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Life Health > Health Insurance

Underwritten Lifetime Income Benefits Are Worth Exploring

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Today, coming up with new solutions for clients who are near or in retirement is especially important.

After all, younger investors have time for the markets to recover from their often battered accumulations, but many older clients may not. It’s fair to say that many clients are hungry for new solutions. Providing these solutions can therefore strengthen client/advisor relationships and create nice referral streams for advisors.

Research we have done indicates the strong feasibility of doing just that.

Consider guaranteed lifetime income benefits. Under current volatile conditions, most providers have started to charge more for these benefits. But an important assumption underlying the pricing of such products needs to be re-evaluated. This is the presumption that people who are interested in these products will be in excellent health and therefore collect benefits for a long time. Payouts offered on these products are priced accordingly.

But many people who are in average or even somewhat below average health also are likely to have an interest in guaranteed income for life. After all, such individuals still have the possibility for long life, and they are under the same financial pressures as those who are healthier.

Generally, offering those in average and somewhat lesser health a stronger lifetime benefit requires some underwriting, including collection of health information. Up to now, many insurers have assumed that consumers are unwilling to provide this information and that advisors are reluctant to ask their clients for it. So underwritten lifetime benefits for this market have not been an industry priority.

But results of surveys of both financial advisors and consumers suggest it is time to revisit these assumptions.

(Note: Conducted in February 2009, our surveys tested views of 100 financial advisors from several distribution channels with at least 3 years’ experience. Also sampled were views of 150 consumers ages 55 to 70 with current assets of at least $100,000; their health was less than excellent, since healthy people likely would not qualify for higher guaranteed lifetime income payments.)

As noted above, most guaranteed lifetime income pricing assumes mortality equaling that of applicants in excellent health. But the same products, when priced for people in average or somewhat below average health, could pay out 10% to 30% more per month, an appealing consumer/advisor proposition.

Interestingly, the survey results suggest that it does not take a 30% increase to get the attention of advisors or their clients.

Seven out of 8 financial advisors (89%) said they would be interested in offering a guaranteed lifetime income product that pays out only 10% more than existing products to qualified applicants, provided that applicants would provide answers to 5 to 10 questions about their health to an insurance company representative over the phone to validate their health status.

The survey also found that the mode of getting information on health is important. When asked about allowing a licensed medical technician to draw blood or collect a urine sample, interest went down to 72% of financial advisors. Still, 72% is a significant level of interest considering the level of invasiveness and the relatively modest level of sweetened benefit (10%).

A key issue concerns to what degree clients will resist a request to provide medical information or bodily fluids.

Interestingly and importantly, our consumer survey found that while only 33% said they were interested in an “investment product that could provide a guaranteed income for the rest of your life,” 49% said they would allow a medical technician to draw their blood if doing so gave them an opportunity to get a guaranteed lifetime income product that would pay 10% more than these products currently pay.

Of course, there was a higher (though not that much higher) consumer willingness to answer 5 to 10 questions about health to qualify for these higher payments.

One of the key challenges today is to develop new ideas that will allow clients more financial efficiency.

Guaranteed lifetime income is a powerful tool, but for a significant portion of an advisor’s retired client base, it can be more powerful. Those in even average and certainly slightly below average health can get more lifetime income from properly structured products, such as guaranteed living benefits on variable annuities and mutual funds, immediate annuities, and annuitized benefits.

The new research indicates that advisors and consumers have a real willingness to turn health information into a larger stream of lifetime income than is normally available. The next step is to seek out these products and encourage life insurers and asset managers to develop new ones.

Mathew Greenwald is president of Mathew Greenwald & Associates, Inc., Washington, D.C. His e-mail address is [email protected]. Timothy Pfeifer, FSA, MAAA, is president of Pfeiffer Advisory, LLC, Libertyville, Ill. His email address is [email protected]


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