Life insurance products continue to be popular, particularly as carriers introduce new types of riders and other product features to attract more customers.
Experts describe some of the latest trends in life insurance — and what’s driving its growth — including the expansion of value-added services and the evolving distribution of coverages on the exchanges.
Term, indexed universal life
Term insurance has been a fairly stable product, as it’s still the cheapest form of life insurance, says Carl Friedrich, principal, consulting actuary at Milliman Inc. in Chicago. Rates have been very attractive for consumers, he says, and there has been a lot of competition in those markets.
According to LIMRA, term life insurance new annualized premiums fell 4 percent in the first quarter of 2014, and two-thirds of term writers reported negative growth for the quarter compared to prior year. However, this is in relation to significant growth in 2013 after several carriers reintroduced traditional term products to replace term universal life products.
Indexed universal life products are increasing, as applicants seek to secure a portion of equity market returns, but with some floors to protect against adverse performance, Friedrich says.
“The illustrated rates tend to be 6 percent to 8 percent, which are pretty attractive compared to rates on universal life products and dividends on whole life products,” he says.
Total indexed universal life sales, as a percent of total universal life and IUL sales combined, increased from 14 percent in 2010 to 31 percent during the first nine months of 2013, according to Milliman’s study, “Universal Life and Indexed Universal Life Issues.”
Many carriers have discounted and placed less emphasis on universal life secondary guarantee products in the last year or so, mostly driven by recent reserve requirements, adds Milliman’s Susan Saip, consulting actuary. In the survey, five of the 26 participants reported discontinued sales of ULSG products.
Within the voluntary market, life insurance sales rose 22 percent in 2013, to $1.9 billion, according to Eastbridge Consulting Group. It was the fifth consecutive year that life insurance led voluntary benefits sales, comprising 28 percent of all voluntary benefits.
Profitability on term, universal life and whole life products has been impacted by continued low interest rates, says Joe Kenny, product performance director at Mutual of Omaha Insurance Co. in Omaha, Nebraska.
“There has been a renewed interest from customers in guarantees, especially for those who lived through the really high interest rates in the 1980s and early 1990s, and are now being asked to put more money into their universal life policy to keep it from lapsing,” Kenny says.
One thing that goes against the trend toward guarantees is indexed universal life, which is gaining a lot of traction, he says. Life insurance companies aredetermining credited interest based on the performance of external indices — typically the S&P 500 — with a floor of zero percent and a maximum cap, such as 12 percent.
Universal life with secondary guarantees is still an important product, as the guarantee is there regardless of what happens with interest rates, “which works well for customers who just want to know what they need to pay so they don’t have to worry about their future premiums,” Kenny says.
In April, MetLife Inc. launched “Voluntary Retiree Life” in part to help large employers save money in their retiree benefits packages, says Stephen Pontecorvo, vice president, group life products at MetLife Inc. in New York. For a $25,000 benefit, policyholders get a guaranteed issue, but for larger amounts of $75,000 and $150,000, Cigna requires medical evidence.
Employees can get this product generally within 60 days of retirement, and the death benefit reduces annually until the employee reaches 80, at which point the coverage remains level and in force until age 100.
“Many people in their 60s might still have a dependent or are still paying their mortgage, but by the age of 80, most do not have those types of expenses,” Pontecorvo says.
In 2015, Guardian expects to launch a worksite permanent life product that acts as a savings vehicle for college or retirement in addition to a death benefit, a product common in the individual market, says Andrew Hutchison, assistant vice president, group products.
For policyholders whose group basic and voluntary term policies are expiring, Guardian also offers conversion privileges to whole life plans, without having to go through underwriting again.
At Cigna Corp., for customers who have access to both Cigna’s term life insurance and health plans, the carrier can refer term life customers with chronic conditions to the carrier’s “conditions management” programs, says Richard Kappers, director of marketing, Cigna term life and AD&D insurance in Philadelphia.
As part of the regular underwriting process, insurers collect medical information of those who apply for coverage above the guaranteed issue level, Kappers says. Cigna then analyzes the information to identify individuals with existing or potential health risks, where a suitable conditions management program can help.
“The benefit helps customers become healthier sooner, while saving medical costs for a potentially worsening condition in the future, and helps employers to maintain healthy and productive workforce,” he says.
Carriers are looking for ways to differentiate products in a competitive market, including providing a range of living benefits on their life products in the form of riders, Milliman’s Friedrich says.
Particularly popular are chronic illness riders and long-term care riders, which accelerate the payment of death benefits as a living benefit when certain triggers in the policy are met, he says. Chronic illness is typically defined as when an individual is not able to perform two of six activities of daily living or has cognitive impairment, and many of these riders require that the condition be permanent. Triggers for long-term care riders are less restrictive in that they do not contain the expectation of permanence clause.
Colonial Life & Accident Insurance Co. offers a long-term care rider on its permanent cash-value whole life and universal life policies, says Steven Johnson, vice president of products in Columbia, South Carolina.
“This is becoming increasingly important, as the average cost to home health care is $75,000 a year, and is expected to increase,” Johnson says.
These riders are also popular because carriers are moving away from costly stand-alone long-term care insurance, he says. The restoration of the benefits rider is often packaged with long-term care, which restores the full face amount of the policy. Other riders include spouse term riders and children’s term riders.
Long-term care riders typically are available for an extra cost, whereas chronic illness riders typically are no cost to the customer at issue, says Mutual of Omaha’s Kenny. If the person becomes chronically ill, he is allowed to accelerate a portion of the face amount, with a charge taken out on the back end, reducing the amount the insured will receive.
Moreover, long-term care riders typically act as a reimbursement, Kenny says. If a person’s monthly benefit is $5,000 but she only spends $4,000 on long-term care expenses, then the remaining $1,000 will roll over to the next month.
“One of the advantages of chronic illness riders is that the person is not usually required to use the proceeds to cover long-term care expenses, so the person has the flexibility to cover other expenses,” he says.
Critical illness riders are a variation that is not quite as popular, Kenny says. A person has to contract one of several listed conditions, such as stroke or cancer, for the rider benefit to be triggered.
Two popular riders at Guardian Life Insurance Co. of America are waivers of premiums if policyholders become disabled, and the accelerated death rider if policyholders become terminally ill and will not live more than 12 to 18 months, Hutchison says.Guardian’s “Life Assist” rider can be activated if policyholders are unable to perform two or more activities of daily living, in which they will receive 1 percent of life insurance benefits, up to $2,000 a month for up to 100 months.
“This is an unique feature that Guardian offers in the marketplace, and it’s really getting some traction,” Hutchison says.
The most popular term life rider at Cigna is the accelerated death benefit rider, Kappers says. Customers can use funds from a terminal illness claim to cover the cost of medical treatment, seek alternative treatment, or use it for other personal reasons such as a last vacation with family members.
Riders are more popular in Metlife’s retail business, but the carrier does offer some riders on the group side for permanent group universal and universal variable life insurance, including an added accidental death and dismemberment to its GVUL coverage for executives within the employer’s group, as part of a package of benefits, Pontecorvo says.
MassMutual Financial Group offers just waiver of premium, accidental death and dismemberment, spouse and child term riders, with all but spouse and child being elected by plan sponsors, says Joe Micoletti, sales consultant in Enfield, Conn.
“We’ve made the decision not to offer more complicated riders such as long-term care for group and worksite plans in the near future,” Micoletti says. “It can be difficult to build more complicated riders on systems and other technology. Those riders can also be confusing when presenting them to plan sponsors and/or participants enrolling for coverage.”
Growth of voluntary life products in the group market space has been expedited by the use of exchanges, an outgrowth of employers driving more decisions into the hands of their employees, Guardian’s Hutchison says.
“Historically, employers selected the types of coverage, but now they are pushing more options out to employees, giving them a certain subsidy for dental, disability and life, and letting them decide how they want to allocate their dollars,” he says.
MetLife offers voluntary benefits on certain exchanges, but for group life, the employer chooses one carrier, Pontecorvo says. The menu of coverage is comparable to traditional voluntary menus that are offered at worksites, but the difference for employers is that the exchange handles much of the administration of the benefits that would ordinarily fall to the employer.
Cigna has a private health exchange that also distributes life, accident and disability, Kappers says. While employers in group plans choose which riders to extend to their employees, the increasing use of exchanges will likely result in more individual choice on coverage, including riders.
Currently, MassMutual does not offer its products on an exchange, “but it is something to keep an eye on as those evolve,” Micoletti says.
Many of the carriers offer value-added services to life policyholders, including will preparation and estate resolution services, grief counseling, identity theft consulting and access toemployee assistance programs.
“As individuals make more insurance purchasing decisions, value-added services become more important,” Cigna’s Kappers says.