New Product Designs Engineer Flexibility, Diversity  

While two out of three isn’t bad… three out of three is better

by Jeff Marsh

You’ve probably heard the phrase “two out of three ain’t bad,” but most of us would agree: three out of three is better. As 2015 approaches, there is a life insurance solution that’s designed to meet all three major contingencies clients may face: dying prematurely, outliving retirement income, or getting seriously ill along the way.

I’m referring to a newer breed of universal life insurance that offers flexibility as well as affordability, because consumers need protection from the financial impacts of multiple contingencies, and they also need options. Furthermore, life insurance products that target multiple needs may enable financial professionals to serve as more of a “one-stop shop” for clients – and that’s important, because statistics show that when it comes to needed protection, consumers continue to be grossly underserved.

In fact, a recent LIMRA study on middle-market consumers (who were defined for purposes of the study as persons ages 25-64 with annual household incomes of $35,000 to $99,999), found that “only 46 percent own individual life insurance, revealing a critical gap in protection.”1

Unprepared for financial havoc

It’s startling to see how few consumers are prepared for the financial havoc that chronic illness can wreak, or how many people lack a plan to help ensure sufficient income if they live beyond their projected life expectancy.

Some of us have insight into the terrible economic burden that chronic illness can place on clients, particularly when long-term care becomes necessary. But it’s not just long-term care that can decimate retiree budgets; for the chronically ill, prescription drug costs alone can be devastating.

As a post on Drugwatch.com earlier this year explained, “Many cancer drugs cost well over $100,000 for a year’s worth of medicine. In the fight against cancer, most people can expect to be on more than one drug. The bill for medications can escalate to nearly $300,000, a price tag that doesn’t include fees charged by a doctor or a hospital. Health insurance companies – including government polices like Medicare – don’t cover the full cost of these drugs. Some policies don’t cover some of these drugs at all.”2

Even if clients don’t suffer a chronic illness that leads to substantial health care costs, they may lack sufficient income to see them all the way through retirement. The LIMRA Secure Retirement InstituteTM revealed in May that only 10 percent of respondents to one of its recent surveys strongly agreed that they are confident they will be able to enjoy the retirement lifestyle they want.3

Stats such as those strike a scary chord in the hearts of all of us who care about the people whom our industry serves. It’s troublesome to think about how many people still need death benefit protection, still need protection from the costs of chronic illness, and still need protection from outliving their retirement income.

Perhaps the shortfall in protection doesn’t come as a surprise, given the rampant competition for consumer dollars. The competition is coming not only from financial products other than life insurance and related living benefit riders, but also, from the restaurant or gourmet coffee shop on the corner and purveyors of the latest, greatest smart phones.

I’m amazed at the number of people who will spend a few hundred bucks a month on dining out, $150 or more per month on a mobile phone plan, and another hundred bucks a month on “designer” coffee, yet say that life insurance is beyond their budget.

That’s a huge and widely-held misconception. Quoting LIMRA again, “The most commonly cited reason for not purchasing more life insurance is cost (63 percent cited ‘too expensive’). This is particularly true among younger consumers, who are generally more likely to qualify for preferred rates because of their age and health status. In fact, a recent LIMRA/Life Happens study found that consumers overestimate the cost of life insurance by nearly three-fold.”4

The well-structured life policy

Not only do consumers overestimate the cost of life insurance, I believe they also fail to understand the value that a well-structured policy, with appropriate living benefit riders, can represent. I’m referring to “life insurance you don’t have to die to use” – and this type of product, as I see it, ought to serve a key role in the financial planning process: to help protect clients’ dreams so they can focus on their goals to live longer and retire stronger.

For example, a combination of two riders that are now available on specific universal life insurance products provides the potential for one life insurance policy, when properly structured and funded, to provide cash in the event of death or chronic illness, as well as create guaranteed cash payments at a certain age if neither death nor chronic illness occurs.

A built-in longevity rider now exists that can guarantee monthly accelerated benefits on a dollar-for-dollar basis at age 85 without requiring a specific health-related trigger. (It also offers the flexibility to receive benefits on a discounted basis after as few as 15 years, regardless of the cash surrender value within the policy.) Previously, the only longevity rider on the market that was structured in a similar way did not allow for access to the cash value of the life insurance policy until age 90.

Living benefit riders have been around for some time, of course, but it has not been common to see a longevity rider and a chronic illness accelerated benefit rider bundled together for a life insurance product. Recent carrier innovation has resulted in not only expanded choice for consumers, but new opportunities for advisors to help meet client needs.

I believe that as consumers re-evaluate their financial status and their retirement readiness in the new year, it will be an opportune time for financial professionals to connect with them in a more holistic way, unearth their concerns, and educate them about the solutions available for their needs. And help explain that insurance is not just an expense.

Whatever your focus in 2015, strive to align with the top one or two most innovative carriers, like AIG member insurers, to provide cutting-edge solutions to consumer needs. When you can offer a permanent life insurance product that clients can own over a long period of time, and that has the “optionality” to counter three major contingencies along the way, you’ve got the potential to triple your value in their eyes.

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End Notes
1. “Less than Half of Middle-Market Consumers Own Individual Life Insurance Creating a Gap in Protection,” LIMRA, Sept. 2, 2014, accessed Nov. 15, 2014 at http://www.limra.com/Posts/PR/News_Releases/Less_than_Half_of_Middle-Market_Consumers_Own_Individual_Life_Insurance_Creating_a_Gap_in_Protection.aspx
2. “Big Pharma Cashes in on Americans Paying (Higher) Prices for Prescription Drugs,” Michelle Llamas, Drugwatch.com, Oct. 15, 2014, accessed Nov. 15, 2014 at http://www.drugwatch.com/2014/10/15/americans-pay-higher-prices-prescription-drugs
3. “Workers See Defined Contribution Plans as Critical to Retirement Security,” LIMRA Secure Retirement Institute, May 2014, accessed Nov. 15, 2014 at http://www.limra.com/uploadedFiles/limracom/LIMRA_Root/Secure_Retirement_Institute/News_Center/Reports/140528-01exec.pdf
4. “Facts from LIMRA,” LIMRA, September 2014, accessed Nov. 15, 2014 at http://www.limra.com/uploadedFiles/limra.com/LIMRA_Root/Posts/PR/LIAM/PDF/2014-LIAM-Fact-Sheet.pdf