Planning today often means make certain clients don’t run out of money before running our of breath
by Dennis MartinMr. Martin is Senior Vice President with OneAmerica,® in Indianapolis. Visit www.oneamerica.com
Editor’s Note: As the American Council of Life Insurers and the Society of Actuaries convene for four days in Las Vegas (Mar 4- 7, 2018), we offer supporting content on the over-arching theme being discussed there: Longevity. How is an aging world population affecting insurers’ business models; what solutions can be offered to address this issue; what new technologies can help and what opportunities will arise? Find the answers at ACLI Refocus 2018.
“Death never takes a wise man by surprise; he is always ready to go.”
That statement was made in the 17th century by Jean de la Fontaine, who wrote poems and fables, not insurance policies. However, it could serve as a motto for those of us in financial services.
While death is still as certain as ever, it’s coming later than it used to. In 1970, few people could expect to live much longer than a few years past their retirement. Today, a man turning 65 can expect to live, on average, until age 84.3; a woman the same age can expect to live until age 86.6.
It’s a positive trend; we’re all happy about living longer. For life insurers, lower mortality and lower claims have been a welcome bright spot as the industry has weathered a challenging low-interest rate environment. Increased longevity is also positive for financial professionals, who help clients prepare for a whole new chapter of life that would have been unlikely even a generation ago.
Shifting focus from taxes to surviving longevity
“When I first started practicing law 19 years ago, people planned because of concerns about taxes,” says Indianapolis attorney Rebecca Geyer, whose practice focuses on elder law and estate planning. “Today, they’re planning because their concerns are outliving their resources and the cost of long-term care.”
So how does increased longevity affect the products and services available, and the underwriting for those products?
The answers to those questions underlie the rationale for the new Commissioners Standard Ordinary (CSO) Tables. These mortality tables, issued by the Society of Actuaries, provide a guidebook for insurers as well as insurance industry regulators. Newly updated for 2017, all life insurance must reflect the updated CSO tables by Jan. 1, 2020.
Because the previous CSO tables were issued in 2001, the new tables reflect many changes, not least of which is the seemingly unstoppable trend of increasing longevity. Accordingly, over the coming two years, we’ll see sometimes-significant changes to existing products and new products launched as the tables are adopted.
For underwriters, new data and technology also provide an opportunity to take a new look at how we assess mortality risk. For instance, although some accelerated underwriting practices have been around for many years, we have seen meaningful advancements in the past, say, 24 months, and we’ll see them continue to evolve as we inevitably gain access to more data and enhance predictive models and techniques around both longevity and mortality. This analysis will result in underwriting and mortality assessments that fit clients better and look at a client’s risk profile more holistically.
Even aspects of increasing longevity that at first glance might appear to be negative provide opportunity for our industry. One might expect that increasing longevity is a negative trend for providers of asset-based and traditional long-term care protection, who must account for a longer life span in which to potentially need care; however, as longevity has risen, so has the focus on maintaining quality of life as we age, and we have seen some evidence that healthy life expectancies have increased faster than overall life expectancy.
In short, while we’re living longer lives, they’re also more likely to be healthier lives.
Longevity & Disease
There are also concerns related to increased longevity, including degenerative diseases such as Alzheimer’s and Parkinson’s which are diagnosed in ever growing numbers as the older population increases and may require years of care.
Taken together, these two trends make asset-based long-term care protection especially attractive for clients, who can use this protection to help provide income if needed for care expenses. If the full benefits aren’t used, a death benefit is paid.
Increasing longevity trends also affect the pricing of annuities. A longer average lifetime means a longer average payout period for annuity contracts. The same holds true for other retirement income sources that act like annuities, such as pensions.
However, for clients planning for a longer retirement, annuities provide a guarantee that investments cannot – the guarantee of not outliving that income. Annuities typically are also available to older clients or those whose health conditions may disqualify them for other types of protection.
In coming years, carriers may very well begin responding to increasing longevity trends by offering more products available to customers who are in their 80s or even 90s – as the numbers of older Americans increase, their demand for financial services will, as well.
Financial professionals have a great opportunity to help clients at any life stage research and evaluate options to prepare for a long life, including the possibilities of outliving income or needing more income than expected because of health care needs.
And who doesn’t want to help others prepare for a longer, healthier life?
OneAmerica® is the marketing name for the companies of OneAmerica. Products issued and underwritten by The State Life Insurance Company® (State Life), Indianapolis, IN, an OneAmerica company that offers the Care Solutions product suite. Provided content is for overview and informational purposes only and is not intended as tax, legal, fiduciary, or investment advice.