Life Insurance. It’s Not Just About Dying

About 10 years ago, a large insurance company asked some of their policy holders, “What do you want to see from your life insurance policy”? Someone in the room shouted, “Give us our money before we die!” As you might imagine, laughter filled the room. That day was the end of life insurance as we knew it.

I hear it all the time… “I don’t need/want life insurance. I’ll be dead.” What if you live but wished you had died? According to google, 66.5% of bankruptcies are due to medical bills. Nothing will kill a solid retirement plan faster than a serious illness that you are not financially prepared for. Another staggering statistic is that 70% of adults age 65 and up will need some form of Long-Term Care. As I write this post, the cost of a private room in a nursing home is approaching $13,000/month and that’s in West Virginia. If you live in Florida, New York or California, you can expect a much higher rate. Men stay in a nursing home on average 2 ½ years while women stay on average 3 ½ years. Do some quick math. Do you have $400,000 – $500,000 tucked away to pay for this type of care? Oh, and if you think Medicare will pay your bill, you are sadly mistaken. And the only way Medicaid will pay your bill is if you reach poverty level. Guys, that is not a good plan!

Sitting in the room that day as a policy holder shouted, “Give us our money before we die!” the executives pondered if it was possible to payout a death benefit before someone died. They not only took this request seriously, but they made it happen. The company designed a rider that automatically comes with every life insurance policy they sell, including term life insurance policies, at no additional charge and only a small administrative fee if activated. This rider is called an Accelerated Benefit Rider and has three components: Chronic, Critical and Terminal illnesses. Let’s look at each of these.

The terminal illness component is straight forward and to the point. If your doctor believes you will pass away from cancer within 12-24 months and is willing to sign a form, this rider will advance as much as 90% of your death benefit while you are alive income tax free. Read that again! I do not need your medical bills or any receipts. This is not a reimbursement program. Rather, these funds are paid to you and are yours to spend any way you please including taking your family to Europe for 6 months before you die if that’s your thing. Now, you are probably asking yourself why would an insurance company do that? Think about it. If you own a $1 million policy and the company will have to make good on the policy within the next 12-24 months, if they can get you to accept a 90% payout, they just saved the company $100,000. Everybody wins. Note: You do not have to pass within 12-24 months. The doctor just has to believe that you will.

A Critical illness is all the stuff that starts to happen as we get older that doesn’t kill us like heart attacks, strokes, cancer that doesn’t kill us in 12-24 months, blindness, loss of limb, severe burn, end-stage renal failure… each company has their own list of triggers. The amount of the accelerated benefit will depend upon your age and the severity of the illness. Basically, if the illness drastically reduces your life expectancy at an early age, you will get a larger offer. If however you only suffered a mild heart attack, it probably won’t be in your best interest to accelerate the benefit as you will more than likely receive a low offer.

All three of these illnesses are a threat to your financial security but Chronic illness is where I think it gets very interesting from a planning perspective. If you know anything about traditional Long-Term Care Insurance policies, you may know that to trigger a benefit you must need help with 2 or more of the 6 activities of daily living (ADLs) which include bathing, eating, dressing, transferring, toileting and continence. What’s interesting is that this is exactly how you trigger the Chronic illness benefit from the Accelerated Benefit Rider. Now, is this rider considered Long Term Care Insurance? No. It is not. However, you can use the advance of your death benefit while you are alive to pay for long-term care expenses. It’s also worth noting here that if you have a traditional long term care policy, most policies will not allow benefits to be paid to a family member even if they are a registered nurse. If your daughter is an RN and wants to take care of you at home, a traditional long term care policy would most likely not pay her. However, the Accelerated Benefit Rider advances a portion of your death to use how you see fit. So, if you want to pay your spouse to take care of you, you can do just that.

It goes without saying, this is one heck of an upgrade to life insurance. If you have an insurance policy that is 10 or more years old, you probably do not have an Accelerated Benefit Rider. A quick policy review by one of our trained professionals will determine if you are eligible to upgrade your old policy to include this new innovative rider. Call 304.840.0706 today to schedule your review.