To Age 100 Features Proliferate In Life Insurance And Annuities
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Methuselahs may not exist, but plenty of centenarians do. The U.S. Census Bureau projected that, in November 2000, roughly 68,000 Americans were age 100 or more.
Thats up from the 59,000 projected for July 1999, and 48,000 projected for July 1995. (See chart.)
These numbers arent lost on insurance product developers. Increasingly, they are inserting "to age 100″ and/or "lifetime" features of one kind or another into their products–to appeal to clients who think they may live a very long time.
Whole life insurance has always been structured to endow at age 100, of course. But now, the "to age 100″ concept is also popping up in other policy types–in universal life insurance, variable UL insurance, and annuities.
Some of those contracts, and a number of long term care policies, also sweep in "lifetime" features.
Notably, most disability income insurers have all but dropped "lifetime benefit" options from their policies, points out Mark Ameigh, a partner with Disability Insurance Specialists in Windsor, Conn. (That change followed the DI industrys claims difficulties in the early 1990s.)
But many other lines are seeing steady tinkering with to age 100 (and beyond) provisions.
"Its a necessary development," says Edward Brown, an investment advisor rep with InterSecurities in Missoula, Montana.
Brown has been selling insurance and securities products for 20 years. Over that time, he says he has watched the debut of ULs with "endow to 95″ followed by "endow to 100″ features. More recently, hes seen ever-longer UL secondary guarantees come out, a number of them now to age 100. He has also watched the introduction of extended maturity dates (which keep ULs in-force until death, no matter what the insureds age), and the gradual pushing out of the maximum annuitization date on various annuities (even, in some cases, removal of such a date).
These changes, combined with the impressive longevity of his parents–now ages 90 and 92 and still dining out–have convinced Brown "its important for financial products to have these choices."
Take the life insurance extended maturity feature, he says. "If we try to sell life insurance as a tax-free death benefit that will be there when the client dies, but use a policy that doesnt offer extended maturity, you have to ask: What have we done to the client?"
If the client lives beyond the policys maturity date, the policy will endow and the elderly client will have to pay a big tax bill on the policy gains, he says. "That messes up the boat."
Its the same if a producer sells a UL without long death benefit guarantees, preferably to age 100, he says. That sets up a scenario where the UL may not achieve its purposes, he explains, noting many of his clients buy life insurance to ensure there will be money to take care of their spouse and also to pass on to their children. Without the guarantee, that might not happen.
His response? "I make sure the guarantee is there."
In life insurance, producers "absolutely have to look at the tax consequences when the policy endows," agrees Ameigh.
Consumers rarely ask about this, he notes, alluding to his own contact with clients and those of colleagues. "But distributors need to be doing this. Its part of their job–to anticipate the issues that may affect their clients."
In particular, distributors "need to assume that not all clients will die before age 100. The census data makes that clear, and with advances in health care, there will probably be even more people reaching age 100 and up in the future."
Many producers already have gotten the message. In the UL arena, for instance, "the market demands no limits on policy death benefit guarantees," points out Shawn Hartnett, life product officer at Ohio National Financial Services, Cincinnati, Ohio.
By market, he says he means producers and third-party advisors to clients (such as accountants and attorneys).
The UL death benefit guarantees have been evolving over the past several years, adds Carolyn Nightingale, vice president-marketing support at Ohio National. Originally, companies started offering UL no-lapse and secondary guarantees that lasted for one, five, and then 10, 15, 20 and 30 years. Now, a number of ULs offer guarantee options to age 100.
Ohio Nationals new Virtus 100 UL policy is an example. It guarantees the death benefit to age 100, based on lifetime or limited pay premiums. It also has a built-in extended maturity feature; if the owner pays the guarantee-to-100 premiums, this feature guarantees full coverage past age 100 with no additional premiums, regardless of surrender value.
The company built the policy this way, says Nightingale, "because people are looking for guarantees–to age 100 or for a lifetime."
It takes care of the "worst case scenario," Hartnett says, referring to how ULs with insufficient value could lapse without such guarantees.
As for the maturity age–100–he says this is the traditional maximum age for maturing a life policy. A few years ago, Ohio National used age 95 as its UL maturity age, but now its 100.
