- 4,608
interesting article about the basic "no cost/no Underwriting" at time of issue ADB CIA.
Just curious if the Transamerica version was vague in it's rider language about the discount or fee to accelerate & if the marketing materials overstated any benefits or lack of cost. I would assume the similar policies with specific language in the rider that the cost for terminal is X%, the discount cost for being in a nursing home is X% & discount cost for needing home based care is X%, etc will fair better than the riders that are silent on the cost or say "an actuarial discount will be applied & determined at the time of claim"
Accelerated Riders Are Good, But Need to Be Explained Better
There are two major types of riders for accelerated benefits for chronic or critical illness. Unfortunately, some agents can't distinguish between them.
By Ramona Neal|June 29, 2022
Ramona Neal is president of Living Benefit Review, a company that provides competitive intelligence services about life insurance that has long-term-care benefits, such as chronic illness and long-term-care riders.
Last year Transamerica settled a lawsuit related to its accelerated death benefit rider (the plaintiff was Nahid Jahanbin). This year National Life was named in a lawsuit with their accelerated benefits rider (plaintiff: Lawrence Grossberger). Both companies offer chronic and critical illness rider designs where there is no charge for the rider until acceleration.
Without speaking to the facts and circumstances of either case, there are issues to consider. Overall, though, accelerated riders are good and helping meet consumer needs within the context of a declining traditional long-term-care market.
Two Types
Although accelerated riders come in the form of chronic illness, critical illness, critical injury (and terminal), they tend to fall into two main categories. The first includes those with upfront charges that have known and predictable benefits that are defined at issue. So, if you have a $300k death benefit, the entire amount can be paid out to cover care expenses; and if any remaining amount is left, it will be paid out as a death benefit.
The second type (featured in litigation above) has no charges until acceleration. For simplicity, I’m focusing on them and highlighting chronic Illness. For riders with no charge until acceleration, most (but not all) result in both the cost and the benefit being determined at the time of claim. This translates into the amount eligible for acceleration as being unknown.
The insurer will calculate this based on numerous factors that depend on age, life expectancy (severity of condition), gender, future premiums, cash value, permanent or term product, and interest rate. The present value calculations include discounting the death benefit since it's being paid out earlier. Shorter life expectancies result in larger payouts.
So, with a $300k policy, the amount eligible could be: $250k, $150k, or something else including $0. Some refer to this as “underwriting at the time of claim.” This is noteworthy, since these riders typically have no underwriting at application, making them easier to sell and buy. Sometimes they are automatically included on the policy. For some insureds this is the only type of coverage they can qualify for to cover their chronic illness expenses.
Issues
Per Limra, in looking at chronic illness rider sales by premium, those with no upfront charges (unknown benefits) accounted for 86% of total chronic illness sales eclipsing the 14% for chronic illness with upfront charges. (U.S. Individual Life Combination Product Sales, 1st Half 2021).
Unfortunately, some agents don’t (or can’t) distinguish between them. Consequently, for those riders with unknown benefits, some agents are representing to clients that all (or most) of the death benefit can be paid out to cover chronic illness expenses. That’s a problem—a big problem. One low-hanging-fruit solution is to have two different names for the categories—because labels are material. Those with upfront charges could have the right to bear the name (chronic illness, critical illness). Those with no charge until acceleration would not…
Another issue is no uniformity or standardizations for insurers in illustrating them. Some carriers don’t illustrate the acceleration at all. Some illustrate the maximum amount in a given year. Others project a higher future benefit by adjusting the per diem for inflation. Some let agents choose the age at acceleration. Others automatically select and include various ages and/or the severity of condition in the illustration. Additionally, to top it off, some reflect a lump-sum payout, others an annual amount, and some monthly.
So, if an agent has three different illustrations where the base products are comparable, he may choose the company illustrating the “highest” payout as the tiebreaker. (Not realizing he selected the benefit with a one-time lump-sum option that could provide the lowest cumulative payout for care, plus immediately extinguishes the policy).
Insurers have considered which method of illustrating these riders is most suitable and assessed the risks accordingly. Nonetheless, as an industry we have room for improvement. One possibility is voluntary consensus. Another involves opening the NAIC Illustration Model Regulations, which provide rules to foster education and to protect consumers with fair and balanced disclosures.
Trends
Prior to the boom in the state Washington last year, traditional long-term-care insurance sales had been on a steady decline for decades. Per Limra, in 2020, they represented only 10% of total long-term-care sales by policy count at 49,000 policies. Meanwhile, life insurance combination products accounted for 90% at 421,000 policies, which includes long-term-care riders, chronic illness, and hybrids.
Understandably, life insurers focus on selling life insurance. The intent was never for them to carry the entire burden of the void left by long-term-care carriers who exited the market. Nor can they appropriately meet the need of all the agents who to this day, refuse to sell traditional long-term-care insurance after having been burned from in-force rate increases (evidently ignoring recent rate stabilization initiatives).
The Goodness
All the accelerated riders are good, some far better than others. It comes down to a matter of consumers making informed choices at the time of application and at the time of claim. We can help them by managing expectations on how the different variations pay out.
It’s unfortunate that the reality of why chronic illness riders have grown so popular when compared to long-term-care riders is because they are easier for insurers to build and manage (lower costs, fewer filing and reporting requirements), and easier for agents to sell (no health license, no continuing education, often no underwriting), plus they perform better on illustrations (for those with no upfront charges).
Ironically, for the very same reason, perhaps it’s fortunate that chronic illness riders don’t have the more onerous requirements of qualified long-term-care options. Because without them, Americans, especially the middle market, would be left with zero solutions helping them meet their future care needs.
Although some may be frustrated with the amounts offered to accelerate their death benefit for chronic or critical illness—at least they have the option in life insurance. Being able to turn a death benefit into a living benefit is good. Very good.
Just curious if the Transamerica version was vague in it's rider language about the discount or fee to accelerate & if the marketing materials overstated any benefits or lack of cost. I would assume the similar policies with specific language in the rider that the cost for terminal is X%, the discount cost for being in a nursing home is X% & discount cost for needing home based care is X%, etc will fair better than the riders that are silent on the cost or say "an actuarial discount will be applied & determined at the time of claim"
Accelerated Riders Are Good, But Need to Be Explained Better
There are two major types of riders for accelerated benefits for chronic or critical illness. Unfortunately, some agents can't distinguish between them.
By Ramona Neal|June 29, 2022
Ramona Neal is president of Living Benefit Review, a company that provides competitive intelligence services about life insurance that has long-term-care benefits, such as chronic illness and long-term-care riders.
Last year Transamerica settled a lawsuit related to its accelerated death benefit rider (the plaintiff was Nahid Jahanbin). This year National Life was named in a lawsuit with their accelerated benefits rider (plaintiff: Lawrence Grossberger). Both companies offer chronic and critical illness rider designs where there is no charge for the rider until acceleration.
Without speaking to the facts and circumstances of either case, there are issues to consider. Overall, though, accelerated riders are good and helping meet consumer needs within the context of a declining traditional long-term-care market.
Two Types
Although accelerated riders come in the form of chronic illness, critical illness, critical injury (and terminal), they tend to fall into two main categories. The first includes those with upfront charges that have known and predictable benefits that are defined at issue. So, if you have a $300k death benefit, the entire amount can be paid out to cover care expenses; and if any remaining amount is left, it will be paid out as a death benefit.
The second type (featured in litigation above) has no charges until acceleration. For simplicity, I’m focusing on them and highlighting chronic Illness. For riders with no charge until acceleration, most (but not all) result in both the cost and the benefit being determined at the time of claim. This translates into the amount eligible for acceleration as being unknown.
The insurer will calculate this based on numerous factors that depend on age, life expectancy (severity of condition), gender, future premiums, cash value, permanent or term product, and interest rate. The present value calculations include discounting the death benefit since it's being paid out earlier. Shorter life expectancies result in larger payouts.
So, with a $300k policy, the amount eligible could be: $250k, $150k, or something else including $0. Some refer to this as “underwriting at the time of claim.” This is noteworthy, since these riders typically have no underwriting at application, making them easier to sell and buy. Sometimes they are automatically included on the policy. For some insureds this is the only type of coverage they can qualify for to cover their chronic illness expenses.
Issues
Per Limra, in looking at chronic illness rider sales by premium, those with no upfront charges (unknown benefits) accounted for 86% of total chronic illness sales eclipsing the 14% for chronic illness with upfront charges. (U.S. Individual Life Combination Product Sales, 1st Half 2021).
Unfortunately, some agents don’t (or can’t) distinguish between them. Consequently, for those riders with unknown benefits, some agents are representing to clients that all (or most) of the death benefit can be paid out to cover chronic illness expenses. That’s a problem—a big problem. One low-hanging-fruit solution is to have two different names for the categories—because labels are material. Those with upfront charges could have the right to bear the name (chronic illness, critical illness). Those with no charge until acceleration would not…
Another issue is no uniformity or standardizations for insurers in illustrating them. Some carriers don’t illustrate the acceleration at all. Some illustrate the maximum amount in a given year. Others project a higher future benefit by adjusting the per diem for inflation. Some let agents choose the age at acceleration. Others automatically select and include various ages and/or the severity of condition in the illustration. Additionally, to top it off, some reflect a lump-sum payout, others an annual amount, and some monthly.
So, if an agent has three different illustrations where the base products are comparable, he may choose the company illustrating the “highest” payout as the tiebreaker. (Not realizing he selected the benefit with a one-time lump-sum option that could provide the lowest cumulative payout for care, plus immediately extinguishes the policy).
Insurers have considered which method of illustrating these riders is most suitable and assessed the risks accordingly. Nonetheless, as an industry we have room for improvement. One possibility is voluntary consensus. Another involves opening the NAIC Illustration Model Regulations, which provide rules to foster education and to protect consumers with fair and balanced disclosures.
Trends
Prior to the boom in the state Washington last year, traditional long-term-care insurance sales had been on a steady decline for decades. Per Limra, in 2020, they represented only 10% of total long-term-care sales by policy count at 49,000 policies. Meanwhile, life insurance combination products accounted for 90% at 421,000 policies, which includes long-term-care riders, chronic illness, and hybrids.
Understandably, life insurers focus on selling life insurance. The intent was never for them to carry the entire burden of the void left by long-term-care carriers who exited the market. Nor can they appropriately meet the need of all the agents who to this day, refuse to sell traditional long-term-care insurance after having been burned from in-force rate increases (evidently ignoring recent rate stabilization initiatives).
The Goodness
All the accelerated riders are good, some far better than others. It comes down to a matter of consumers making informed choices at the time of application and at the time of claim. We can help them by managing expectations on how the different variations pay out.
It’s unfortunate that the reality of why chronic illness riders have grown so popular when compared to long-term-care riders is because they are easier for insurers to build and manage (lower costs, fewer filing and reporting requirements), and easier for agents to sell (no health license, no continuing education, often no underwriting), plus they perform better on illustrations (for those with no upfront charges).
Ironically, for the very same reason, perhaps it’s fortunate that chronic illness riders don’t have the more onerous requirements of qualified long-term-care options. Because without them, Americans, especially the middle market, would be left with zero solutions helping them meet their future care needs.
Although some may be frustrated with the amounts offered to accelerate their death benefit for chronic or critical illness—at least they have the option in life insurance. Being able to turn a death benefit into a living benefit is good. Very good.
