Life Insurance
Life Insurance Challenges and Opportunities in the Year Ahead
by Kenneth Shapiro

It took more than a decade for the idea to sink in, but most Americans realize that neither the government nor their employers will provide financial security for the last third of their lives. At the same time, study-after-study reveals the enormous misconceptions Americans have about what to expect in their retirement years. No matter how near they are to retirement, many still believe there is enough time to build an adequate nest egg.
The amount of money needed to sustain their present lifestyle in retirement is woefully underestimated.
   The illusion of a financially worry-free retirement persists, even with the news of corporate pension programs disappearing daily and cutbacks in retirement healthcare benefits. The cracks in the dream are evident. While we may be talking about retirement at 58 or 60, the reality is that more Americans see themselves employed full-time or part-time well into their 70s and even beyond -- some by choice, others out of necessity.
If anything, this situation makes it clear that there are enormous opportunities for advisors. The door is wide open for those who want to help people plan for their financial security. For advisors who value the role of life insurance products in wealth creation and asset protection, the year ahead should offer the tools to do an even better job for clients. There has been enormous improvement in life insurance products over the past several years. In the year ahead, you can look for improvements in a number of products.

Guaranteed No-Lapse Universal Life Policy Provisions

Clients will benefit from better performing products. After a rather lengthy period of discovering that their policies were not meeting expectations, many consumers are less than enthusiastic about buying anything other than term life policies. Rather than helping clients deal creatively with under performing policies, many advisors simply looked for new prospects.
   Meanwhile, those who take pride in serving as advisors have an extraordinary opportunity to review policies, including those they have sold. The serious problems arise when policy owners don’t understand why their expectations are not being met. The policy review is the occasion to explain why and to offer solutions.
   The irony is that there are sound reasons for replacing policies. The no-lapse feature of universal life deserves to replace earlier policies in the same way that it’s prudent to replace a four-year old computer with a new model – it costs less and it is more productive.
This why advisors are foolish to avoid an ongoing policy review program. Advisors want clients and prospects to take them seriously and appreciate their expertise. There is no more effective way to do that than by making policy reviews a cornerstone of your practice.

Whole Life Policies

While the emphasis has been on UL programs, advisors will have an opportunity to market whole life policies among consumers who value savings, particularly those who may be seeing renewal increases in their term life policies.
These consumers may be focusing more on retirement and less on meeting family obligations or protecting a mortgage. At this point in their lives, they may be cautious about the uncertainty of equities and want to accumulate cash for a rainy day fund or a way to start a small business in the years ahead. Whole life can appeal to the substantial segment of the population that is financially conservative and expects a reasonable amount of interest, but is not comfortable pushing the envelope.

Survivorship Policies

With members of the Baby Boom generation now on the retirement path, second-to-die products will have an increasingly important role, particularly for couples with estates of $1 million or more. Liquidity issues can occur upon the death of the surviving spouse when the assets pass to the heirs. This is when cash may be needed to meet estate tax obligations. Second-to-die policies have another appeal. They cost less than other types of life insurance since pricing is based on the clients’ joint life expectancy.

Term Life Programs

Term life will become more advisor-friendly. The application process is becoming quicker and easier thanks mostly to technology improvements. There’s no reason for an advisor to lose out on online sales. Depending on the insurance company, advisors can go directly to a company Website and complete applications with very few or no questions. The entire process is streamlined including physicals. Given these improvements, advisors can be in a highly competitive position with term life products.

Long-Term Care Products

It has taken longer than most insurance companies and advisors expected for long-term care insurance to gain traction with consumers, but it appears that an upswing in sales in on the way. Advisors report that more clients in the 60-plus age group are asking about it. As the ones shouldering care-giving responsibilities, they are seeing, first hand, the costs and time involved with providing long-term care.

Underwriting Issues

Advisors should take note of a number factors affecting life insurance underwriting in the year ahead. The consolidation of re-insurance carriers will continue if the past couple of years is any indication. This means that life insurance companies will have fewer re-insurance options. Expect to see insurance carriers’ costs going up as a result. To offset the risk, underwriting guidelines are getting tighter and underwriters are becoming pickier, as one insurance executive notes. One implication of more stringent underwriting is that table shaving will be disappearing or be available on a much more limited basis.
Term life underwriting will be more rigid – again depending on particular companies. Some will view factors differently, such as the use of blood pressure and cholesterol medications, family history, height and weight guidelines, and smoking and non-smoking issues differently.
   It will be more important than ever to pay close attention to large case underwriting requirements including recognizing the existence of business decision underwriting. In other words, there is room for negotiation in many situations. Every large case deserves a careful review by an underwriting expert, creativity in design of the program, and a thorough presentation. Simply put, issues and problems should be anticipated and resolved before being submitted to underwriting. This is no time to minimize the role of underwriting. It will be increasingly necessary to have access to the broadest possible array of insurance companies to remain competitive.

The Technology Requirement

Advisors who are reluctant to embrace technology may be at a competitive disadvantage. Agents look at ease of doing business as a requirement with companies and brokerage general agents. It should come as no surprise that, as part of a continuing effort to drive down costs, insurance companies seem to be minimally staffed, just like other businesses. So, there is little question that technology will play an increasingly central role in the life insurance industry.
   Some advisors, who have been in the life insurance business for many years, may feel it has become more difficult, but there are indications that the field is becoming more innovative and creative. While it has its challenges, it also offers enormous opportunities for serving clients more effectively and reaping the rewards for a diligent effort.
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Kenneth Shapiro is the president of First American Insurance Underwriters. A graduate of Northeastern University, Ken has been with First American since 1998. He began his career with Northwestern Mutual Life and later worked for The Guardian Life Insurance Company. First American Insurance Underwriters is a Needham, Mass.-based national life brokerage firm that represents top-rated insurance companies. He can be contacted at 800-444-8715 or kshapiro@faiu.com.