During these uncertain times, people around the world are concerned for themselves and the well-being of their families. In a recent Barron's article, Nick Fortuna said, "Americans who have life insurance will be covered should they die from Covid-19, the disease caused by the new coronavirus, but those who lack coverage or are underinsured should consider moving soon before coverage options dry up." We, unfortunately, have no way of knowing how long insurance carriers will continue accepting applications. "… some carriers may stop issuing new policies if the pandemic worsens, especially for seniors with health issues, and they likely wouldn't resume issuing policies until a vaccine is available."
In this episode of Money Script Monday, Brian presents 5 reasons why now is the time to meet with your financial professional if you have been considering purchasing life insurance.
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Video transcription
Hi, welcome to another episode of Money Script Monday. My name is Brian Manderscheid.
Today, I want to talk about two recent articles that were posted in major trade publications that talked about how potential buyers purchasing life insurance are facing many new challenges and that the time to act if they're looking for insurance is now.
Additionally, these articles talk about how if you have life insurance coverage in force, it will cover coronavirus.
Now, before I get into the topic today, I do just want to start off with a quick story.
I was actually talking to one of my neighbors, six feet away, of course, and we were talking about business, work, and I mentioned life insurance.
He said, "Yeah, wow, you guys must be doing really well right now." And I said, "Yeah, we are. It's definitely a good time for us. And if you don't mind, why do you feel that way?"
He said, "Well, just times are crazy right now. People are scared, they're concerned that if they go out to the grocery store to get eggs and milk for their family, they could wind up with an infectious disease that could end their life as well as the lives of their loved ones.”
“And I can see how life insurance plays a big part in protecting people's families."
That's really the essence of what we do. And the essence of the two articles that I want to share with you today.
If you're looking to protect your family, your business, your loved ones, life insurance is a solution and the time to act is now.
New Challenges Buyers Face
I want to talk about the challenges that the new buyers face. A couple of things.
First, is every insurance company is different and they all have their own unique rules.
Secondly, is the two articles I'm going to talk about are going to be in the transcripts below if you want to get more information.
So first, buyers are faced with potentially being declined or postponed for life insurance coverage.
Now, declined means that the insurance company will not offer you life insurance coverage due to the risk to the insurance company.
Postponed means that they will not offer you life insurance coverage now, but they make reconsider you in, let's say, 30 days or 6 months in the future or something like that.
Here are some of the reasons or some of the things that we've been seeing recently in the insurance industry.
First is, if you're over a certain age and have pre-existing medical conditions, some insurance companies are either declining or postponing life insurance coverage.
The reason being is if you're over a certain age and have certain attributes, you have a higher likelihood of contracting coronavirus and a higher likelihood of passing away.
If you have any recent or planned foreign travel, that is also a big concern. If you're planning to go to certain hotspots, that could be a decline or postponed.
If you've recently have come back from any foreign travel, some insurance companies are saying, "We'll not offer you or consider life insurance coverage for, let's say, 30 days."
If you don't have coronavirus but have symptoms relating to coronavirus, again, that's a situation where you're most likely to be postponed with most of the major insurance companies.
If you've had contact with someone who's had coronavirus, whether that's at an apartment building or office complex, if you've had close contact with somebody with coronavirus, there's a chance you may not be able to get life insurance coverage or be postponed to a future later date.
And lastly, if you've had coronavirus and made 100% full recovery, some insurance companies will offer you coverage but again, they'll postpone you for a certain timeframe until you're fully well and there are no other issues that you have with the symptoms or coronavirus.
That's one obviously big challenge, a set of challenges that buyers face. The second is today's low-interest-rate environment.
Now, insurance companies, they purchase mostly investment-grade bonds or other fixed income instruments in order to back the guarantees that they're promising for the policies that people are purchasing.
Interest rates are at or near historic lows right now, which drastically affects the pricing of these policies.
One of the major insurance companies just recently announced that they're going to increase premium prices for new policyholders coming in the door at the end of the month by between 8% and 12%.
So, people who are buying life insurance today, getting the application today, they'll be locked in at today's rates.
People who wait until next month, pay roughly 10% more for the same life insurance coverage.
That same insurance company is also removing that 30-year term policy from their portfolio.
If you're buying life insurance for cash value that you can use for college planning or tax-free retirement income, this also may affect you as well.
The insurance companies when interest rates drop, that reduces the option budget, which reduces the cap rate or earnings potential of your life insurance policy.
Again, a good reason again to move forward now, rather than waiting until those changes happen.
Lastly, reduced premium limits.
Some insurance companies have basically said, "We will not accept the paid-up insurance policy, where you pay a one lump-sum premium to buy a guaranteed death benefit."
Other companies have said that, "We will reduce our premium limits so you can't fund over a certain amount of money to our policies."
The reason being if you fund a large lump sum to the insurance company, they have to put that to work at today's interest rates, which again are at historic lows, which drags down their general portfolio yield.
So again, two big challenges facing whether on the underwriting side or the product side that buyers are facing today.
Now worst-case scenario, some chatter we've been hearing in the industry is that insurance companies may have exclusion riders or even stop accepting applications altogether.
Now an exclusion rider is typically a situation where let's say if a private pilot, the insurance company will say that, "We'll offer you life insurance coverage but exclude paying out the death benefit if you pass away in a plane crash.
All the reasons we'll pay out but just we're excluding that, it's too much risk for us."
Now, some insurance companies have been considering adding that same exclusion to coronavirus, whereas they'll pay the life insurance death benefit for all other reasons, except for if you pass away due to complications due to coronavirus.
Now even a worst-case scenario is insurance companies may say, "We're going to stop accepting new applications altogether."
Now the reason for these drastic changes are insurance products are priced based on mortality tables and actuaries determine how many people are likely to pass away.
And using current data and global pandemics that may kill hundreds of thousands if not millions of people may not be priced into those models.
So rather the insurance company taking all that risk and not knowing how many people will truly have this disease and pass away, they may decide to basically step away from offering insurance until a vaccine has been created.
It sounds potentially like a lot of challenges, a lot of bad news, but I would do want to reiterate that there is hope.
Top 5 Reasons to Meet with Your Advisor
What I want to do now is transition to the top five reasons to meet with the advisor who shared this video with you.
So, number one is to navigate the life insurance marketplace.
I mentioned that some of these restrictions that insurance companies are doing are carrier-specific.
If you're working with an independent advisor who can shop around 50 plus insurance companies, they can navigate and make sure that they're finding the absolute best policy best price for you based on your individual situation.
If you're working with a career or a captive agent, they're typically only able to offer you one carrier, one life insurance company that may not be the best fit.
The second reason is accelerated underwriting up to $3 million of life insurance coverage. To talk about this, I kinda have to first talk about traditional underwriting for insurance.
That process is typically you're meeting face to face with an advisor, you're filling out a paper application, that application is mailed or faxed to the insurance company.
They're going to order an examiner to come to your house or your business to collect blood samples, urine, do build, height, weight, blood pressure, things of that nature, asking medical questions.
Use all that data potentially also attending physician statement, an APS from your doctor to get more data in to determine if they can offer you life insurance coverage.
As you can see, it's obviously potentially a very intrusive situation where you're having people come into your home or business, and it's very time-intensive.
It could take two to three months to get a policy in force.
Some insurance companies offer accelerated underwriting where they've ditched that old model and instead use widely available data, big data, such as your consumer buying behaviors, motor vehicle reports, and prescription checks.
Use that data along with an e-application that you can do online with your advisor to make a decision in days rather than weeks and months.
Number three are accelerated living benefit riders.
This is a relatively new feature to hit the life insurance industry and not available in all policies and most likely not available in older ones as well.
Essentially, people think of life insurance as something that they have to die to use.
If you have accelerated living benefit riders, you can actually collect on your life insurance death benefit accelerated early while alive.
As long as you meet one of three criteria, terminally ill, which means you're going to pass away relatively soon, chronically ill, which generally means can't perform two of six activities of daily living or three, critically ill, which generally are items like heart attacks, strokes, major organ transplants.
And one of the major insurance companies just recently added coronavirus to the list.
So, if you have one of the newer policies that are available today, you can actually live off your death benefit if you're sick.
If you can't take care of yourself or if you're going to pass away, you can take the benefit now, rather than waiting until that death benefit's paid out to your beneficiaries.
Number four are as a needs assessment and product options.
When people buy, whether it's life insurance, or mutual funds, or annuities, they take what they purchased and put it into their financial junk drawer, never to be seen again.
Working with a financial advisor, they're able to declutter your financial junk drawer, make sure all those things that you purchased over the years are meeting your goals, expectations.
If not, they can propose maybe more life insurance coverage based on family scenario changes or new kids, or marriage, or a new job.
Life changes and your financial plan should adapt to that.
The advisor may also go over certain product options, whether term life insurance or permanent life insurance makes the most sense for you.
And lastly, kind of to coincide with that is a ReProject enforce policy audit. When someone buys life insurance, they put it in their junk drawer and they think that that life insurance policy will be there the day it's needed the most.
Now some life insurance policies are based on, let's say, interest rates or stock market performance.
And those policies, obviously, with both interest rates and stock market values plummeting, may actually not even be there the day that they need it the most.
With a no-cost, no-obligation ReProject policy audit, your adviser can examine your current life insurance policies and make sure that they're meeting your goals and expectations.
So kind of to wrap things up a little bit and, you know, I talked about some of the challenges facing life insurance buyers today, as well as some solutions working with your adviser.
I do want to end off just with a personal story.
We were meeting with a wealthy family and we proposed life insurance coverage for estate planning, for legacy planning.
And unfortunately, before we can get the policy inforce, this older gentleman just recently passed away due to complications with coronavirus.
That life insurance policy that we were recommending, we can't offer that policy anymore, he passed away. And that's generational wealth that's lost, we can't take back, we can't get because he passed away due to this virus.
I just want to, again, reiterate that the time to act is now. It's not all doom and gloom.
There are a lot of challenges, but your adviser has the tools and the resources to get you the best policy at the best price, and make sure that your family, your business, the people who depend on you are taken care of.
Thank you very much. We'll see you next time.
Additional Resources
The information presented here is not specific to any individual's personal circumstances. These videos are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials or may change at any time and without notice. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstance.
S&P 500 is an unmanaged index of the shares of 500 widely held, predominantly large capitalization, U.S. exchange-listed common stocks. The index results neither include dividends reinvested nor reflect fees and expenses. Investors cannot invest in any index directly. Guarantees provided by insurance products are backed by the claims paying ability of the issuing carrier.
Investment advisory services offered through LifePro Asset Management, LLC, a registered investment adviser. Investments involve risk and are not guaranteed. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy will be profitable or equal any historical performance.