Advisors spend a great deal of time persuading their prospects to protect themselves and their loved ones with the gift of life insurance. The most popular stories in 2022 ranged from record setting indexed life sales to re-thinking the “buy term and invest the difference” strategy, to the continuing controversy over IUL illustrations. Here’s a look at the most-read life insurance articles in InsuranceNewsNet in 2022.
Indexed life sales smash records during 4Q 2021, Wink reports
As indexed life sales set records in 2022, Wink provided the data that kept InsuranceNewsNet readers apprised of the growth. Indexed life sales for the fourth quarter were $718 million, up more than 19.1% when compared with the previous quarter, and up more than 15.5% compared to the same period last year. This was a record-setting year for indexed life sales, with the total 2021 indexed life sales hitting $2.4 billion. Indexed life sales include both indexed UL and indexed whole life.
Items of interest in the indexed life market included National Life Group with the No. 1 ranking in indexed life sales, with a 12.7% market share. Pacific Life Companies, Nationwide, Transamerica, and John Hancock rounded out the top five, respectively.
Transamerica Life’s Transamerica Foundation IUL was the No. 1 selling indexed life insurance product, for all channels combined. The top pricing objective for sales this quarter was cash accumulation, capturing 79.6% of sales. The average indexed life target premium for the quarter was $11,868. -- Source: Wink’s Sales & Market Report
3 reasons to re-think the “buy term and invest the difference” strategy
As the economic climate changed during the course of the year, some advice was offered to help advisors better serve their clients by helping them re-think the buy term and invest the difference strategy. Here are three reasons for re-thinking this strategy:
Whole life insurance provides a tax-advantaged solution. Whole life insurance offers a tax-advantaged savings solution through the cash value component. Cash value is guaranteed against loss and accumulates over time depending on the insurance company’s general account performance, expenses, and mortality experiences. Unlike deferred annuities, individuals, depending on the contract provisions and as long as the life insurance policy is not a modified endowment contract (MEC), may be able to access the cash value in a permanent insurance policy without surrender charges tax-free by taking a policy loan or surrendering additions.
Cash value may complement bond positions. Some investors turn to high yield bonds for more income potential; however, high yield bonds are junk bonds that tend to behave like stocks. Advisors must understand the actual risk in clients’ portfolios and ensure it is in alignment with the individual’s risk tolerance. For portfolio stability, whole life insurance may complement bond positions especially in a low interest rate environment because of the cash value performance.
Whole life insurance gives individuals more planning opportunities in retirement. While the tax-free death benefit cannot be discounted, individuals with whole life insurance and significant cash value built up are positioned with more planning opportunities than those who only have term insurance.
Product experts: Regulators need to end “gamesmanship” of IUL illustrations
The controversy over IUL illustrations continued over the course of year, continuing to draw readers' interest. After new regulations meant to tighten up indexed universal life illustrations took effect, insurers were accused of using “gamesmanship” to make a mockery of new rules, according to two leading insurance product experts.
Sheryl Moore of Moore Market Intelligence and Bobby Samuelson of The Life Product Review co-authored a comment letter on Actuarial Guideline 49-A. The pair are competitors in the product intelligence field. The Moore/Samuelson letter did not hold back on the need for immediate regulatory action. Some IUL fixed interest bonuses can generate illustrated income more than 60% higher than a base index, such as the S&P 500, they wrote.
"This is, in our view, entirely inconsistent with the intent of regulators in crafting AG 49-A," the letter reads. "The gamesmanship currently occurring in illustrations is similar in effect and pervasiveness to the buy-up caps and multipliers that proliferated after AG 49 and resulted in AG 49-A."
The Moore/Samuelson letter identified three tactics insurers are applying to new IUL illustrations:
Using indices with lookback-based illustrated option profits far in excess of the BIA;
Reducing the actual option budget so that the lookback rate for the non-BIA account matches the BIA; and
Deploying the savings in a fixed interest bonus that is added to the illustrated rate and loan arbitrage.
Sky-high COVID-19 mortality not affecting all life insurers the same
One top article for 2022 addressed how COVID-19 mortality was not affecting all life insurers in the same way. According to Jonathan D. Neal, spokesman for OneAmerica, “based upon our analysis of [Centers for Disease Control] national data, there has been a 40% increase in death rates for 18- to 64-year-old individuals across the U.S., when comparing Q3 2021 data to pre-pandemic data from the same period in 2019.
But those mortality rates might not be what they seem for most life insurers. OneAmerica does a robust business in the group life insurance space, which means looser underwriting. The impact for OneAmerica totals more than $100 million in group life insurance and disability claims for 2020 and 2021, Neal said – roughly $35 million and $80 million, respectively.
“We’re seeing right now the highest death rates we have ever seen in the history of this business,” J. Scott Davison, the CEO of OneAmerica, said during an online event earlier this year. But individual life insurers are not seeing the same mortality impact.
Foresters Financial sells various individual life insurance products. It is a different product mix and a different market than OneAmerica, noted Matt Berman, president of Foresters’ U.S. life insurance division. While acknowledging that a 40% mortality increase is “stunning,” Berman reported a different picture at Foresters. “We're not experiencing that type of mortality,” he said, declining to divulge specific numbers. “But I will say that we have certainly experienced an uptick in mortality.”
COVID-19 mortality spike hits insurers
One popular article examined the challenge to actuaries during the COVID-19 crisis. Life insurers expected that COVID-19 deaths would decline as vaccination rates increased throughout 2021. But that did not happen. Mortality rose sharply, and many insurers are recalibrating their actuarial projections.
“Based upon our analysis of [Centers for Disease Control] national data, there has been a 40% increase in death rates for individuals age 18 to 64 years old across the U.S. when comparing Q3 2021 data to pre-pandemic data from the same period in 2019,” said Jonathan D. Neal, spokesman for OneAmerica.
The impact for OneAmerica totals more than $100 million in group life insurance and disability claims for 2020 and 2021, Neal added, — roughly $35 million and $80 million, respectively.
Life insurers projected higher losses from the COVID-19 pandemic, but were caught off guard by the latest mortality data.
In April 2021, Fitch Ratings wrote that it “expects pandemic-related mortality claims to decline in 2021 due to the global rollout of vaccines. This assumes that virus variants will not diminish the effectiveness of the vaccines.”
The CDC lists COVID-19 as the cause for 50,600 deaths in third quarter 2021.
Mortality crisis: Insurers see rise in non-COVID deaths
Non-COVID deaths served as the focus of another popular article. Over the first three quarters of 2020, overall death claims for life insurance increased 14%, but over the first three quarters of 2021, the increase was 20%, according to Marianne Purushotham, LIMRA corporate vice president and head of data sciences. About 60% of those deaths were related to COVID.
Non-COVID death claims spanned the spectrum of causes, Purushotham said. The only causes that did not increase were for influenza and pneumonia. Three causes of death were elevated – those related to diabetes, hypertension and kidney disease, she said.
7 reasons to buy life insurance during a turbulent economy
Why should consumers buy life insurance during turbulent times? We asked a few agents this question and they provided seven answers that proved popular with our readers. Below are some excerpts from this popular article:
Portfolio diversification: One of the advantages of purchasing life insurance during a bear market and a time of rising interest rates is for portfolio diversification. Life insurance companies offer some unique policies that allow you to not only protect your family or business, but also to gain some portfolio diversification that offers guarantees. — Mike Raines, Owner / agent at Raines Insurance Group, Cumming, GA.
Asset leveraging: Many types of life insurance can be used in different situations. People buy life insurance because it allows them to leverage their other assets without the fear of ultimately losing them. It is the ultimate force multiplier. Own a business? You can get a loan to pay your life insurance premiums that will allow you to access the money you have locked up in bricks and mortar and machinery – and you can utilize those assets without having to repay the principal on the loans. Own a business and have too many passive assets leading to your paying too much in taxes? Life insurance can help solve that too. — Naoshad Pochkhanawala, estate & financial planner, Chartered Life Underwriter at Amiko Benefits Inc., Toronto, Ont.
Accumulate cash: Depending on the type of policy one is purchasing, rising interest rates can be beneficial for life insurance. Permanent policies accumulate cash value, unlike term policies. The cash value inside the policy grows tax-deferred and depending on the type of policy, the interest rate credited to the policy could be directly affected by the current interest rates. An insurance company uses the premium a policy owner is paying for the policy and invests it. Many of those investments are interest-rate sensitive and as the interest rates rise, so does the amount the insurance company is earning on their investment portfolio (which includes policy holder premiums) and therefore, more interest is credited to the policy owners’ cash value. The other reason to purchase more insurance in inflationary times is an existing death benefit is worth less than it was worth prior to inflation increases. — Mark Williams, CEO Brokers International.
Read about all seven reasons to buy life insurance here.
Prudential CEO Lowrey: We will manage life business “very, very carefully”
Lowrey lauded the potential in the life insurance business during a second-quarter earnings call with industry analysts. With the final question of the session, Lowrey was asked if Prudential might consider shedding its life segment.
Prudential pivoted away from annuities in recent years as part of a de-risking strategy. During the second quarter, the insurer sold a $31 billion block of traditional variable annuities to Fortitude Re.
"We still think there's a significant potential for growth in the life industry," Lowrey said. "You have a $12 trillion life insurance gap. You have increasing sales as shown by last year's industry, with sales being the best they have been in about two decades.”
From a business mix perspective, Lowrey added, the life business continues to be a "really helpful component" in balancing longevity with mortality. "It's a business that we would like to remain in, but we'll do so very, very carefully as we go forward."
Not all life insurance policies cover COVID-19 deaths
There are specific circumstances or certain policies where insurance companies may deny the claim if the policy owner died of COVID-19. Applicants should be made aware of these so that they can make the choice that suits the needs of their families.
Several Exceptions for Standard Life Policies: If the policyholder has a regular life insurance policy that is active, the insurer will pay the beneficiary if the insured died of complications related to COVID-19. There are a few exceptions, however.
First, if the policy is less than two years old and the applicant misrepresented material information on the application, the claim will be denied regardless of the cause of death.
Second, if the insured contracted COVID-19 and was too ill to pay his life insurance premiums, allowing the policy to lapse, the claim may be denied (depending on what state the insured lived in).
Third, if an employee who is covered under a group life insurance plan contracts COVID-19, becomes too ill to return to work and gets terminated without converting his group coverage into a private policy, his beneficiary’s claim may be denied.
Accidental Death Policies Do Not Cover COVID-19 Deaths: Accidental death policies usually cover deaths related to an unforeseen, sudden accident such as a car crash or drowning. They usually do not cover COVID-19-related deaths as they are considered to be due to natural causes.
COVID-19 Is Not Listed As a Critical Illness: Similarly, many critical illness policies deny coverage for COVID-19 as such policies may not list COVID-19 as a covered illness. Critical illness policies list illnesses for which coverage would be available. If COVID-19 is not listed in a critical illness policy, the claim is likely to be denied. If a person suffers from a covered illness and contracts COVID-19, however, the claim should be paid. Another exception is for cases when COVID-19 leads to covered conditions, such as organ failure.
Accelerated Death Rider May Require Physician Certification: Accelerated death policies pay a certain amount of death benefit to the insured who is alive but terminally ill and has a short life expectancy. Every accelerated death policy has a list of requirements that need to be met in order for the claim to be payable.
Why this is a golden age for life insurance
President and CEO of John Hancock Insurance Brooks Tingle shared his thoughts on “Why this is the golden age for life insurance,” which made the list of the top 10 life insurance articles of the year. Here are some excerpts:
Consumer interest in life insurance spiked at the outset of the pandemic and we’ve seen steady demand ever since. And while we have always been in the business of providing protection and peace of mind, today, that’s not enough to meet consumers’ growing needs and demands.
So what has changed? Many potential customers have shifted their attitudes toward core life priorities such as health and wealth, and they’re turning to life insurance to support their newfound aspirations to live longer, healthier, better lives — a trend that is supported by multiple consumer surveys.
This shift is a silver lining of the pandemic for the industry and for consumers. It’s why, for more than a year, I’ve been calling this a golden age for life insurance. Notwithstanding the obvious human tragedy, COVID-19 has created opportunities and prompted conversations that the industry should embrace to close the coverage gap and promote better outcomes for our customers.
Life insurance is ideally suited for these times. Consumers today need to know that life insurance can do more than protect loved ones when they are gone. Life insurance can support their long-term financial goals and health. The industry is ready to move toward one that embraces the big picture, prioritizes taking a shared-value approach, keeps innovation top of mind to serve consumers in a more engaging and meaningful way, and offers benefits for healthy behaviors.
Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].