Annuities/LTC Combos More Than Double Sales

By Linda Koco
InsuranceNewsNet

Annuities with long-term care (LTC) insurance benefit features sold nearly $320 million in total first year premium in 2013, according to new research conducted by Milliman and published by the Society of Actuaries (SOA). That is based on six such plans offered by five carriers.

The $320 million total might seem like a drop in the bucket to those accustomed to seeing industry-wide annuity production in the billions of dollars. But this is for an annuity line that is still quite new.

The 2013 figure is up from $44 million in 2012 (when just five plans were tracked), and from nearly $25 million (for the same five plans) in 2011, according to the research findings. When the researchers looked at the same five plans over all three years, the 2013 figure is still up noticeably — to $120 million — compared to the prior years studied.

Several product developers have been predicting a ramp-up of this kind would occur once consumers learned that annuities with LTC benefits were available.

Backdrop

Also called annuity/LTC combo policies, annuity/LTC linked-benefit policies, hybrid annuities and asset-based LTC policies, the products began to spark marketing interest after a provision in the Pension Protection Act (PPA) took effect in 2010.

That provision allows use of annuity cash value appreciation for qualified LTC expenses without subjecting the gains to federal income tax.

The products got another boost in early 2013, when President Barack Obama signed the American Taxpayer Relief Act into law. Among other things, that law repealed the unpopular CLASS Act which would have provided certain LTC benefits to taxpayers. The repeal removed a potential barrier to sales of private sector solutions for LTC funding, such as annuity/LTCs.

As a result of those developments, and also of the aging of baby boomers, expectations have been rising that combo annuity products would soon find their place in the senior market sun — alongside similar life/LTC combination polices and also alongside the more expensive but more comprehensive standalone LTC policies.

The annuity products have a considerable way to go before being considered mainstream, but the new Milliman/SOA report shows they are definitely in growth mode.

Carl A. Friedrich, a consulting actuary and principal at Milliman, highlighted some of the annuity findings  during a panel discussion at the annual Life Insurance Conference in Arlington, Va.  The session covered living benefit features now being offered in not only annuities but also in life insurance. Co-panelist Susan Saip, also a consulting actuary at Milliman, addressed the life insurance trends in this area as revealed by 34 participating carriers.

The SOA has since posted the living benefit research for both product lines in two papers at the SOA website.

Annuity/LTC trends

The annuity part of the study will likely attract a lot of attention from the field as well as from home offices, since industry practitioners have been wondering what the products are like and how they are faring. 

The annuity data covers six annuity/LTC linked-benefit plans issued by five carriers. The products include annuities that accelerate the account value without a surrender charge if the policyholder has a chronic illness and the extension of LTC benefits “over and above” the accelerated account value as an independent benefit.

Not all companies responded to all questions, the researchers said, so trend numbers vary by product topic raised. The products themselves vary too. However, the survey showed that they do share some common traits. Following are a few examples:

• Sales by issue age tend to be at ages 50 and up, for three of the plans.
• Two plans offer the LTC benefits via optional rider, while three offer an accelerated benefit rider (ABR) and extension of benefits rider (EBR) automatically.
• Two plans are offered on book value fixed annuities only, one is on a variable annuity only, and another is on a market value adjusted fixed annuity only. A fifth plan is offered on both a book value fixed annuity and a market value adjusted fixed annuity.
• Five plans include coverage for home health care, assisted living facilities, nursing homes, adult day care and hospice services.
• Two plans express the maximum lifetime benefit as a percent of account value (200 percent in one case, or 300 percent in the other). Two others set the maximum lifetime LTC benefit as a multiple (two or three times) of initial deposit.
• Three plans pay out benefits based on the expense reimbursement approach (actual expenses incurred for covered services up to a daily or monthly cap). Two others use the indemnity approach, reimbursing a specified amount per day or month for billable covered services received.
• Four plans are attached to single-premium products and one is attached to a flexible-premium product.
• Three offer single-life LTC options only, while two plans offer both single- and joint-life LTC options.
• Target markets vary. For example, one plan targets insureds ages 55 to 75 with investable assets of at least $300,000 while another targets ages 55 and up with assets greater than $100,000.

Overall living benefits market

The overall market for living benefit products, on the life and annuity sides of the insurance business combined, is rapidly approaching $4 billion, Milliman’s Friedrich told the LIMRA breakout session.

That’s based on 2013 data, showing $1.2 billion in first-year premium for accelerated death benefits for chronic illness on life policies, more than $2.4 billion in first year premium for LTC riders on life policies, and “$320 million and climbing” for the annuity/LTC policies, he said.

The study did not include annuities that “merely waive surrender charges when a health event occurs,” according to the researchers.  In addition, it did not include guaranteed lifetime withdrawal benefits (GLWBs), guaranteed minimum income benefits (GMIBs) and other living benefits not triggered by a covered health event.

As for regulations applicable to these living benefit features, a majority of states have adopted the National Association of Insurance Commissioners Long Term Care Insurance Model Act (640) and Model Regulation (641), the study said.  The models include provisions that allow LTC benefits funded through life and annuity policies.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].