What We are Seeing… Life, Long Term Care, and Disability Insurance

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By Gary Bottoms, CLU, CHFC 

Chief Executive Officer

1. Clients want a simplified application process. The application process is becoming more palatable and electronic. For healthy applicants who meet certain parameters, it is possible to complete the process and have coverage initiated within a couple days. According to LIMRA, the life insurance industry’s premier research organization, new life insurance premium growth of 20% in 2021 is the highest year-over-year growth since 1983.

2. Clients want financial security. Financial discussions about the future are becoming more top of mind. Concerns about inflation, extended lifespans for many, fears of outliving resources and the changing American family are drivers. Having a caregiver in close proximity is not as common as it once was. Most baby boomers have experience, either direct or indirect, related to caring for their parent’s generation. So, they want to avoid the pain of being unprepared. 

3. Clients want efficiency. Long Term Care insurance is evolving. Approaches to planning for future financial risk have been evolving for years. For new coverage, individual long-term care policies have largely lost their appeal from a cost standpoint. There has been a significant movement towards critical illness and long-term care riders attached to new life insurance policies. 

4. Clients want to avoid surprises. Insurance policy reviews have become essential.Over the past 30 years “flexible premium” life insurance has become mainstream. With a prolonged duration of falling interest rates, many of the policies are underperforming relative to their earlier projections. Therefore, ongoing reviews are important. 

Many of our new clients have existing life insurance policies that they have had for a while. And, for most, the original agent is no longer involved, and they have not had a review in years. As a part of our onboarding process, we review the beneficiary and ownership designations. We have seen cases where the owner listed is now deceased, or the beneficiary designation shows an ex-spouse, which is not the current intent. Some of these overlooked updates can be changed, but not always, particularly if a death has occurred. 

5. Clients want clarity and confidence. A question we like to ask is this: if a death, disability, or long-term care need occurs, what do you want to happen?  The process works best when the client has a functioning financial advisory team. In addition to TBG, there is an estate planning attorney, CPA and wealth advisor involved. This way all the moving parts can be coordinated, and surprises minimized. A best practice is to have a periodic visit with the team and have them review the current plan.

6. Clients want options. The conversion privilege, typically included with term life insurance, allows the policyowner to change the coverage so that it extends beyond the original level premium years. This policy change can be done without proving good health. Therefore, this provides protection against a health event that might prevent the possibility of having affordable coverage beyond the level premium years. In recent years, the fine print included with many new term policies restricts the availability of this valuable opportunity. Clients regularly choose plans with the more attractive conversion options.

7. Clients want tax-deferred cash accumulation. Recent regulatory changes have made it possible to design a life insurance policy, so it is more investment oriented than prior regulations allowed. The tax-deferred cash accumulation within a life insurance policy is a significant and well-known feature. More flexibility now exists with life insurance policy designs. We can design a policy that minimizes the death benefit compared past offerings when the primary objective is to maximize the tax-deferred cash accumulation for retirement or other purposes. Having access to cash can solve a lot of problems.

8. Clients want protection. It is now possible to design a policy with a guaranteed premium and a guaranteed death benefit for life that may end up with no cash accumulated at all. This design minimizes the premium outlay and maximizes the death benefit. It is helpful to keep in mind that this type of policy design is different than other types of insurance because we are not underwriting the possibility of a claim – we are underwriting the certainty of a claim over an uncertain period. 

9. Clients want to understand their protection if a long-term disability happens. The possibility of becoming disabled is frequently underestimated. Few insurance carriers offer standalone individual long-term disability policies and the approval process for the coverage is strict. An accident or illness can cause one to lose the ability to do their job and along with all this their income may stop. Employer sponsored coverage is the favored route for many if it is available. The definitions of a covered disability vary from weak to strong and the coverage limits are a consideration as well. 

10. Clients want a relatively stable playing field as they attempt to plan their estates. The rules around estate and gift tax planning are far from settled. The current tax rules are set to expire at the end of 2025 unless extended by our lawmakers in Washington. Considering the growing budget deficit and the lack of sympathy for the high net worth segment of the population, our feeling is that is likely that the tax on accumulated wealth will grow in the future. Life insurance has long been used as an asset that can create cash to help ease the cost of estate transfer. One risk of delaying planning for the future is that health can change and this alternative may not be available. Health sometimes improves, but often health deteriorates over time.

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