Powerful Combinations For Life

by Eloise Glaspie, CLU Life Sales Consultant

Clients may be motivated to purchase life insurance for many reasons. Income replacement is a common motivator for a life sale. Most people realize that their earned income is essential to the financial well-being of their family and are willing to pay an insurance carrier an ongoing premium to secure continuation of that income in the event they pass away prematurely. Recent poor market performance has left many clients with lower balances in their savings and 401(k) accounts. As a result, they are concerned that the remaining money may not be enough to provide a lifetime of income for their heirs. Again, life insurance comes to the rescue by providing income tax-free proceeds to restore the balances of life savings in the event that clients don’t live long enough to rebuild it on their own.

What about long-term care? Why should you and your clients be concerned about this potential risk? Current statistics show that by 2020, 12 million Americans age 65 and older will need long-term care.1 According to a study conducted by the American Association for Long Term Care Insurance, 42% of people age 65 and older reported a functional limitation. The level of functionality is judged by the client’s ability to perform the six Activities of Daily Living (ADLs). These include Eating, Bathing, Dressing, Toileting and Transferring. To qualify for long-term care, clients must be unable to perform two of the six criteria. Statistically, nearly 75% of all single people and 50% of all couples spend their entire savings within one year of entering a nursing home. And for every one person receiving long-term care in a nursing home, there are four people receiving home health care.

During the last few years, another benefit has been incorporated in some life insurance policies. Carriers are now offering riders that will accelerate either a portion of the full death benefit in the event of terminal illness, chronic illness, home health care or nursing home care need. The primary advantage of the life insurance combination product is that buyers will get some benefit from their premiums even if they do not ever need long-term care. The combo product was designed primarily to address the objection most long- term care agents hear: “Why should I buy something that I might not ever use?”

If your clients have a need for life insurance, consider offering a plan that includes extra protection to cover the potential of long-term care. An assortment of insurance carriers offer protection riders, but that protection comes in differing forms. For example, the basic acceleration of death benefit rider (ABR) is simply what the name implies – an early payout of death benefit if the client’s physician declares him/her unable to perform a number of the six ADLs. These types of riders generally allow acceleration of a percentage of the death benefit (NOT the full benefit) and some may include a small charge at the time of acceleration. Generally, the client must be confined to a nursing home and may be required to satisfy an elimination period prior to availability of benefits. Another feature of ABRs would include early payout of the death benefit if a terminal illness is diagnosed. Carriers offer different definitions of terminal illness, but it is generally declared to be life expectancy of 12-24 months.

A few carriers have designed riders known as Chronic Illness or Extended Care Riders which will cover home care as well as confined care as long as the client is deemed unable to perform the customary two of six ADLs. Because these riders allow for acceleration of death benefits for purposes other than confined care, they have become very popular. They typically feature a 90-day elimination period, which is defined as the number of days from date of diagnosis of the inability to perform two ADLs to the date the policy benefit will be available. You can expect carriers to require the client to be insurable at Table 4 or better with no medical flat extra and generally under the age of 75 at policy issue. Carriers commonly limit the percentage of death benefit acceleration and assess a maximum amount that can be accelerated. However, the good news is that these riders are automatically included in the life policy at no additional cost to the client. Once approved, the benefit can be used for any purpose – even to pay a car or house payment. Often no proof of care is required, meaning that the client is not responsible for submitting any nursing home, home health or medical care expense receipts.

“Cadillac”-type long-term care riders allow the client to accelerate the death benefit at a certain percentage per month (i.e. 1%, 2% or 4%). Like other plans, benefits are triggered by the same ADL requirements. Unlike other plans, these benefits are paid in a similar manner to stand-alone long-term care insurance. Based on the plan of care, clients can choose care from a licensed or informal caregiver, such as a family member. They can also specify a location, such as their home or a particular care facility. Clients can choose the monthly maximum or a lesser amount, allowing benefits to last longer. The maximum benefit paid for long-term care expense is the maximum daily benefit permitted by the IRS. This means the benefits paid to the client may receive favorable income tax treatment. Benefits will either be paid to cover long-term care expenses, to their beneficiaries as a death benefit or both. In some instances, carrier underwriters may offer the life insurance policy without the long-term care rider due to certain health concerns. There is a cost associated with these riders, but it could help clients avoid financially burdening family members or depending on government services for care.

For agents, carriers often require long-term care training prior to soliciting this type of business. Training varies by state, so make sure you satisfy the specific requirements in each state you sell. Riders may not be available in all states. Call your Creative Life Consultant to check on availability or for a customized client proposal.

1 U.S. Department of Health and Human Services, Medicare, Long-Term Care Home, http://www.medicare.gov/LongTermCare/Static/Home.asp.

FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 11704 – 2011/5/23

Guarantees provided by life insurance are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Agents may not give tax, legal, accounting or investment advice. Individuals should consult with a professional specializing in these areas regarding the applicability of this information to his/her situation.