Insurance products can fit current circumstances and long-term needs.
In the movie “Groundhog Day,” TV weatherman Phil Connors (Bill Murray) encounters Ned Ryerson, a classmate from high school days, who sells insurance in Punxsutawney, Pa.
Connors does not recall him, but Ryerson is hell-bent on catching up.
“Now don't tell me that you don't remember me because I sure as heck fire remember you! … I did the whistling belly-button trick at the high school talent show,” he says.
Ryerson continues, “Tell me, have you ever heard of single-premium life, because I think that could be the ticket for you.”
Thankfully, in the real world, those selling life insurance and annuities are not so pushy. Their products can provide two potential streams of investment income for consumers depending on what stage of life they are in and what shapes their long-term goals.
The number of products available to consumers is growing, driven by insurers reacting to a changing marketplace that is accelerating the variety, ease, quickness and competitiveness in obtaining coverage.
Peace of Mind
Thirty percent of American households in 2016 did not own any life insurance, which is a figure unchanged from 2010 when the record low was set, according toLIMRA, an industry research organization.The same report estimates 50 percent of US households are underinsured.
At its base, insurance cushions the cash needs for people when things go awry. People die, get hurt in an accident, someone slips on their sidewalk; they have a mortgage to protect or want a steady income during their retirement years. Life insurance and annuities perform basically the same duties except for this: An insured (the legal term for a policyholder) derives income from an annuity while he or she is living; while proceeds from a life insurance policy are paid to an insured's beneficiaries upon the person's death.
Mike Agan, president of Columbus-based Motorists Life Insurance Co., says having life insurance provides a monetary and mental health benefit.
“I remember when I took out my first life insurance policy; I went to bed that night and slept great because I knew if something happened to me that I had one less burden to worry about.”
“Term” and “permanent” are generally the two umbrella types of life insurance. By its name, term implies a specific duration when a policy is in effect and where a benefit is paid only upon the death of the insured.
Permanent insurance includes cash-building policies that normally increase in value over the policy's term, are tax-deferred assets and earn interest. As the policies build cash, some allow insureds to borrow against them for special circumstances. Whole life is the most common and traditional type of permanent insurance, but the mix also includes universal life, variable life and hybrids that combine elements of variable and universal life, for example. Motorists offers a hybrid called Blend with term and whole life features designed for set periods of time only to provide savings and coverage for insureds' long-term debt.
Agan says around 80 percent of the life policies Motorists sells are for permanent insurance, although the market trend skews more toward term insurance.
“When you're looking at trying to save money, hitch your long-term obligations to permanent insurance,” he says. “They all have a savings component to them and really open a variety of flexibility that just isn't available through term insurance.”
Joe Chornyak, managing partner of the Columbus-based financial planning group Chornyak & Associates, says the marketplace has changed a lot during his 40 years in the industry. “I've seen the good, the bad and the ugly, and the product has changed drastically.
The introduction of universal life in the 1980s “opened up the black box” of whole life and made the marketplace a bit more transparent for consumers, he says.
Unlike life insurance where benefits are paid upon a death, an annuity is a contract between a person and an insurance company that provides income while a person is still living. Chornyak cautions that an annuity is not life insurance, but a way to bolster retirement security.
Fixed and variable are the basic type of annuities. A fixed annuity guarantees the principal and a set amount of interest. Variable annuities rise and fall with market indexes and interest is never guaranteed.
Safe Harbor Retirement Group in Dublin sells only fixed-rate annuities. President Cory Sickles says that's because he thinks fees associated with variable rates are too high. He sees several advantages in a fixed-rate annuity: Principal is protected, gains are locked in when interest is credited to an account, growth is tax-deferred until the client withdraws from the account, free withdrawals are allowed annually, and it provides lifetime income with an income rider and guaranteed growth on income.
However, Sickles says an annuity, which he calls an individual's “own pension plan,” should be but one piece of a broader retirement strategy.
“Allocation of your investment portfolio is key,” he says. “An individual's risk tolerance will determine where your money is invested. I firmly believe that everybody should have a portion of their retirementinvestments in a fixed index annuity. However, everybody's situation is different and we determine those amounts on a case-by-case basis. I would think everybody would want to have a portion of their retirement income to be a fixed amount on a month-to-month basis, and an annuity will provide that safety.”
Questions to Ask
Experts say what life insurance or annuity to buy depends on a person's stage of life. Is the person starting a family, does he or she want to leave something to heirs, protect against the loss of an income, or just have enough to bury a family member?
“How much do they need? That's the basic objective of life insurance,” says Chornyak. “How much do you need to replace a loss, and how long do you need it to self-fund the income stream?”
Insurance agents work with clients to help them determine exactly what product is in their best interest, and today there are a lot of options from which to choose. Insurance policy riders, or extra protections, can provide policy holders with living benefits. From long-term care needs to chronic illnesses, policies can be customized to meet specialized needs.
“It's really understanding what your current liabilities are, what future liabilities might be, and just making sure when bad things happen that you are covered,” says Motorists' Agan. “Agents should walk you through various scenarios to make sure that they have captured that.”
TheOhio Department of Insuranceprovides its“Guide to Life Insurance & Annuity Contracts,”which spells out particulars for each, offers questions consumers should ask when purchasing a product, and tells consumers what happens if an insurance company goes out of business.
Today & Tomorrow
Deloitte's 2017 outlook for the life insurance and annuity market says one big challenge carriers face is improving their technology, which is something Brad Cummins concurs with.
Founder of the independent insurance agency Local Life Agents, Cummins' company rolled out its Fat Agent platform in late May that provides real-time interaction between agents and carriers and is designed to speed up the process of securing coverage for consumers.
“This allows agents to work with multiple insurance carriers on a single [internet] login platform where they can do everything from quoting to submitting new business to communicating with case managers and underwriters to tracking pending business,” he says.
Echoing the Deloitte report, Cummins says the L&A industry overall is anchored to old technology systems relegating communications through one web browser. Life agents avoid carriers that can't interact with multiple browsers and across multiple devices. Cummins says it drags out the process and frustrates consumers.
“Stalled applications usually end up as dead applications … and some carriers don't understand that.”
Agan says technology improvements in the past five years have sped up underwriting—through better data analytics—which is a large chunk in approving coverage. It lets Motorists, for example, write more products with less underwriting requests made of the prospective insured.
The Deloitte report also says the L&A market will be clamoring for consumers whose expectations are calling for 24/7 service and simpler products that meet their lifestyles.
Steve Cooney, vice president of business development for individual products and solutions at Nationwide, says the Columbus insurer is adapting to trends?baby boomer retirement, gains in life expectancy and mobile technology —that are propelling the company to re-examine its annuities portfolio. Nationwide since 2013 has added three new annuities.
“We are thinking more broadly about the needs of our members in retirement,” he says. “For example, we are considering ways to help our members navigate challenges they may face in retirement, such as medical expenses. Finally, we have started to think about how future generations—Generation X and Millennials—will plan for retirement.”
Craig Lovelace is a freelance writer.