Life Insurance: The Chameleon Of The Financial Services Industry

By Ralph Dittrich

With today’s unprecedented market dynamics, it’s imperative that we insurance professionals learn to adapt. Similar to how a chameleon adapts to its environment in order to thrive, we find ourselves adjusting the way we communicate and work, as well as adapting our products and services to meet changing needs.

COVID-19 has helped move a traditionally slow-to-evolve industry in a more chameleon-like way. Insurance carriers have made multiple changes to their underwriting guidelines and product portfolios. Products may have slightly different features or requirements, but they still blend seamlessly into individuals’ financial and retirement plans – just like the chameleon to its surroundings.

Something Old, Something New

We have seen more changes In the few months since the start of the pandemic than we typically see in most years! Social distancing, stay-at-home orders, and restrictions on exam services in many locations heightened the need for simple, no-exam options for life insurance. Accelerated underwriting programs have been around for several years now; however, carriers have been expanding their issue age ranges and face amount limits to allow many more applicants to qualify.

Although accelerated underwriting programs may offer an opportunity to waive exams for most clients, not all clients will qualify. Many life insurance carriers also offer non-med, simplified issue, final expense or guaranteed issue products for coverage with no exam needed.

In addition, there are many exam-free options available for your clients who already have bought life insurance, or may need more coverage. Don’t forget about term conversion opportunities for policies still within their conversion period, or external term conversion/additional insurance programs for clients who recently purchased policies.

Thanks to today’s technology, options for processing simple, no-exam life insurance business from start to finish are easier and faster than ever – what used to take weeks can now be done in a matter of days!

Product Updates: It’s All About The Interest Rates

Many carriers have made temporary changes to their underwriting guidelines to address the potential mortality impact of the pandemic, such as postponing applications based on issue ages, ratings classifications, chronic underlying medical conditions or foreign travel. From a product perspective, carriers responded to the economic impact of the pandemic, specifically the historically low interest rate environment and, to a lesser extent, increased market volatility.

We’ve been hearing about the prolonged low interest rate environment for several years. Over the past couple of months, yields on intermediate duration, investment grade bonds have dropped to never-before-seen levels as investors bid up bond prices in a flight to quality.

Thus far, we’ve seen a wide range of product updates, including pricing changes, premium and face amount limits, and cap reductions. While there are outliers in each category, the carriers appear to be taking a long-term view as most of the updates are relatively modest.

Pricing Changes

While low interest rates influence all products to some degree, they impact products with longer-term guarantees – such as guaranteed universal life and longer duration term – more significantly than most.

Premium Limits

This has been the most prevalent response from carriers to date. While annual premium limits range from $100,000 to $5 million, most have been between $500,000 and $1 million.

Face Amount Limits

We’ve only seen a limited number of these so far. A couple of GULs were capped at $2.5 million, while another GUL product and a couple of indexed universal life products with lifetime guarantees were capped at $10 million.

Cap Reductions

Almost a dozen IUL carriers have reduced cap rates, participation rates and maximum illustrated rates.

Although most of the pricing changes and face amount limits are specific to GUL products, the premium limits generally apply to GUL, IUL and variable universal life products with longer duration guarantees or, with some carriers, all life products. Despite all of these changes, there is a tremendous amount of capacity available across all product lines. We do expect to see a gradual return to normalization, likely mimicking the phased-in approach with which society is beginning to normalize.

Life Insurance Is Built For Times Like These

We financial professionals know the benefits life insurance can provide. We know life insurance companies have survived world wars, depressions and, yes, even global pandemics. As our clients are exploring their options for protecting their families and loved ones, it’s our obligation to talk about these topics and remind them life insurance protection is not just death benefits, but living benefits, too.

Guaranteed income tax-free death benefits can help protect clients’ income and assets from market volatility, and provide a potential legacy when markets recover.

Life insurance cash values can be accessed during a down market to avoid selling other assets and “locking in” losses, used as a potential source of emergency funds, or to help meet liquidity needs.

While unknown challenges still lie ahead, consumers value the safety, security and peace-of-mind life insurance products can offer in times of uncertainty and provide for their families. Permanent life insurance is a valuable tool that can help provide peace of mind in good times and as well as in difficult times.

Ralph Dittrich, CLU, ChFC, is vice president, life product management, Crump Insurance Services. Ralph may be contacted at [email protected].