Underwritten Lifetime Income Benefits Are Worth Exploring

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.