The coronavirus disease (COVID-19) has forced people to consider their own mortality, resulting in increased interest in life insurance. But if you’re not up-to-speed with the “new” kind of insurance, you could be missing out on sales and providing additional benefits to your clients.
In a survey conducted by Life Happens that polled more than 2,000 adult Americans about how the pandemic changed their financial decisions:
Considering these shifts in consumers’ mindsets due to COVID-19, the door is open for you to step in with a solution.
Recent innovations in life insurance give you an opportunity to offer clients more benefits than a death benefit and cash value. This “new” type of insurance includes a living benefit rider, which allows a policyholder to accelerate a portion or even all of their benefit.
With traditional life insurance, the only ways to access the funds were taking loans and withdrawals, surrendering the policy – the value of which is subject to taxes – and of course, claiming the death benefit when the policyholder dies. A living benefit rider, however, allows the policyholder to unlock a portion or even all of their death benefit if they are diagnosed with a terminal illness, chronic illness or a critical illness like heart attack, cancer or stroke. An accelerated benefit rider (ABR) is specific to being terminally ill with less than 12 months to live, and the client can take out a portion of the death benefit.
With living benefit riders, the living benefit is a percentage of the face amount – often 2, 3 or 4%.
For example if a $100,000 policy added a 4% living benefit rider, the policyholder upon qualifying would receive a monthly benefit of $4,000 a month until the full face amount is used up.
There are three types of living benefit riders – no-charge riders, for-cost riders and riders that use a lien method.
Some living benefit riders are included for free in a policy (if the applicant medically qualifies). Free riders have an actuarial discount applied at the time of claim.
For riders that charge, the amount of the living benefit is deducted dollar-for-dollar from the face amount, and the payout can range from 25% to 100%, depending on the policy. Some policies allow the policyholder to decide how they take the benefit – in a lump sum or periodic payments.
With the lien method, the rider comes built into the cost of the policy, but should you use the living benefit, the benefit amount is deducted from the face amount. For example, if a client with a $100,000 life insurance policy should need $10,000 for a critical illness, the death benefit would be reduced by $10,000 to $90,000. These types of policies tend to limit the amount that can be taken from the face amount to only a portion of it.
Because so many carriers offer living benefits built in for no additional cost to many of today’s life insurance policies, simply communicating this additional benefit can help agents connect existing clients to newer, improved policies and make a new sale.
“It’s a great way to update your existing clients’ coverage, especially now, as we’re reminded daily of the value of life insurance in this pandemic,” said Nancy Buller, Associate Director of Life and Long-Term Care Solutions at Senior Market Sales® (SMS). “And for people buying insurance for the first time, they might as well get a policy with a built-in living benefit rider, especially with long-term care benefits, because traditional long-term care insurance can be cost-prohibitive for many people.”
Agents will need to evaluate each client individually to determine whether a new or updated policy with living benefit riders will work. Some policies may involve additional underwriting, depending on the client’s age and health and the policy’s face amount.
But the possibility of underwriting should not deter the agent from pursuing the life insurance discussion with clients and prospects, Buller said. With the desire for online purchasing expanding and underwriting constantly evolving – especially during the pandemic – avoiding the discussion means you could miss out on sales.
The pandemic and economic fallout have forced many changes in how life insurance companies operate and in how consumers buy life insurance.
Some life insurance companies tightened underwriting or even stopped selling some policies early in the pandemic, with some recently reversing those restrictions.
Before the pandemic, buying a policy that didn’t require a medical exam typically meant the customer would pay more. But as in-person paramedical exams became difficult with social distancing guidelines, no-exam policies at prices comparable to policies that required an exam emerged. Some consumers in the pandemic have been buying the maximum coverage they can get without an exam. And many are going online to make the purchase, bypassing the typical in-person discussion with insurance agents.
That trend predates the pandemic, however. As people have become more accustomed to buying everything online and insurance carriers have expanded simplified and automated underwriting in recent years, LIMRA research indicated an increase of online applications. LIMRA research also indicates that the preference for online purchasing of life insurance doubled from 17% in 2011 to 29% in 2020. Even so, a higher percentage – 41% – still preferred to purchase life insurance in person, according to LIMRA research.
But you don’t have to lose these sales to the online marketplace. The demand for life insurance due to the pandemic provides an opportunity, Buller said.
“Life agents can still sell life insurance ‘in person’ to consumers during this time of social distancing – it’s just done virtually through video conferencing,” Buller said. “SMS offers everything you need to work virtually, from submitting applications to completing sales.”
Clients shopping online might not understand that living benefits are available for free or for an additional but affordable premium, that living benefit riders may not require medical underwriting or that there are even term policies that offer living benefit riders, Buller said.
When living benefit riders initially were introduced, they were only offered on whole life insurance or universal life insurance, which offer coverage for the insured’s entire life and also offer a savings element. But some carriers now offer living benefit riders on term life insurance, which covers a person for a predetermined period of time. Since term life insurance is the most common and affordable and some consumers in the pandemic are buying as much as they can afford without a paramed exam, a great opportunity for today’s agent is to offer a term life insurance policy with a living benefit rider, Buller said. Term policies with living benefit riders are still less common than permanent policies, but SMS works with multiple carriers that offer them and can help you get contracted.
“Because whole and universal life policies are more expensive, they aren’t within reach of some consumers, typically those who are younger and in their early earning years,” Buller said. “In those cases where permanent policies don’t make sense, you can offer a term life policy with a living benefit rider to a healthy, young individual without the likelihood of underwriting, explaining that they can convert it later to a permanent policy when their income is higher. The advantage then is that the permanent policy maintains the living benefit rider but won’t require underwriting when they are older.”
This could be an especially effective solution today, because younger consumers are seeking life insurance in the pandemic. Consumers under the age 45 filed close to 20% more life applications in July this year than in July 2019, according to MIB Group.
But life insurance with living benefit riders also can help clients at a later life stage, meaning there’s opportunity for sales to consumers witnessing the stock market volatility and worrying about their retirement income. Life insurance with living benefit riders can be used to mitigate the risk of longevity in retirement. A living benefit rider could provide income for a wife whose husband moves into a nursing home, for example.
In addition to the unique term life policy with living benefit rider, SMS offers several life insurance solutions with living benefit riders that are competitive in other areas. For example, some offer more long-term-care qualifying events than competitors. Some offer simplified issue.
Life insurance with a living benefit rider is an affordable way for many people to plan for the possibility of needing expensive long-term care (LTC). The pandemic has changed consumers’ desire for not only life insurance but also long-term care.
In a recent survey conducted by Genworth, 32% of respondents said they want to make sure they can afford to get any long-term care services they need in the setting of their choice.
“Agents are in a unique position today to help consumers deal with some of the anxieties that this pandemic has brought, and the first step is educating clients on the true cost of long-term care,” Buller said, “and then helping them understand the affordability of today’s innovative insurance options.”
SMS has a free consumer-facing infographic on the cost of LTC. It positions the agent to discuss solutions, including life insurance with living benefit riders and other life-LTC hybrids.
SMS also has a chart that can help you determine which living benefit rider is the best for a client’s situation and that compares chronic illness ABRs to LTC hybrid benefits. Call an SMS marketing consultant to get the chart or the LTC infographic or to help you find the right solution at 1.877.888.0166.
Whether you need help with a case, marketing materials or accessing the tools to conduct business virtually, SMS is here to support you in and throughout the pandemic.
September is Life Insurance Awareness Month (LIAM), but LIAM’s outreach campaign is already going strong, ThinkAdvisor reports. Life Happens resources, including videos featuring the campaign’s 2020 spokesperson Brooke Shields, are available to help you educate clients about the importance of life insurance.