Life Insurance/LTC Combination Products A Pricing Perspective

Transcription

1 Life Insurance/LTC Combination Products A Pricing Perspective Reid Settle, FSA, CERA, MAAA Core Life Product Development August 3, Lincoln National Corporation

2 The Need for Long-Term Care 70 % of 65 year olds will require some form of long-term care 1 There are 44 million family caregivers in the U.S. today 2 80 % of longer term support and services is provided by family and unpaid caregivers % of family caregivers have children under 18 living at home. 4 1 DHHS, Statistics taken from Administration on Aging: National Alliance for Caregiving/AARP, Caregiving in the US: Findings of a National Survey. 3 (Shirley, L. Family Caregivers (Issue Brief): Georgetown University Healthy Policy Institute, Washington, DC, Caregiving in the US NAC/AARP. 2

3 Long-Term Care Costs National average LTC costs Assisted living Other Nursing home Investments/ qualified plans Cash reserves $3,369 per month $40,428 per year Semiprivate room: $5,931 per month $71,175 per year Private room: $6,570 per month $78,840 per year Home health aide $20.27 per hour LifePlans Long-Term Care Market Summary: Cost of Care Update 2010; Research & Analysis; For a printed copy of the report, call 877 ASK-LINCOLN. 3

4 Case Study: Focus on Long-Term Care 4

5 Case Study: Focus on Long-Term Care 5

6 Case Study: Focus on Long-Term Care 6

7 Products to Serve This Need Long-Term Care Insurance Life/LTC Combination Annuity/LTC Combination 7

8 Challenges Facing Standalone LTC Insurance Industry instability Unfavorable experience Economic factors Use it or lose it sales hurdle 8

9 Individual LTCI Growth Predictions for Individual LTCI Sales Growth (over the next 3 years) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Strong decline Moderate decline Flat Moderate growth Strong growth Source: LIMRA LTCI: An Industry Subdued 9

10 Life/LTC Combination Products Discussing Life/LTC combination products Life Insurance with riders that provide benefits for long-term care needs Acceleration Plus Extension Riders allow for acceleration of death benefit plus extended benefits Acceleration Only Rider allows for acceleration of death benefit 10

11 Acceleration Plus Extension Products Filed as a health product Provides multiple times original death benefit in LTC acceleration May include return of premium feature 11

12 Lincoln MoneyGuard Vanilla UL Chassis COI Charges, premium loads, rider charges LTC Riders Convalescent Care Benefits Rider (CCBR) Accelerates face amount over 2 or 3 years Provides Residual Death Benefit Extension of Benefits Rider (EOBR) Continues benefits for 2 or 4 years after CCBR Return of Premium Available at any time once paid up Guaranteed Benefits 12

13 MoneyGuard Sales Concept Life insurance to create a legacy Other Investments/ qualified plans Cash reserves Designated for long-term care costs 13

14 MoneyGuard Sales Concept If you need long-term care Up to five or six times the original dollars If you never need long-term care Income tax-free death benefit If you change your mind Return of Premium feature 14

15 Acceleration Only Riders Can be filed as a life product under 101(g) Provides accelerated death benefit for chronic illness Accelerated death benefit payments may reduce policy values or be treated as a lien 15

16 Lincoln LifeEnhance Accelerated Benefit Rider Accelerate 100% of the gross death benefit at time of claim Monthly benefit Can accelerate up to the maximum monthly benefit Maximum monthly benefit is the lesser of : 2% of the gross death benefit at the time of claim or The IRS per diem limit times the number of days in the month. Terminates rider and policy when 100% of death benefit fully accelerated One time lump sum benefit Discounted for mortality and interest Immediately terminates rider and policy Option selected at time of claim, not issue Upon acceleration, policy is lapse protected without additional premiums 16

17 Lincoln LifeEnhance Accelerated Benefit Rider No restrictions on benefit usage: Care from family, home health care Transportation, food delivery Home remodeling, personal loans Housekeeping, lawn care Groceries or prescriptions Assisted living, skilled nursing care 17

18 Underwriting Acceleration Plus Extension Market currently offering simplified and full underwriting Who is the target client? LTC risk larger than Death Benefit Cognitive Screen Rx Database Acceleration Only How is base product underwritten? LTC supplemental questions APS review train underwriters to look for morbidity concerns Paramed add Cognitive screen and/or Get Up and Go test? 18

19 Morbidity All Combination Products Policyholder faces choice: Death Benefit now or later Can result in delayed claim but more severely impaired Rider Tax Code Qualification 7702B type only require certification of 90 days impairment 101(g) type require permanent impairment 19

20 Premium Funding Acceleration Plus Extension Most common is single premium Tied to asset repurposing Smaller Net Amount at Risk Multi-pay opens up new market opportunities Acceleration Only Most common is multi-pay Larger Net Amount at Risk 20

21 Persistency Acceleration Plus Extension High persistency, the LTC need doesn t go away Return of Premium feature adds potential of disintermediation risk Acceleration Only Does addition of the rider make the product stickier? 21

22 Commissions Acceleration Plus Extension Rate applied to asset, similar to annuity Acceleration Only Base product target and excess Addition of rider increases target premium 22

23 Investment Strategy Acceleration Plus Extension Need to consider Return of Premium feature in cash flows Interest rate spikes, competitor products Current low interest rate environment Acceleration Only Earlier cash flows due to accelerating the death benefit 23

24 Reserves All Combination Products Base Life Reserve Reflect any Return of Premium Feature Base product may have secondary guarantee Reserve for Riders Active Life Reserve Disabled Life Reserve 24

25 Reinsurance Acceleration Plus Extension Death benefit typically fairly small LTC options very limited Acceleration Only Typically get reinsurance claim on death 25

26 Combination Products: Internal Hedging Across the five major components of risk within LTCI: Life combo volatility is typically reduced by 60% to 80% versus that seen on stand-alone LTCI Annuity combo volatility is typically reduced by over 80% versus that seen on stand-alone LTCI Combination products provide an opportunity for the insurance industry to address a major consumer need, and the opportunity to generate attractive returns with significantly reduced risk compared to traditional LTCI Quantification of the Natural Hedge Characteristics of Combination Life or Annuity Products Linked to Long-Term Care Insurance, L. Chow, C Friedrich, D Helwig; March 2012, Society of Actuaries. 26

27 Claims Acceleration Plus Extension Generally reimbursement Monthly benefit determined by dividing face amount by number of months of acceleration Acceleration Only Can be indemnity benefit or reimbursement Monthly benefit a percentage of death benefit May provide lapse protection while on claim 27