#264 | Lincoln’s MoneyGuard Market Advantage

As shared in December, Ramona Neal independently publishes data and articles about Hybrid products and LTC/Chronic Illness riders on her website, Living Benefit Review, https://livingbenefitreview.com. She has graciously offered to publish one of her articles every quarter on The Life Product Review.  Ramona is also providing a discounted rate for TLPR subscribers who also want to subscribe to Living Benefit Review. Simply go to her “Join” page, then click Individual subscriptions and fill in your information, click “Have a Coupon?” and enter: Q8UIIGE9M to receive $200 off a $1k annual subscription.  Enjoy the article and check out her site. 

First Impression:  Lincoln launched their much-anticipated MoneyGuard Market Advantage (MGMA) and if first impressions count the most, then they did not disappoint.  The idea that market performance can increase your LTC benefit amount is incredibly appealing.  Then add the ability to lock in accumulated values annually, which are used in the calculation to determine your maximum LTC benefit, and it translates into a home run.  MGMA is especially suited for younger consumers who have the time and the risk tolerance.  Plus, Lincoln now offers extended lifetime premium pays making it more affordable.  The icing on the cake is that Lincoln’s new redesigned illustrations look as good as some companies marketing pieces.    

How Long and How Much?  However, once you take a closer look at MGMA and see you are unable to select a defined LTC benefit period, you are left scratching your head.  With other Hybrids, one selects a 2-8 year period (usually 4-6 years), and sometimes a lifetime benefit.  Therefore, you end up with a known guaranteed LTC benefit amount for a set number of years, for the given premium.  It’s predictable.  If you have a total LTC benefit pool of $240,000, no inflation, for 4 yrs., then your monthly benefit amount is:  $5,000.  ($240k / 4 = $60k; $60k / 12 = $5k).

But, with MGMA the advisor is unable to tell their clients (a) what their actual maximum LTC benefit amount will be in any given year (b) nor can they tell them for how many years that unknown LTC benefit amount will be paid out.  Did I just hear a balloon deflate?  Basically, your maximum LTC benefit amount is based off of the higher of 3 values (Base, Protected or Market).  The Base is a built-in LTC benefit amount payable for 3 years, which is known at issue and is guaranteed.  However, both the Protected and Market benefit amounts cannot be known because they are derived off of fund performance.  The performance impacts the cash value (CV) which is input into formulas to determine which of the 3 values generate the highest LTC benefit amount.  Translation, the actual policy performance will be used to determine the LTC benefit amount paid and the years payable (not the illustration).  Therefore, by definition this means you don’t get to choose your LTC benefit amount or benefit period, they choose you.  This design makes MGMA difficult to benchmark and if you select the higher non-guaranteed Market values, then Lincoln is at an illustrative advantage.  

The Criticism:  Aside from the obvious that Lincoln shifted risk to consumers and that producers need a securities license to sell combined with the hurdles of firm suitability:

  • The Guaranteed ROP is Gone:  No vesting schedule.  No 70%.  Basically, No ROP combined with an unknown LTC benefit amount/duration makes MGMA less like a traditional Hybrid product and more like a life insurance policy with a glorified LTC rider. 
  • VUL means more than Market Risk:  A key value proposition of MGMA is for policy performance (CV’s) to propel the LTC benefit amount.  However, Lincoln could implement an in-force action (to existing policy holders) to increase life policy charges negatively impacting CVs.  They have in the past.  Also, the Market value equal to [4 times] the policies accumulated value and the Protected value equal to [2.5] times, are bracketed for new business (they can change) giving Lincoln another lever to pull. 
  • The Value Protection Rider:  Since this rider provides the No-Lapse Guarantee (NLG) and the Protected LTC value, making sure this premium is paid is critical.  Fair warning though – that it’s difficult to find on the illustration.  Furthermore, fingers crossed that no one ever makes an allocation change which results in permanently losing the NLG and LTC Protected values.  (Now I’m sure I heard a balloon pop).  And, what about the catch-up price you ask for missed premiums and the process for policy holders?  You’ll have to ask Lincoln.
  • The Formula:  If you were fortunate enough to find the formulas used in determining the maximum LTC benefit amount payable in any given year (Product Reference Guide), but you still can’t match the illustration, you can stop trying.  It’s a known error; a typo.  Still, suddenly I’m left feeling like what is supposed to be a transparent unbundled contract ends up actually feeling like a black box.  Let’s wait for the correction and hopefully a much-needed guide on how to illustrate MGMA.  (Yes, I know, it’s a paradox.  Hybrid products are supposed to be simple).
  • 5% Compound Inflation:  Even though 5% is offered, the price is high.  Add the fact that the policy owner must confirm, every-single-year, that Yes, they meant it when they said they wanted the 5% option.  (1. Must receive mailed form, 2. Fill out form, 3. Return it, and 4. Be in good order).  If they do not comply, then from that point forward their 5% inflation benefit is terminated with no opportunity to re-elect.  So why offer a 5% rate to begin with?  Because the LTC regulations require it.  We get it.  Lincoln doesn’t want to sell 5% inflation, and to be fair, the state insurance regulators approved it.

The Reality:  For those distracted by criticisms of MGMA and predicting its flop, I think you should reconsider.  Have we forgotten what history has taught us?  Consider when John Hancock first launched Protection UL (as an alternative to GUL) with shorter life expectancy guarantees and superior non-guaranteed CV growth.  Do you recall the predictions from some insurance expert naysayers?  Instead, we sat awestruck and watched versatile Protection UL become a leader in dominating UL sales.  Consider when Lincoln first launched VULOne.  Again, Lincoln was so successful that GUL companies were forced to add VULOne to their GUL benchmarking.  Ironically, today many of those GUL products, and some of those GUL companies, are literally no longer with us.  Meanwhile, John Hancock’s Protection UL and Lincoln’s VULOne are still standing strong. 

I can’t tell you how successful MGMA will be or how long it will take.  But I can tell you this, don’t underestimate a powerhouse like Lincoln.  They aren’t selling to yesterday.  They are selling for tomorrow.  Not only did Lincoln change the product design and the target market, but they also changed the conversation.  This market has been forever transformed.  Their shift to focus on non-guaranteed assumptions to maximize LTC benefits will likely open the door for new insurers (not to mention new advisors).  I think that’s good.  MGMA is a good product for the right buyer, and for those that can’t tolerate the risk, they can purchase MG III.  And do you know what?  It seems to me, that even though Lincoln has been around for over 115 years, and even though Lincoln didn’t go anywhere…  Lincoln is back.