James Christie | Review of Lincoln MoneyGuard III – The good, the bad, the ugly.
On September 16th 2019 Lincoln Financial Group launched a new version of their industry leading linked benefit life insurance product. We are all familiar with the MoneyGuard brand and the baseline structure of this product recently had its 25th anniversary. MoneyGuard III is the next installment in the history of an already historic product. The question is, will this product add to the history or start to make this brand become part of the past?
The linked benefit space has been consistently growing for years, matter of fact growing far faster than essentially all other facets of the life insurance marketplace. Interestingly enough, the number of sellers has been a different conversation altogether. Until recently this marketplace has seen companies try to get in, fail, and then quickly bail out of this space. The only two real mainstays have been Lincoln Financial with their versions of MoneyGuard and OneAmerica/State Life with their versions of Asset-Care. As you could imagine, these two companies over time have gobbled up the market share in this space, specifically Lincoln with at one point over 65% of the sales.
But, this has changed in recent years with OneAmerica making a concerted effort to grow this product segment. They invested tens of millions of dollars on their infrastructure and sales force, and have carved out a significant value proposition with their Asset-Care product that continues to gain attention. In addition, you have seen companies like John Hancock, Nationwide, Brighthouse and Minnesota life come into the conversation touting differentiated features to try to attract sellers away from the two Goliath’s. For the most part, it has worked. These new entrants went after pieces of the market share pie that Lincoln and OneAmerica either didn’t want anymore, couldn’t price to defend against, or frankly haven’t even thought of yet.
The innovation has been great for the market and frankly made Lincoln and OneAmerica take notice and start to adjust their plans moving forward. Especially Lincoln. Let’s be honest, it is far more difficult to be number one and defend your position than it is to be someone chasing the leader. It’s hard to be hungry when you are full, instead you are left trying to think about what you want for dinner because you are sick of the same old thing. The margin for error is very slim and you can’t afford to miss market opportunities or be a “fast follower” as many in the board rooms of the companies like to be. The reality for Lincoln is you have far more to lose than gain.
One of the more interesting things for Lincoln as I think about them in this linked benefit space is just how much information and data they have about the claims experience and true profitability of these products. Oddly enough, this is an unenviable position. The new entrants really have no idea and sometimes ignorance is bliss, as it allows you to price your products through a different lens. I am not saying the other companies are maliciously pricing their products with the intent of hurting consumers down the line. But based on what I have seen there are a handful that are either mis-priced given the economics inherent to pricing or they are being subsidized by other business lines or lower profitability hurdles. The former can be a significant problem short and long term, the latter is really more of a long- term problem as the products you see today may not be the product you see tomorrow. With the massive amount of business on the books that Lincoln has, they have the obligation not only to their current policy holders but also to the folks selling their products. As the true leader of this space, they also have a responsibility to the market as a whole to do what is right. Not an easy task as you are trying to grow sales and defend against competitors trying to take your market share.
All of this context is important and plays a vital role in how I went about reviewing the MoneyGuard III product. Why you might ask? Well, because on the surface this product is just not as competitive as MoneyGuard II, not even close.
The announcement put out by Lincoln states that they made a pricing adjustment leading to a cost increase and the weighted average increase is about 7% between ages 50-70. Doesn’t sound too bad, although it is a tough blow for a company that already has competitors nipping at their heels and really couldn’t afford to lose competitiveness in terms of pure pricing. The bigger problem with the announced increase is when you start to dig a little bit deeper into the details. They indicated in their announcement that the pricing change in their core market could be anywhere between 0% and 20%. To be fair, they did also indicated that there were certain benefit periods and inflation options that received improved pricing, specifically the 5-year benefit duration and 5% compound inflation. Overall, not the prettiest of pictures in terms of pricing changes.
Problem for Lincoln is that unfortunately, much like the IUL space, the linked benefit space has become a spreadsheet war. As much as we all opine about why IUL shouldn’t be sold off of a spreadsheet, you can really say the same thing about the linked benefit space. You need to look at a number of different factors including:
- Longevity of the product and carrier in this space
- Claims experience
- Guarantees of DB, Premium, and LTC benefits
- Current side of the ledger
- Return of Premium Options
- Potential Taxation
- Reimbursement vs. Indemnity
- Eliminations Periods
There are clearly more items that should be reviewed and discussed, but even these 8 items determine a lot in terms of true product value, but they don’t show up on the spreadsheet. Unfortunately, the linked benefit space is really a price war, and Lincoln just lost quite a bit of ammo while their competitors are stockpiling it.
However, Lincoln did do a number of things with MoneyGuard III that added simplicity and flexibility. First, they introduced a single rider design. Their Long Term Care Benefits Rider (LTCBR) is now one simple rider, instead of the previous setup of having and acceleration and then extension of benefits rider. This cleaned up their contract language and will allow them to have more consistent pricing between their benefit periods. They also mention in their announcement that they have updated their contract language to be more consumer-friendly. I will give Lincoln kudos here as they already had done a significant amount of work on their statements, so these updates to their contract language are also a welcome improvement.
On the flexibility front they dropped the minimum age from 40 down to 30 and their international benefits allow for 36 months with their one rider design. I do find their updates to the Return of Premium options to be interesting. The basic option went down from 80% to 70% and the vested option went from a 6 year schedule to an 11 year schedule. While this can add some flexibility, it really looks like a trade off to try and help the pricing. One thing Lincoln learned over time was that the Return of Premium option, while important, wasn’t as important as the benefits. Said another way, clients would be willing to have a lower percentage on the ROP if it meant higher LTC benefits. The 11 year vesting schedule going up from 6 years appears to be something very similar. If you elongate the duration, it should help pricing. Who knows, maybe without these two items the price increase would have been much higher? Math tells me yes. But either way, it does add some flexibility for those selling MoneyGuard to hone in on the right amount of benefits needed to compete.
An interesting wrinkle added to MoneyGuard III is the introduction of the Transitional Care Assistance Benefit (TCA). This is a new covered service that will help clients who are transitioning from informal to formal care. The TCA allows for $100/day and can be used for up to 180 days and no receipts are required. Not a massive benefit, but something that can at the very least help them battle against the reimbursement versus indemnity conversation. Although I will say the language for how the TCA works and how it is approved is very vague, just need to hope the man behind the curtain says yes. One final addition of note is their Terminal Illness Rider (TIR) which provides a lump sum payout between 25% and 75% of the specified amount if the client is diagnosed as terminally ill. Nice little benefit, but really table stakes.
To summarize the updates you have the following: Increased pricing, simplified structure and language, and few new bells and whistles but nothing earth shattering. This begs the question, should you still sell it? Yes you should.
The contextual conversation I went thru earlier in the article is why I will continue to sell MoneyGuard. Obviously, there are places where I sell the other carriers mentioned. Well, at least one of the other carriers consistently. Candidly Nationwide, John Hancock, Brighthouse, and Minnesota life have more to prove before I put them on my list. If I must sell them I will, but I need more tenure before I become comfortable selling them consistently. The traditional LTC space has scarred me as I am sure it has done to many of you. For me, these products are not all about the spreadsheet. Pricing and benefits are important, and you need to be within reason of what the rest of the market is showing, but there is a lot more to the story in the LTC space.
The structural items I mentioned earlier play a key part in the conversation, but for me, the understanding of claims experience and the longevity of your company and product line are paramount. Therefore OneAmerica is also on my list. They have been in this space almost as long as Lincoln, but until recently have not had anywhere near the volume of sales that Lincoln has had. So what does this mean? Less data, which in turns means less opportunity to see how these policies actually play out. Which for me is vitally important as I decide who I want to show to my clients.
Just to be clear, these products are generally guaranteed. I am not talking about issues like we see on the traditional LTC side of the house with 50%-100% increases in premium down the road. I am referring to who it is that I want to sell now and more importantly, in the future. I put a significant amount of value in relationships with carriers and having a process that I can follow consistently to make my business efficient. So, 5 years from now is as important to me as today, not only for my clients but for myself.
So when do I sell Lincoln and when do I sell OneAmerica? Great question and I have been asked many times. In my next article I am going to tackle this analysis and provide as simple of an answer as possible. Both have the longevity, both are dominant in the market, both invest a significant amount of money to maintain and grow, but are both really poised to continue? Reality is that price and competitiveness matter, what Lincoln has done with MoneyGuard III is making things easier for companies like OneAmerica and the others mentioned. I am not sure how much further Lincoln can pull back on their pricing and maintain their position.
Time will tell, and of course the decisions and actions of the other carriers will tell you a lot also. Do they see Lincoln increasing prices and go after their market share? If they do, how is that possible knowing how much more information and data Lincoln has about how to price these products than they do? Are the other carriers happy with their growth and see the Lincoln increase as a way to also increase prices in alignment with the market and keep their current sales volume? So many questions with answers yet to be known. But for the purpose of this article, there is really only one question.
Would I sell Moneyguard III? To Reiterate. Yes, in the right spots.
Check out the next article to learn where those spots are and what are your best options when MoneyGuard III is not the right fit.