How our ever-growing life expectancy can affect your insurance choices
November 4th, 2011
Nick DiUlio
Here’s the good news: We’re living longer than ever before. According to the federal Centers for Disease Control and Prevention, life expectancy at birth in the United States increased to an all-time high of 78.2 years in 2009. The bad news? The longer we live, the more complicated our insurance planning becomes.
Faye Albert, a life insurance actuary and member of the Mortality Committee for the Society of Actuaries, says the primary type of insurance affected by increased longevity is life insurance. Longer life means many consumers are becoming less concerned with making sure their families will be provided for after their deaths, and more concerned with quality of life in old age.
“If you are going to live a long time,” Albert says, “you will probably be using more of your assets to pay for your living expenses, as opposed to putting them into assets you want to pass on.”
Here are some other types of insurance that deserve a look thanks to our longer life spans.
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| The more candles on your birthday cake, the more complicated your life insurance and long-term care needs become. |
Long-term care
Long-term care insurance has become an increasingly popular option for consumers in the past decade; about 8 million people in the United States have long-term care policies, according to the American Association for Long-Term Care Insurance.
Murray Gordon, a long-term care planning specialist, says consumers in the past thought of long-term care only as a way to pay for a nursing home. Today, long-term care is much more than that. And the number of those who will need it is growing. According to the U.S. Department of Health and Human Services, about 9 million Americans needed long-term care in 2009. By 2020, that number is expected to increase to 12 million.
“Longer life means an increased chance of things like stroke, multiple sclerosis, Parkinson’s, Alzheimer’s — all the stuff that affects people over 65,” Gordon says. “You don’t want to wait until you’re faced with those things before considering long-term care insurance.”
That said, though, increased longevity also has resulted in people buying life insurance (mostly term insurance) later in life, says Raquel Lorenzo Murphy, a life, disability and long-term care insurance specialist for HUB International.
“It was unheard of not too long ago for a 50-year-old to be able to purchase a 30-year term policy,” Murphy says. “Now it’s a common product offering among the top-rated life insurance carriers.”
The annuity option
Another increasingly popular option for insurance consumers is annuities. For instance, The Hartford, a Connecticut-based insurance company, recently started offering a new life insurance rider that provides eight years or more of income to covered people who live to age 90 and beyond.
Consumers who want death benefit protection can purchase a universal life insurance policy with the company’s new Longevity Access Rider, giving applicants the option to pay a little extra every month and add to the rider. Should they live to age 90, they will be able to withdraw an amount equal to as much as 1 percent of their death benefits per month. For example, someone with a $ 500,000 policy could receive up to $ 5,000 a month for 100 months, or eight years, guaranteed.
These days, many people are living a couple of decades past retirement, something almost unheard of in the past. Generating income during this period is a serious consideration.
Deferred annuities, such as those offered by The Hartford, are growing in popularity, according to Albert, but they aren’t necessarily for everyone. Annuities put the investment power in the hands of an insurance company, and some people may be more comfortable investing that money themselves for use later in life.
“A lot of people think they can invest at a better rate than the insurance companies, and they want access to it,” Albert says. “But, in fact, as people are living longer, it could be a good idea for them to purchase a policy with an annuity option so they know they’ll have money on a monthly basis for as long as they live.”
The importance of preventive health
While the health insurance market has yet to see a significant effect from burgeoning life expectancy rates (government policy matters notwithstanding), Anand Rao, a principal with PricewaterhouseCoopers, says the future of health insurance inevitably will be tied to the importance of a person’s attention to preventive health care. The underwriting process, he says, will be determined by increasingly specific lifestyle factors.
“If you are going to the gym three days a week, eating healthy foods and making the right lifestyle choices, these will all count as specific incentives to bring down your health insurance premiums,” Rao says. “The underwriting process is changing, and it’s going to change even more in years to come.”
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