Leveraging Life Insurance for Longevity

A value-equation for the prospect of living to 100

by Rod Rishel

Mr. Rishel is U.S. Head of Life Insurance for AIG Consumer Insurance. He can be reached at Rod.Rishel@aig.com.

As consumers continue working on their resolutions this new year, February seems a fitting time to review with them their current and potential financial challenges, and how recent innovation in the life insurance industry has generated cutting-edge solutions.

We know from LIMRA that Americans remain underserved when it comes to life insurance protection; therefore, it’s key to focus not on selling products, but on delivering a value proposition that meets consumers’ underlying needs – which I believe is what will help them purchase the products.

It is, after all, our industry’s responsibility to offer customers innovative products that are flexible enough to serve as solutions for multiple contingencies – and at accessible rates. Whether the issue is premature death (before financial security for loved ones is achieved), the financial burden of a devastating chronic illness, or the prospect of outliving retirement income, life insurance products must provide optionality.

In other words, they must be multi-faceted. They must enable advisors and agents to explain to clients, “These are solutions for your needs. Your choices. Your way.” Life isn’t static, nor should life insurance be. That’s because the longer clients live, the more contingencies they may face. And Americans’ life expectancy is now longer than at any other time in history, according an October 2014 report by the Centers for Disease Control and Prevention (CDC).

A Longer Longevity

Other research has found (and Life & Health Advisor has shared) that for a married couple age 65, a 50 percent chance exists that at least one spouse will survive to age 94, and a 10 percent chance that one will live to age 104. As longevity increases, clients’ valid fear of outliving retirement income can rise, too.

In fact, as the Insured Retirement Institute (IRI) reported recently, the percentage of Baby Boomers who are confident they will have enough money to live comfortably throughout their retirement years dropped from 37 percent in 2011 to 33 percent in 2014.

Think about it: Nearly two-thirds of Baby Boomers may stand to benefit from a universal life insurance solution that, when combined with a longevity rider (and when the policy premiums are paid), can provide the opportunity at age 85 to access a stream of retirement income that may be income-tax-free. Be sure to let clients know when planning commences that they should enlist independent tax or legal advice as they review their own circumstances.

The Healthcare Variable

Keep in mind, as well, that the need to ensure sufficient income for advanced age isn’t Americans’ only concern. The discussion of planning for longevity is incomplete without careful consideration, also, of how to address spiraling healthcare costs that can impact clients as they age, particularly if long-term care becomes necessary. Unfortunately, seven of 10 people turning age 65 can expect to need long-term care before death.

Life isn’t static... and Americans’ life expectancy is now longer than at any other time in history

And for many people, chronic illness precipitates that need. Further, on average, elderly individuals will use long-term care for three years, and one in five for more than five years, according to the American Council of Life Insurers (ACLI).

The ACLI has also confirmed that long-term care costs will likely keep rising. Since 2005, the cost of nursing home care has grown 4.5 percent annually, compared to an overall inflation rate of 2.5 percent. If this trend continues, the average cost of a one-year stay in a nursing home will rise from about $81,000 in 2014 to $146,000 in 2030. Chronically ill clients who don’t need nursing home care may need to cover other costs instead, such as for an in-home care provider, medical equipment and transportation, and home modifications.

But informal, home-based care is less likely for a growing number of seniors, as fewer family members are able to provide such care. How can advisors and agents help clients counter fears of outliving retirement income, and avoid the financial devastation that chronic illness and long-term care can wreak? One innovative package of two riders on a permanent life insurance policy might be the answer.

Protection for Life's Contingencies

This “asset protector” solution allows the life insurance product, when properly structured and funded, to potentially provide cash in the event of death or chronic illness, as well as create cash payments at a certain age if neither death nor chronic illness occurs. It provides a compelling package of guarantees, pricing efficiencies and consumer-friendly flexibility designed to change the way Americans think about, purchase and use life insurance.

Be on the lookout also for carrier innovation in index universal life insurance (IUL) products, especially any designed to offer strong, flexible protection and unique ways for clients to access cash value in the policy, without reducing the initial death benefit. I believe the near future will bring expanded product choices for consumers. Advisors and agents who stay abreast of the emerging solutions and educate clients about the value proposition of products rich in optionality have the potential to position themselves as trusted partners in longevity planning. Thankfully, new designs in life insurance don’t just represent new choices for consumers, they also represent new opportunities for distribution professionals.

 American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange. Additional information about AIG can be found at www.aig.com | YouTube: www.youtube.com/aig | Twitter: @AIGInsurance | LinkedIn: http://www.linkedin.com/company/aig |