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Life Health > Life Insurance

2013: The year of the hybrid

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Randy Rowray has been around the life insurance business long enough to sense when a product is on the verge of a breakthrough. And based on the surge in interest he’s seeing from advisors and consumers alike, Rowray, vice president of marketing at The National Benefit Corp. (TNBC) in West Des Moines, Iowa, says a class of hybrid products that combine life insurance with long-term care (LTC) coverage “could truly be a hot button for 2013.”

The momentum behind life/LTC combination products has grown so much of late that TNBC, an annuity- and life insurance-focused brokerage agency, is set to make these often-overlooked products the centerpiece of a 2013 marketing and educational campaign aimed at its roughly 8,500 reps and advisors nationwide. “It’s a topic on a lot of advisors’ minds,” says Rowray.

Life insurance/LTCI isn’t the only hybrid product generating a buzz these days. Indeed, several annuity and life (LI) offerings that insurance carriers have developed by borrowing familiar elements from other instruments appear to be gaining traction. Want to press the right buttons with your clients? Here’s a look at half-dozen hybrids worth your due diligence in 2013.


Deferred income annuities. Combine a deferred annuity with an income annuity and the resulting hybrid is what’s often called a deferred income annuity (DIA), also known as a longevity annuity, longevity insurance and even oxymoronically as a deferred immediate annuity.

Whatever the moniker, the product is resonating with consumers. With new companies entering the market and existing players launching new or revamped products, sales of DIAs reached $395 million in the first quarter, a leap of 147 percent above the first quarter of last year.

In some regards the product works like a single-premium immediate annuity, where the contract holder invests a lump sum, either by rolling over qualified funds or taking money from a low-earning CD. But rather than starting immediately, annuity payments are deferred for a minimum period of time, such as five, 10 or even 20 years, after which the contract holder typically has the discretion to begin taking payments or to continue deferring them. Thus it functions like a pension, providing a steady, guaranteed stream of retirement income. “People want to know where their retirement income will come from,” says Kevin Loffredi, vice president for insurance custom solutions at Morningstar, Inc., in Chicago. “[The DIA] answers that question very succinctly for them.”

New York Life’s Guaranteed Future Income Annuity is among the leaders in the DIA segment. It’s a flexible premium product that can be purchased with an initial premium as low as $10,000. It also allows policyholders to defer or accelerate their income start date.

The single-premium Select Portfolio DIA from Northwestern Mutual offers a new twist — the opportunity for contract holders to collect a nonguaranteed dividend based on the performance of sub-account investments. That dividend can be taken as additional income or reinvested inside the contract, or a combination of both. Income can be taken following a 13-month deferral period or decades in the future.

Annuity + LTC hybrids. They may not match the popularity of their life/LTC cousins, but annuity/LTC combination products are nonetheless finding a niche in the marketplace, according to Loffredi.

Usually built around a fixed immediate annuity chassis, annuity/LTC products gain appeal from their tax-favored status (distributions from combination annuities used to cover LTC costs are tax-free if handled properly), plus their ability to provide a measure of long-term care coverage to people who either don’t want to purchase or can’t affordably purchase a stand-alone long-term care insurance policy.

Companies such as TransAmerica offer variable annuities with living benefit riders (such as the Retirement Income Choice 1.2) that feature accelerated benefit options to cover LTC costs. Loffredi also points to the Long-Term Care Advantage rider from Lincoln National for its unique structure. For a cost of between 0.87 percent and 1.71 percent, the rider pays a monthly amount for long-term care expenses up to three times the initial purchase amount, up to $1.6 million.

Hybrid dual-sleeve annuities. This hybrid of the variable annuity (VA) and the traditional fixed annuity features a dual-sleeve design, where the contract holder can purchase units of a variable annuity and units of a fixed annuity. AXA Equitable’s Retirement Cornerstone is among the new breed of products to take such an approach. It features a nonguaranteed equity-invested variable sub-account and a fixed sleeve that houses guaranteed investments to support the contract’s optional income and death benefit guarantees. When the contract holder decides to have the guarantee kick in, funds are allocated into the guaranteed sleeve.

“Carriers are putting risk back on clients and putting levers in the hands of clients as to when to start receiving income and have that money move over [into the fixed account],” explains Loffredi.

Hybrid hedge fund/annuities. The variable annuity market, like the broader investing community, is moving toward a portfolio model that relies more on low-correlation alternative asset classes — commodities, managed futures, long-short equities and the like — as a risk- and volatility-mitigation tool.

Jackson National Life’s Elite Access VA, for example, combines alternative investments with risk and tactical management to help advisors address rapid movements of the market and maximize the potential for returns on behalf of their clients. Besides an array of traditional investments, Elite Access offers 12 alternative options, from listed private equity to convertible arbitrage to emerging markets debt.


LI+LTC. Rowray says he had been seeing signs of surging consumer interest in combination life insurance/LTC products for the past couple years, but it was a September webinar held by Nationwide Insurance that convinced him life/LTC segment is poised to take off. The webinar attendance figure in particular was what struck Rowray: About 580 advisors tuned in for a presentation on “Understanding Life Insurance with LTC Riders and Advanced Marketing Opportunities.”

This on the heels of four consecutive years of double-digit growth in life combination product sales, capped by a 56-percent increase in 2011 and a 10 percent rise in 2012, according to LIMRA.

LIMRA further notes that total new premium for life combination products reached $2.4 billion in 2012, representing 11 percent of total individual life insurance new premium. More than 86,000 combination policies were sold in 2012, an increase of 19 percent compared with 2011 results.

Some LI/LTC products are configured as single-premium, linked-benefit products, while others are acceleration policies, typically with riders that deliver LTC benefits up to the amount of the policy death benefit. The latter category is proving more popular with clients, accounting for 76 percent of market share by policy count, according to LIMRA.

The appeal of these products lies in their ability to use leveraged dollars to secure both life and LTC coverage, Rowray explains. In the current interest rate environment, it’s a great use for money that’s earning next to nothing in a fixed vehicle such as a CD, he says. What’s more, if the policyholder never needs long-term care, that money stays inside the policy, to eventually pass to beneficiaries on a tax-favored basis. “So you’re not only getting death benefit coverage, you’re getting living benefit coverage.”

Indexed UL. The main value proposition for fixed indexed annuities — the opportunity to access equity market upside with principal protection on the downside — apparently rings true with life insurance buyers, too. Take the traditional universal life strategy, tie its cash value to an equity index, add in a principal guarantee and you get a product with growing consumer appeal.

According to the LIMRA Q4 2012 survey, indexed universal life (IUL) has grown from a $330 million market in 2006 to a $1.5 billion market in 2012. Indexed UL sales soared 42 percent in Q4 and improved 36 percent for the year. IUL now represents 30 percent of total UL premiums and 12 percent of all individual life insurance premiums.

Yet another example of a hybrid insurance product whose time has come.

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