A new kind of life insurance policy
August 1, 2014 by Jeffrey Berson
The life insurance industry is slow when it comes to innovation. So when a new kind of life insurance product is starting to make an impact, I think it is good to know about it. The new product type I’m talking about is called the reversionary annuity. Annuity, you say? If it is a life product, why is it called a reversionary annuity?
What is it?
It’s a new product concept, a life insurance policy conditioned on the survival of the beneficiary beyond the life of the insured and payable to the beneficiary at a pre-arranged amount per month/year as long as the beneficiary is alive. More simply, it is a life insurance product that pays out a lifetime income stream to the beneficiary on the death of the insured.
What are its advantages?
It offers a viable alternative to traditional forms of insurance. The program offers a much larger benefit for the same premium dollar (in the form of monthly income). The reduction in premium outlay versus other traditional life insurance can be significant (unequaled affordability). A reversionary annuity is a life insurance policy that provides a monthly income to the beneficiary on the death of the insured.
How does it work?
The reversionary annuity is designed to be a cost efficient provider of guaranteed lifetime income to a beneficiary. The prospect for this unique life insurance product will be someone with a need to provide a guaranteed lifetime income benefit to a specific beneficiary. Often, this is a family member, a spouse, a parent, or a child. In other situations, it may be a business associate or an ex-spouse.The reversionary annuity should be seriously considered in any situation where there is a need for a guaranteed income. Perhaps the best use of the product is when a pension option must be considered. Often referred to as “pension max,” the reversionary annuity offers a great solution in most of these cases, and should be considered as an option.
Both the insured and the beneficiary apply for and are underwritten for the policy. The premium is determined by the relative age and health status of both the insured and the beneficiary. The more medically impaired the insured, the higher the premium, the more medically impaired the beneficiary the lower the premium.
Once the policy is in force, the lifetime income benefit cannot be changed. The beneficiary is irrevocable and must outlive the insured in order for the lifetime income benefit to be paid. Should the beneficiary predecease the insured, the policy will terminate without value. It does not have a face value and the lifetime income benefit cannot be commuted.
A return of premium rider is available for policies with beneficiaries who are age 80 or younger and who are issued standard through table 12. This rider provides that, should the beneficiary predecease the insured, all premiums paid into the policy will be returned to the insured over a comparable time period, frequency and amount as the premiums were paid. If the insured dies before all premium payments have been returned, rider benefits cease.
In our experience, the reversionary annuity idea can be a great asset for reps to have in their tool box. It solves a definite need but more importantly than that, it is a product that most reps are unfamiliar with. You can get an edge by learning about this concept and product and using it to engage clients in meaningful dialogue. Ask your client if they have ever heard of the reversionary annuity. Chances are, they will become curious and want to know more.
