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Life Insurance, Annuities and Health Insurance

This presentation provides an overview of the life, annuities, and health insurance markets, products, and regulations. It covers topics such as the different types of insurance, benefits of life insurance, annuity options, pricing factors, and current industry issues.

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Life Insurance, Annuities and Health Insurance

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  1. INFORM+INSPIRE Life Insurance, Annuities and Health Insurance David T. Russell, Ph.D. Director, CSUN Center for Risk and Insurance March 14-15, 2013 The Griffith Insurance Education Foundation

  2. Agenda • Overview of Life/Annuity/Health Market • Overview of Life Insurance Products • Overview of Annuity Products • Overview of Health Ins Products • Regulation Of Health Insurance • Review of PPACA The Griffith Insurance Education Foundation

  3. Life/Annuity/Health Insurance • US Life/Health/Annuity Market: $1.24t • CA Life/Health/Annuity Market: $166b • Life Insurance Market Has Zero Growth • Annuity Market Growing Nicely • Life Insurers Continue to Gather Assets • Being ID’d as “Systemically Important?” • Health Insurance Market in Flux The Griffith Insurance Education Foundation

  4. The Players in CA (2011 Prems) • 1. Anthem Blue Cross • 2. John Hancock • 3. Met Life Investors (Annuities) • 4. Prudential • 5. Met Life • 6. Lincoln National The Griffith Insurance Education Foundation

  5. Why Buy Life Insurance? • Cover Risk of Premature Death • Protect Survivors’ Lifestyle • Fund Plans After Death (Ex: College) • Guarantee Debtsand Settlements • Protect Knowledge/Skills of Key People • Investment Features • Tax Benefits(Always Under Review) The Griffith Insurance Education Foundation

  6. Life Insurance Products • Whole Life Insurance • Term Life Insurance (No Cash Value) • Universal Life Insurance • Variable Life Insurance • Variable Universal Life Insurance • Other The Griffith Insurance Education Foundation

  7. Term vs. Cash Value • Term: “Renting” Insurance • Protects Only for Term of Policy • Must Be Renewed, If Needed • Cash Value: “Owning” Insurance • Provides Permanent Protection • Usually Accumulates Cash Value • Higher Premiums Earlier in Life The Griffith Insurance Education Foundation

  8. mortality curve (~term) Level Prem (Whole) Term Life Versus Whole Life: Premiums $ under payment overpayment x 120 Age The Griffith Insurance Education Foundation

  9. Term Life Insurance • Carries Low Prems that Rise Over Time • Builds No Cash Value • Favored by Most “Experts” • Must Be Renewed at Increasing Rates • Employer-Provided Ins is Group Term The Griffith Insurance Education Foundation

  10. Whole Life Insurance • High, Level Premiums for Life • Permanent Coverage-No Need to Renew • Builds Cash Value • Earns Interest/Dividends Tax Deferred • Allows Policy Loans or Policy Surrender* • Variable Life Allows Investment Choices *If cash value exceeds surrender charges. The Griffith Insurance Education Foundation

  11. Universal Life • Combination of Whole and Term Ins • Permanent Protection • Premiums are Flexible • Can Build Cash Value if Prems Paid • Carries Higher Fees • Variable UL Allows Investment Choices The Griffith Insurance Education Foundation

  12. Life Insurance Pricing • Driven by Interest Rates • Driven by Mortality Factors • Age • Gender • Smoking • Family History • Health (Medical Records, Medical Exam) • Other (Hobbies, Mkt Competition) The Griffith Insurance Education Foundation

  13. Life Insurance Contract Terms • Incontestible Clause • Suicide Clause • Reinstatement • Grace Period • Convertible The Griffith Insurance Education Foundation

  14. Current Life Insurance Issues • Policy Replacements • Twisting & Churning • Sales of Unsuitable Products • Characterizing Life Ins as “Savings” • Life Insurance “Settlements” • Tax Benefit Under Attack (Again) The Griffith Insurance Education Foundation

  15. Annuities • Annuity = Stream of Regular Payments • Life Annuity: Stream Lasts for Life • Cannot Outlive a Life Annuity • Second-to-Die/Joint Annuity: Two Lives • Social Security is a Joint Annuity • Annuities Primarily Used for Retirement • Annuities Often Purchased with 401(k) $ The Griffith Insurance Education Foundation

  16. Types of Annuities • Fixed Annuities • Provides Fixed Return (Guarantees) • Inflation Adjustment Available, at a Cost • Indexed and Variable Annuities • Returns Depend on Performance of Stocks • Life Annuities vs. Period Certain Option • Life Annuities End at Death; Period Certain Options Protect Family if Death The Griffith Insurance Education Foundation

  17. Annuity Pricing • Sensitive to Two Main Factors • Interest Rates • Mortality (Age and Gender) • Expenses and Commissions • Closer to Death Means More per Month • Premiums Often Funded w/401(k) • Premiums Can Exceed $1 million The Griffith Insurance Education Foundation

  18. Why Regulate Annuities? • Most Annuities are Deferred • Insurer Gets $ Up Front and Invests • Payout May Last for Decades • Buyers Uninformed, Life Savings at Risk • Large Upfront Commissions May Result in Unsuitable Sales • Annuity Assets Exceed $1 trillion The Griffith Insurance Education Foundation

  19. Annuity Facts • Regulation: Fixed vs. Indexed vs. Variable • Fixed & Indexed Regulated by State • Variable Annuities Regulated by SEC • Indexed Annuities May Transition to SEC • Suitability—Some Sales Not Advisable • Sell an Annuity to a 76 yo Cancer Survivor? • Adverse Selection with Annuities The Griffith Insurance Education Foundation

  20. CA Health Ins Regulation • Most CA Health Plans Are Overseen by Department of Managed Health Care • Legislative Oversight by Assembly Committee on Health • Some Plans Sold by Life Insurers Remain Under DOI Jurisdiction • Rates Must Be Filed for Public Comment, but Rate Changes Need Not Be Approved The Griffith Insurance Education Foundation

  21. Health Insurance Plans • Preferred Provider Organization (PPO) • Contracts w/Certain Providers who Discount • Health Maintenance Org (HMO) • Total Control of Member Health • Point of Service Plan (POS) • Elements of HMO (Some Choice of Provider) • Fee For Service (Major Medical) • Allows Most Choice of Provider The Griffith Insurance Education Foundation

  22. Group Health Insurance • Most People Receive Group Health Ins Through Employers’ Plans • Benefit of Scale/Expense Savings • No Adverse Selection-Everyone Covered • Low Risks Cannot Opt Out • Usually Employer Subsidized • For Now, Group Ins Not Taxable The Griffith Insurance Education Foundation

  23. Other Sources of Health Insurance • Social Security (Medicare) • Part A (Hospital); Payroll Tax (1.45% + Match) No Additional Premium if 40 Quarters of Work • Part B (Medical) $104.90* Monthly Prem in 2013 • Part D (Rx) Premium (average $40*month 2013) • Medicaid (Medi-Cal) • State-Run, Federally-Subsidized Ins for the Poor • Medicare Supplement (“Medigap”) • Private Plans that Fill in Gaps in Medicare The Griffith Insurance Education Foundation

  24. PPACA Key Provisions • Patient Protection & Affordable Care Act • Expansion of Medicaid: Cover Individuals < age 65 with AGI up to 133% of Poverty Level (~$14,200 Individual, $29,300 Family of 4) Effective 1/14 • Individual Mandate: Must Carry Health Ins 2014 or Pay Penalty $695 - $2,085, Based on Income (1/14) • Employer Mandate: Employers of 50+ Workers Pay $2,000 Penalty for No Health Ins (1/14) • Medical Loss Ratio: 80% of Premiums (85% for Large Group Plans) Must Be Spent on Claims and Quality Improvements; Rebate the Excess to Consumers The Griffith Insurance Education Foundation

  25. PPACA Key Provisions • State Health Exchanges: Individuals and Businesses < 100 Employees Can Access Exchange Market (1/14) • Federal Support for Creation of the Exchanges • Premium Subsidies For People with Incomes Up to 400% of the poverty level ($44k Individual, $92k Family of 4) and No Employer Plan • Subsidy for Insurance Purchased through Exchange • This Will Reduce Adverse Selection Concerns • Premium Tax Credit forSmall Businesses Who Buy Ins The Griffith Insurance Education Foundation

  26. PPACA Key Provisions • Coverage Requirements • Children Covered to Age 19 Despite Preexisting C. • No Annual or Lifetime Limits on Coverage • Children Covered to Age 26 on Parents Plan • Must Include Well Care with No Copay/Deductibles • Premiums • Limits Plan Increases, Compress Rate Differences • Prohibit Rescission for “Honest Mistake” The Griffith Insurance Education Foundation

  27. Health Exchange Plans The Griffith Insurance Education Foundation

  28. INFORM+INSPIRE Any Questions? Feel free to contact me: David T. Russell, Ph.D. California State University, Northridge (818) 677-2438 David.Russell@csun.edu The Griffith Insurance Education Foundation

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