year policy isn?? 1/2 t quite long enough and a 15-year policy is too long. Now that individual has access to a policy that will provide protection for a specific period of time ?? 1/2 12 years.?? 1/2
Notable advances also are occurring in the area of convertible term policies, says Mike Roscoe, senior vice president for individual life product management at The Hartford. In particular, carriers are designing more flexible policies, allowing policyholders to convert a contract from term to permanent insurance while also expanding the range of permanent products to which term policyholders can convert.
Increasingly popular and still relatively new, return-of-premium riders represent another step in the evolution of term products. While such a rider inflates the premium on a term policy by an average of about 30 percent, according to Purushotham, it?? 1/2 s an extra cost many people ?? 1/2 particularly the affluent ?? 1/2 are willing to swallow in exchange for a guarantee the insurance company will refund their money in the event the death benefit isn?? 1/2 t collected.
She estimates about 20 companies now offer return-of-premium riders on term policies. MetLife is not one of them, however. Daniel M. Mul?? 1/2 , MetLife?? 1/2 s vice president, protection products, says he worries customers are buying return-of-premium riders with money better spent on more coverage. He cites research showing term policies without the rider have an average face amount of $662,000, compared to an average face amount of $235,000 for policies carrying the rider. His conclusion: investments in a return-of-premium guarantee may bar people from an adequate level of coverage.
Term policies are also evolving on the pricing and underwriting fronts, which bodes well for consumers. Term premiums are at an all-time low, largely because the new valuation tables reflect longer life expectancies. In many cases, says Feldman, the lower cost makes it financially worthwhile to replace an older term policy with a new version even if the existing one was purchased just several years ago.
Meanwhile, notes Roscoe, medical advances have translated into less onerous underwriting for people who have survived conditions such as breast and prostate cancer, diabetes and heart disease. Not only can they obtain a term policy, they can do so ?? 1/2 at a much lower cost. What might have been considered a significant ailment is some cases is no longer considered significant,?? 1/2 she says.
Another development on the underwriting front could benefit advisors and consumers alike. Last year, The Hartford instituted a program that shifts much of the paperwork-trafficking responsibilities associated with the underwriting process from the agent/advisor to the carrier itself. That, says Roscoe, is a boon for advisors who complain they spend an inordinate amount of time shuffling papers for policies that generate relatively low commissions. ?? 1/2 We do everything,?? 1/2 he explains. ?? 1/2 We have essentially become the advisor?? 1/2 s personal assistant. It?? 1/2 s an approach that works very well with term insurance.?? 1/2
Simplifying the underwriting process sets the stage for carriers to expand the channels through which they make term products available, notes Purushotham. ?? 1/2 Companies are trying to market and sell term insurance through banks and other new channels, such as directly over the Internet and even through consumer department stores. To do that they need simplified underwriting processes.?? 1/2
New riders. A fresh generation of combination products. Less rigid convertible products. Greater flexibility in contract length. Streamlined underwriting. Record-low premiums. New sales channels. Term insurance is indeed evolving. And while it remains a product mainly suited to younger clients, it can be an effective planning tool for seniors who want to:
- Protect a spouse or an estate from an outstanding debt due to expire in a certain period of time, such as a mortgage.
- Make sure the policy proceeds are used by a family member (such as a spouse or offspring) to keep the family business in the family.
- Underpin a buy-sell agreement allowing surviving partners to maintain control of a business when one partner/owner passes away.
- Equalize the estate for their heirs.
- Stopgap an underperforming or deflated retirement portfolio so it has time to recover.
- Cover short-term potential tax liability within a trust.
- As long as carriers keep innovating, term life promises to become an even more versatile solution for seniors and younger clients alike.