Combo deal: hybrid long-term-care/annuity products are life insurers' newest weapon in their battle for retirement assets.Some U.S. life insurers are counting on the tax benefits contained in the Pension Protection Act of 2006 to entice millions of baby boomers See generation X. nearing retirement to buy annuities with a long-term-care rider. Among the life insurers with a substantial market share in both annuities and long-term-care insurance are Genworth Financial Genworth Financial is an international financial services organization that offers a portfolio of primarily consumer-focused products through its various companies, including annuities, combination products, investment services, life insurance, long term care insurance, medicare , John Hancock Life Insurance and MetLife Inc. Shekar Jannah, Genworth's head of product management for linked-benefit products, said the company is gearing up to launch a combination long-term-care/annuity during the first half of this year. "It certainly is a way to boost annuity sales, but the flip side Flip side In the context of general equities, opposite side to a proposition or position (buy, if sell is the proposition and vice versa). of that same coin is that it also is a way to boost long-term-care sales," he said. Genworth, which Jannah said is the leader in the stand-alone long-term-care market, is targeting a large potential customer base for the combo product--people in their late 50s and early 60s in the upper-middle income bracket Noun 1. income bracket - a category of taxpayers based on the amount of their income income tax bracket, tax bracket bracket - a category falling within certain defined limits income bracket n → who often have $100,000 saved in low-risk bank certificates of deposit or money market funds. This market prefers to fund their long-term-care needs with these savings instead of buying a stand-alone long-term-care policy, he said. By switching those funds instead to Genworth's annuity/long-term-care product, they would have the option of immediately getting lifetime long-term-care coverage for up to three times the amount that built up in the annuity. That's a tremendous benefit compared to the other savings vehicles "because there is no interest rate that can give you that kind of return," Jannah said. One of the potential market entrants is Nationwide Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. . Nationwide doesn't sell standalone stand·a·lone adj. Self-contained and usually independently operating: a standalone computer terminal. long-term-care insurance, but is looking into developing the combo annuity/long-term-care rider product, said Marie Patricy, product officer with Nationwide's individual investment group. Nationwide is focusing on these products, hoping the future tax advantages will offer another incentive for customers to buy, she said. The top 10 to 15 annuity companies probably are also looking into the product, Patricy said. Creating Demand Annuity/long-term-care combo products have been in the market for about five years. However, they aren't "wildly popular" with consumers, said Terence Martin, vice president of life and health research for Conning. Long-term-care and longevity issues are "just starting to hit people's radar screens" over the past two years, he said. Currently, most of these combo products feature "quite modest" long-term-care benefits, said Carl Friedrich, a consulting actuary actuary One who calculates insurance risks and premiums. Actuaries compute the probability of the occurrence of such events as birth, marriage, illness, accidents, and death. and principal with Milliman. The vast majority simply offer a waiver The voluntary surrender of a known right; conduct supporting an inference that a particular right has been relinquished. The term waiver is used in many legal contexts. on the surrender charges Surrender Charge A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books. if a policyholder Policyholder An individual who owns an insurance policy. accesses the cash value in the annuity to help pay for long-term-care needs. People don't view that as a big deal, he said. Companies also aren't heavily marketing these annuity/long-term-care products, said Scott Hawkins, assistant vice president of life and health research for Conning. 2010 Tax Incentive That could change with the enactment last August of the sweeping pension reform that includes provisions that could greatly benefit the life insurance industry. One provision amended the tax code concerning these products. Under the act, distributions from annuity contracts Annuity Contract The written agreement between an insurance company and a customer outlining each party's obligations in an annuity coverage agreement. This document will include the specific details of the contract, such as the structure of the annuity (variable or fixed), any used to pay premiums for the long-term-care riders are excluded from taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. , said Whit Cornman, a spokesman for the American Council of Life Insurers The American Council of Life Insurers (ACLI) is a Washington-based lobbying and trade group for the life insurance industry. ACLI represents 373 insurance companies that account for 93 percent of the U.S. life insurance industry's total assets. . Cornman explained that people will be able to use the income from an annuity to secure their retirement, while at the same time, have money to help pay for long-term-care expenses if the need arises. Companies sell combo annuity and long-term-care products, but the products don't get the same tax preferences as they will when the provision takes effect in 2010, he said. Congress pushed through the pension legislation because it believed there needs to be a product answer to solve the long-term-care crisis, Friedrich said. However, he also pointed out that several companies don't have the "appetite" to be in the stand-alone long-term-care insurance market. By coupling a long-term-care rider with an annuity, an insurer's risk is reduced dramatically when it comes to policies lapsing lapse v. lapsed, laps·ing, laps·es v.intr. 1. a. To fall from a previous level or standard, as of accomplishment, quality, or conduct: , he said. As people age, they may need long-term-care services if they become seriously ill A patient is seriously ill when his or her illness is of such severity that there is cause for immediate concern but there is no imminent danger to life. See also very seriously ill. or need help performing daily activities such as eating, bathing or dressing. Long-term-care insurance provides coverage for the often costly nursing home, assisted-living and homecare services. Annuities, on the other hand, are an investment/insurance product sold by life insurers that can guarantee an income stream for life. Market Dichotomy di·chot·o·my n. pl. di·chot·o·mies 1. Division into two usually contradictory parts or opinions: "the dichotomy of the one and the many" Louis Auchincloss. A recent Limra survey of nearly 90 long-term-care insurance professionals indicated optimism that the market is headed for moderate to strong growth over the next few years. However, "this seemingly zealous outlook is tempered by the harsh reality Harsh Reality are a little-known, proto-prog band born in Stevenage, Hertfordshire out of the remnants of the Freightliner Blues Band (formerly the Revolution) in the early sixties. that individual long-term-care sales are at 1994 levels," wrote Jennifer Douglas, author of the report published in January and head of Limra's long-term-care insurance research. Writers of long-term-care insurance and annuities are up against a common perception among consumers that they won't ever need either product, said Martin. When combined, though, a person may say: "Well, if I don't use one, I probably will use the other." State governments are paying for long-term-care insurance through Medicaid and Medicare, Hawkins noted. But companies also have "a stake in the game," he said. From their perspective, the act was to get more people to buy annuities, Hawkins said. "The major insurance companies are really focused upon asset accumulation and the retirement market," he said. The battle for retirement assets is big, both Conning consultants said. Thomas Rosendale, managing senior financial analyst with A.M. Best Co., explained that while some policy riders provide benefits similar to certain stand-alone products, many of them available on individual life insurance and annuities offer benefits that are integrated with existing features of the base policy to which they are attached. "As a result, while they may be marketed under the names similar to certain stand-alone products, such as long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. , the scope of the benefits is often substantially more limited," he said. Key Points * Tax benefits contained in the Pension Protection Act of 2006 might lure millions of baby boomers to buy annuities with a long-term-care rider. * Annuity/long-term-care combo products have been in the market for about five years. However, they haven't been popular with consumers and have only started to hit people's radar screens in the past two. * A recent Limra survey of long-term-care insurance professionals indicated optimism that the market is headed for moderate to strong growth over the next few years. Bright Skies, Dark Horizon For Long-Term Care A Limra survey of nearly 90 long-term-care insurance professionals indicated optimism that the market is headed for moderate to strong growth over the next few years. But Limra warned the "seemingly zealous" outlook is tempered by the reality that individual long-term-care sales are at 1994 levels. Reasons for Industry Optimism Increasing Consumer Awareness Legislation Demographics The attributes of people in a particular geographic area. Used for marketing purposes, population, ethnic origins, religion, spoken language, income and age range are examples of demographic data. Product/Market Innovation Stability Societal so·ci·e·tal adj. Of or relating to the structure, organization, or functioning of society. so·ci  e·tal·ly adv.Adj. Need Producer Interest Top U.S. Writers Of Variable Annuities ($ Billions) 1. TIAA-CREF $3.33 2. Axa Financial/MONY $3.02 3. MetLife Companies $2.97 4. Hartford Life Insurance Co. $2.70 5. RiverSource Annuities $2.51 6. Lincoln National Life Insurance $2.44 7. Prudential/American Skandia/Allstate $2.30 8. Pacific Life Insurance Co. $2.21 9. AIG/SunAmerica/VALIC $2.15 10. ING Group of Companies $2.11 Source: Morningstar Inc.; based on sales as of third quarter 2006 Top U.S. Long-Term-Care Writers Based on New Premium (listed alphabetically) Third Quarter 2006 Allianz Life Bankers Life and Casualty Genworth Financial John Hancock Massachusetts Mutual MetLife NewYork Life Northwestern LTC Penn Treaty Network Prudential LTC Share 86% Note: Based on participating carriers Source: Limra International Learn More Genworth Life Insurance Co. A.M. Best Company # 07183 Distribution: Financial intermediaries Financial intermediaries institution that provide the market function of matching borrowers and lenders or traders. ; independent producers; dedicated sales specialists. For ratings and other financial strength information about this company, visit www.ambest.com. |
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