An Old and a New Problem - AM Best

[marindependent]

Great Article on AM Best.com. [You may have to be logged in with them to read.]

An Old and a New Problem, by TERRENCE DOPP

"As the number of Americans reaching the age of 100 grows, a small but noteworthy problem rears its head. In many cases, life policies issued before the early 2000s mature at the century mark and the industry is left to figure out how to address the issue."

 

[fed up]

Have always tried to set end date to age 120

 

[Newby]

Great Article on AM Best.com. [You may have to be logged in with them to read.]

An Old and a New Problem, by TERRENCE DOPP

"As the number of Americans reaching the age of 100 grows, a small but noteworthy problem rears its head. In many cases, life policies issued before the early 2000s mature at the century mark and the industry is left to figure out how to address the issue."

I don’t understand the problem. if they bought whole life and it endows at that age they get paid the money.
If it’s a term or a UL and it’s over at that age they don’t get paid the money. But they can’t want it both ways they pay the lower premium for the chance they would outlive the product.
I haven’t read the article but what is it saying that problem actually is?

 

[marindependent]

I haven’t read the article but what is it saying that problem actually is?

 

[Allen Trent]

I don’t understand the problem. if they bought whole life and it endows at that age they get paid the money.
If it’s a term or a UL and it’s over at that age they don’t get paid the money. But they can’t want it both ways they pay the lower premium for the chance they would outlive the product.
I haven’t read the article but what is it saying that problem actually is?

It has several potential problems.

For some, the CV is paid out & the client is taxed on the gains and for most 100 year olds this forces a tax return to be filed for the1st time in many years & also exposes some to impacting benefits they ar receiving or premium costs for items like Medicare

For others like UL, the policy may change at age 100 to be equal to CV. So a 100k policy with a 25k CV may become a face amount of 25k. In other instances, if the policy anniversary doesn't occur for many months after turning age 100, the policy can lapse as many UL internal charges are masssively high at age 90, 95,99. Clients may not even be able to pay high enough premiums to keep a policy active or fund it so it doesn't have so much net amount at risk in those latest years

Ironically, the even greater tax problem for people turning 100 are the huge deferred gains that many have let compound inside all their NQ fixed, variable & index annuities. I have seen several little old ladies with an annual income of 15-20k go from not filing a tax return to having to post a taxable gain of over 500k after letting the gains build for 25-35yrs. We need to help some of them gradually move the money strategically out over 10-20 years when possible for better tax efficiency,etc

 

[Tahoe Ray]

Ironically, the even greater tax problem for people turning 100 are the huge deferred gains that many have let compound inside all their NQ fixed, variable & index annuities. I have seen several little old ladies with an annual income of 15-20k go from not filing a tax return to having to post a taxable gain of over 500k after letting the gains build for 25-35yrs. We need to help some of them gradually move the money strategically out over 10-20 years when possible for better tax efficiency,etc

Why not just annuitize w/ installment refund at commencement?

 

[Allen Trent]

Why not just annuitize w/ installment refund at commencement?

in my opinion, that is one of the best strategies to spread the tax out, especially considering the taxable gain would get the exclusion ratio & spread the gain over the length of the payments. However, some, if not many contracts, have maximum ages in their payout tables for the various payout durations like life or fixed period, etc. So, the client may have outlived the option to annuitize or stretch out over many years.

Another great benefit of annuitize is that most of the existing annuity contracts that a 100 year old would have would also have very rich embedded payout table interest rates compared to SPIA rates available today

But waiting until 100 or 99 as some contracts are stated might be too late to utilize, etc

interesting problem to have, but I have seen it more often of late

 

[rousemark]

If a person has lived to be 100 and is in relatively good health, what a wonderful problem to have. The industry saw this problem several years ago and backed regulation for policies to be allowed to mature at age 121 in response.

 

[Tahoe Ray]

But waiting until 100 or 99 as some contracts are stated might be too late to utilize, etc

interesting problem to have, but I have seen it more often of late

Fair enough.

Most of the older contracts (which are naturally owned by older people) have commencements as early as 85. I haven't seen an old contract go to 100 (although several carriers waive that requirement or at least extend it).

 

[Allen Trent]

If a person has lived to be 100 and is in relatively good health, what a wonderful problem to have. The industry saw this problem several years ago and backed regulation for policies to be allowed to mature at age 121 in response.

Agree & from looking at the COI deducted on an illustration after age 100 on a GUL, IUL, VUL, most have annual charges approaching the face amount annually...………..and rightly so. I am sure attorneys will argue someday that making it mature or endow at 120 was in the carrier favor, not the consumer.

Fair enough.

Most of the older contracts (which are naturally owned by older people) have commencements as early as 85. I haven't seen an old contract go to 100 (although several carriers waive that requirement or at least extend it).

Agree. Most have a default maturity of 75 or 80 but then they automatically extend to 100.

I know some carriers are looking at ways they could force those maturities & not extend because they hate paying some of the high guarantee rates of 3 or 4% or more