Longevity Poses Potential Benefits and Challenges to Insurance Professionals

Most are aware that people are living longer lives, but as an insurance professional, you may not have fully considered how this affects your industry.

As of 2013, life expectancy in the U.S. was 78.8 years, according to the U.S. Centers for Disease Control and Prevention. In 2000, the average age was only 76.8, and the U.S. Census Bureau predicts it will be nearly 80 in 2020. However, these are all just average ages, and right now, many of your clients can expect to live into their 80s and 90s.

New sales possibilities 

Greater longevity actually provides you with a broad and potentially lucrative sales opportunity, said Deloitte Insurance Research Leader Sam Friedman, who LifeHealthPro interviewed. Facing longer lives means more of your clients are likely to become disabled, be diagnosed with chronic medical conditions and need long-term medical care either in a facility or at home. While living to an older age already means your clients need to be prepared for a longer retirement, they also need to be ready for higher medical and living expenses.

Knowing that more of your clients will live longer and face higher medical and living costs in the future, they’ll need insurance products that adequately reflect their financial situations and personal levels of risk. Many people are worried about outliving their savings, particularly if medical expenses arise, so it’s up to you to educate your clients on the types of insurance products that will most protect them and their families in the future.

New products are continuously coming into the market to reflect the expanding older population’s unique needs, such as contingent deferred annuities and variable annuity living benefit riders, according to the National Association of Insurance Commissioners. You should keep your eye on these newer types of products to offer your clients the most up-to-date advice.

The resulting obstacle

As average life expectancy creeps higher and higher, the longevity risk within the industry is increasing and influencing underwriting and sales, Friedman pointed out. The chance that insurers may under-calculate their clients’ survival rates increases the insurers’ risk of having to cover additional, unanticipated payments.

While people living longer creates more opportunities to sell essential insurance protection, it’s also generating a new challenge as insurers work to recalculate their risk.

The premiums and income guarantees for many insurance products are beginning to reflect insurance providers’ growing risk. Previous pricing assumptions didn’t take into account such long lives, and insurers are beginning to adjust their pricing strategies. Potentially higher prices can influence whether your clients decide to invest in the right products.

Regulatory compliance factors

The newer products on the market for this population face additional regulation, the NAIC stated. For instance, many state regulators are studying contingent deferred annuities to develop a regulatory structure and consumer protections.

In addition, the Internal Revenue Service issued final rules regarding the use of longevity annuities in tax-qualified defined contribution plans such as IRAs in 2014. The new rules made longevity annuities a better option, encouraging people to invest in insurance products that protect their lifetime income.

While increasing longevity presents certain challenges within the insurance market, you can use it to your advantage. People are aware that they’re likely to live decades past their retirement, which means they need to invest early on in products that will secure their incomes for the their future selves and for their families when they’re gone. Keep your finger on the pulse of the market to ensure you know the latest and strongest products that address your older clients’ specific risks and goals.

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