More benefits and lower-cost options are rapidly debuting in the areas of survivorship life insurance, longevity insurance and long-term care life insurance and annuities. Some insurers have reduced the costs of no-lapse guaranteed survivorship life insurance coverage by shortening the duration of the no-lapse protection. Others have lowered the premiums policyholders pay for long-term care insurance by combining life insurance and annuities with long-term care coverage. Still other insurers have cut the costs of immediate annuity coverage by postponing income payments to an older age.
In the survivorship life category, John Hancock Life Insurance Company launched a lower-cost universal survivorship policy in June, with protection SUL premiums that are 10 percent to 15 percent lower than the industry average, according to Michael Barsky, assistant vice president of life product management for the firm. They were able to do this by shortening the no-lapse guarantee on the product.
SunLife, AXA, Phoenix, Ohio National and Old Mutual also offer scaled-down, no-lapse coverage, according to LIMRA.
Under John Hancock's new offering, no-lapse coverage on universal insurance only covers policy holders until they are aged 92 for males and 89 for females, instead of for life, Barsky says. This change allows John Hancock to offer the cheaper pricing. A no-lapse guarantee means that with minimum required one-time premium payments, the policy can't lapse — even if its cash value drops to zero. By contrast, competing products extend their no-lapse guarantee to age 121.
Barsky says Hancock decided to come out with this policy for a couple of reasons. Affluent baby boomers age 50 and up are at an age where they need to do estate tax planning. And survivorship life insurance is used to pay estate taxes or for wealth replacement when the surviving spouse dies. Plus, universal life insurance pays current rates of interest on the cash value. Hancock's economists expect interest rates to eventually rise from today's low level. So policyholders' cash values will earn higher rates.
Under the John Hancock policy, a 65-year-old male with a 62-year-old spouse, both in good health, would pay $18,468 in annual premiums for a $2 million survivorship policy. By contrast, a composite average of top sellers of survivorship life for the same couple runs about $20,968, according to Barsky.
Insurers are also rolling out new combination long-term-care insurance products, meanwhile, as sales in this segment of the industry are growing at quite a clip. “Overall sales of combination products — up 62 percent or $1.2 billion in 2010, were remarkable, especially coming off the double-digit growth experienced in 2009,” said Catherine Ho, LIMRA research actuary.
The top insurance companies that sell life insurance and or annuities combined with long-term care coverage are Genworth, John Hancock, Lincoln National, Hartford, Midland/North American Co. for Life and Health Insurance and OneAmerica, according to LIMRA. Lincoln National and Sun Life entered the fray this summer.
Lincoln National, in Radnor, Pa., rolled out a fixed annuity long-term care policy in June. It is currently available in 30 states, according to Daniela Palmieri, spokeswoman for the insurer. The Lincoln Long-Term Care annuity provides long-term care expenses of up to 300 percent of premium. But the contract growth will also be added to the long-term care benefit.
Kevin Loffredi, vice president of annuity solutions with Morningstar, says that Lincoln's new product is the first of its kind because the policyholder can get guaranteed lifetime income from the annuity if they don't use it for long-term care coverage.
The cost of the rider for triple long-term care coverage is 32 annual basis points of the contract value at age 55 to 59. By age 70 to 74, it costs 68 basis points. Policyholders are eligible for benefits after the first contract anniversary. Maximum annual benefits are available after year five. There is a 90-day deductible period before benefits are paid.
Then in July Sun Life launched a combination whole life insurance long-term care single premium product targeted to people age 50 to 75 with liquid assets of at least $500,000. The product, Sun Care Whole Life, provides a long-term care benefit equal to as much as three to seven times the value of the policy owner's single premium for as long as eight years. Example: For a single premium of $100,000, a 50 year-old male in good health would get accelerated death benefits of $9,200 monthly for the first two years. After the second year, the rider kicks in, paying $9,200 monthly for the next four years, says Mike Murphy, assistant vice president with Sun Life.
If the insured passes away without exercising the long-term care benefit, a death benefit goes to beneficiaries, income-tax free.
Murphy says the Sun Life product has several advantages over competing products. Since policyholders pay a single premium, the whole life policy has faster build-up and higher cash value. Married couples get a marital discount. Policyholders get long-term care coverage for eight years — about two years longer than competing policies. Long-term care coverage rises with increasing costs.
“Once the policy owner pays the single premium, the policy is guaranteed to provide a benefit, either to the individual or the beneficiaries,” Murphy says.
Individuals not looking for life insurance can invest in a lower-cost annuity with long-term care coverage. Unlike stand-alone long-term care insurance, annuity policyholders are not faced with the chance the premiums will increase when they get older.
These policies can pay two-to-three times the account value for long-term care for up to six years. So, for example, a client who invested $100,000 in a fixed annuity that grew to $150,000 by the time a long-term care claim is filed might get $300,000 to $450,000 of long-term care coverage, according to Milliman, a Chicago-based actuarial consulting firm.
“The tradeoff with combination products is that you give up the annuity earnings if you use it for long-term care,” says Anthony Domino, a Rye Brook, N.Y.-based financial planner.
On the index life insurance side, the National Life Group, headquartered in Montpelier, Vt., launched a lifetime income benefit rider on its single policy index universal life insurance product in the fall of 2010. And in July the insurer rolled out its LifeCycle Solutions policy, which offers both first-to-die and second-to-die coverage along with the lifetime income benefit.
This the first insurance company to offer the lifetime income benefit rider and combination first- and second-to-die policy on the market, according to a report by A.M. Best. Once the policyholder receives lifetime income, there is a 65-basis-point annual charge deducted from the accumulated cash value.
The rider gives the insured the option to receive guaranteed lifetime income. The income is tax-free until the policy reaches the minimum threshold criterion (the policy cash value is drained), after which it is taxable. Policyholders can start tapping income after a waiting period and provided they are between the ages of 60 and 85. Once the rider is elected, income is guaranteed even after the policy values are drained, and a $15,000 death benefit will continue to be maintained.
The challenge to advisors discussing this product with clients: Index insurance products are complex. National Life offers a choice of four strategies to invest the cash value in the universal policy. All have a minimum guaranteed annual interest rate of 2.5 percent applied only at full surrender or death. The cash value is indexed to the performance of the S&P 500 index. The participation rates and caps range from an annual point-to-point crediting method on 100 percent of the S&P 500 with a 13.5 percent cap to an annual point-to-daily average crediting method on 120 percent of the S&P 500 with no cap.
Until now only MetLife and Symetra offer an advance life deferred annuity designed to pay income starting at an older age, according LIMRA.
New York Life Insurance Company has also just entered the fray. The company announced its Guaranteed Future Income Annuity, a deferred income annuity, last July. With this product, a policyholder can make an initial premium payment of at least $10,000 and set a future income start date to begin receiving guaranteed income payments for life. Between the initial premium date and the income start date, the policyholder can continue to make premium payments in smaller increments, and can defer or accelerate the income start date as personal needs change.
Like any insurance product, there are tradeoffs for the great benefits. Be advised that with any insurance product, withdrawals may be prohibited or products may come with high surrender fees, and/or the value of the investment may nosedive if a client needs to cash it in. Earnings on cash value may fluctuate and interest rate formulas may be re-set by the insurance company. The client also needs to bank on the insurance company being around when he or she needs it to pay.
Alan Lavine is a contributing writer to Registered Rep., and author of some 15 books on investments and insurance. He writes a column for Dow Jones MarketWatch's “'Retirement Weekly,” and is a contributing editor to Financial Advisor magazine.