There’s probably none of us who haven’t known someone whose family has gone through a terminal illness of a family member. The anticipation of the loss, the battling against the inevitability of the loss, the tremendous expense and strain of the process and ultimately the death take a huge toll on the family. In the very best of situations, it’s a bad deal.
It’s a great thing and a comfort when there is life insurance in place that will help the family deal with the financial part of the loss and get back on their feet. Quite often, especially with an extended terminal illness, medical bills pile up and the only hope is that the life insurance will come through to pay it. Now, with most new policies there is an automatically included rider that offers help when it is first needed, prior to the death.
An accelerated death benefit rider will allow the owner to receive, in most cases, up to half of the death benefit once a person has been diagnosed as terminally ill. Terminally ill is generally defined as a prognosis of less than 12 months to live. Attached is a sample rider from an American General Life term insurance policy.
accelerated-death-benefit-rider
Generally this benefit is used for staying current with medical bills and loss of income if the insured is no longer working, but the nice thing is that the insurance company doesn’t put any restrictions on how it’s used. I see one of the great uses as the ability of a spouse to take time off to stay at home and take care of a dying mate. That may sound a little morbid to some, but for anyone who has helped with hospice for a loved one, I can’t think of a greater gift to a dying spouse.
It might mean the money to move someplace more comfortable. It might mean an outrageous family vacation, a memory that will last forever especially for children, as that last great time they had with their mom or dad.
Bottom line. No matter how the accelerated benefit is used, it is a blessing that is built right into most life insurance policies. If you read through your policy and can’t find where it says the rider is included, you may want to consider applying for a new policy that does include it. The rider doesn’t cost anything so, with prices still declining in many instances, you may be able to add the benefit and lower your cost.
May 29th, 2008
Pre-paid funeral plans. Pre-paid burial plots. Burial Insurance. All are products that are designed to tug at the emotions, tug just hard enough to get you to ignore the realities, ignore the math, and ultimately make a decision that is free from logic.
If memory serves me right, my parents bought pre paid burial plots way back when they were much younger. The idea (the pitch) was probably something about wanting to be buried near loved ones or perhaps being able to ensure being buried next to each other. My dad reads these blogs so I’m sure he’ll correct me if I’m wrong, but the sum of $600 sticks in my head as what they paid. This had to have been 30 or more years ago and they held onto that idea until recently when they decided to be cremated rather than buried.
So, the math to see if the deal was good for them is simple. They gave someone $600 and let’s say they left it with the funeral home for 30 years and let’s be modest and say the funeral home made a 12% return on that money. Am I using too aggressive an interest rate? I’m thinking not because if you know, just based on mortality statistics that you have a long time to use money, high yield mutual funds will provide that kind of return. And, after all, they would need to earn interest to cover the current cost of a plot. So a plot today would go for about $2500 and the money earned by the funeral home would be about $10,200. At the time my parents bought those plots it would have been no hardship for them to have put that money aside. Ultimately they plots were sold and a handsome profit realized by the plotters.
On the other end of the spectrum are burial policies or final expense policies. Globe Life is famous for offering these with no exam and only $1 premium for the first month. The dirty truth is that they are guaranteed issue whole life policies that are exorbitantly priced. In their advertising you will see “rates as low as $3.27 per month”. What they don’t tell you is that is for the youngest age group and that is the per thousand cost, so $10,000 is $32.70 per month and so on.
It is guaranteed issue so if you’re really sick it may be the only deal in town, but if you’re healthy keep in mind that they are offering you the same deal that they’re offering to someone who is really sick. I’m not opposed to permanent life insurance for final expense purposes. If you are reasonably healthy there isn’t any reason that you can’t have substantially more life insurance using a universal life policy with a no lapse guarantee, for less money.
Bottom line. Burial insurance is a rip off as offered by most of the companies selling life insurance under that heading. Again, unless you are too sick to qualify for traditional insurance, burial insurance is a poor choice.
May 29th, 2008
