Posts filed under 'accelerated death benefit'
Term life insurance is a product that is sprinkled with gold nuggets that make it so much more than it appears on the surface. The great news is that the nuggets are part of the policy and are not added on at an extra cost.
One of those nuggets that I often take for granted that everyone is aware of is the fact that the death benefit, that $100,000 or $1,000,000, that you are insured for will be delivered to your beneficiaries income tax free. Unlike just about any other kind of cash windfall that a family experiences, the government keeps their hands off of it.
Even better, the company isn’t going to hang on to any unused premium. Say you are paying $1200 a year for your $250,000 term insurance policy and you pass away a month after paying that annual premium. The company is going to pay the death benefit and refund $1100, the unused part of the premium. In addition to that they are going to pay interest on the death benefit from the date you file the claim until they settle it. The interest thing is generally not that big a deal because most claims are settled in 7-14 days, but if the claim falls in the 2 year contestability period it may take a few months to settle and the interest can add up.
Another gem in term insurance is the conversion option. In a nutshell this option or privilege allows you to convert all or part of your policy to permanent coverage without evidence of insurability. Let’s say you take out a policy in your 40’s and are in perfect health, approved at preferred plus rates. Then in your 50’s you are diagnosed with and survive colon cancer. This would make the cost of getting a new term policy completely prohibitive, if you could get approved at all.
With the conversion option you are still a preferred plus risk if you choose to convert to a permanent policy. While the cost of the insurance, once converted, is going to be higher than your term insurance was, it is the magic bullet that will keep you insured when you truly can’t qualify for new insurance.
One last piece of gold in your policy is the accelerated death benefit rider. This allows you, if you are terminally ill, to take usually up to half of the death benefit prior to your death for whatever needs you might have. It could be to pay the mortgage because you aren’t able to work or pay medical bills. It could be to do something special with your spouse or family that you wouldn’t otherwise be able to afford. Upon your death the balance of the policy is delivered to your beneficiary.
Bottom line. Life insurance is all about lifting burdens from families that have suffered a major loss. The more gold nuggets you can pour out with that blessing, the better.
November 18th, 2009
Last week I talked about a case with Met Life where a person was able to use the met-life-external-conversion program in order to convert to a policy that had an accelerated benefit rider. Their company didn’t have the benefit and the person was terminally ill so it was a home run for his family.
With the shifting landscape since the beginning of the year around term insurance and universal life with external no lapse guarantees, Met Life’s program may become a big player. In March Protective Life announced that they were no longer going to allow conversions to their very competitive no lapse UL. In its’ place they now allow conversion to a more traditional UL that doesn’t have the advantages or pricing of the more competitive product.
While the story above is a very poignant one, it is also going to be a rare case since most life insurance companies have policies that have the accelerated benefit riders. But more common will be cases where people want to convert some portion of their policy and they run into an option that frankly stinks, like the North American Life conversion option now.
It will also open up possibilities for those who want to convert but currently have their term insurance with companies that only allow conversion to whole life. Given the ability to convert to a fully guaranteed universal life can save huge amounts of money compared to converting to whole life.
Bottom line. This is a good program with plenty of valuable uses. We’ll keep you posted of any changes, but for now I wouldn’t recommend a conversion until a person checks to see what Met has to offer first.
May 6th, 2009
I heard a story about a Met Life case today that just inspired me. Life insurance companies quite often do things they don’t necessarily have to, like paying a claim when the validity could probably be argued.
I’ve talked in previous posts about universal life policies that are guaranteed to age 121. There is even one out there that goes to 130, but the point is, and I have heard this straight from presidents of insurance companies, if a person outlives the guarantee the company will still keep the policy in force and pay the claim when the death occurs. Please note that I am in no way suggesting that term policies are treated that way!! The truth is that it’s the right thing to do and that is one reasons companies have committed to honoring those policies.
The other reason is that they don’t want to be known as the company that didn’t pay the claim on the oldest known person when they died. Bad PR move!
But back to Met Life. Met Life has an innovative program where they will convert other company’s term policies to permanent Met Life policies, just as if they were their own. It’s not a stupidly broad program in that it doesn’t allow conversion of any company, just a select 30 or so. But it’s kind of neat because with conversion options changing as the face of the no lapse UL changes, Met Life may have a better product than your current company, and as this story goes, Met Life’s conversion option had a feature that changed a person’s dying days.
This person had a term policy that didn’t have an accelerated death benefit rider, the rider that allows you to take a portion of the death benefit if you are terminally ill. It’s a great feature. Whether it is used to keep medical bills paid, or just to make you last days more memorable, it’s there and then when you pass away your beneficiary receives the balance of the death benefit. Anyway, this person’s policy didn’t have that feature but he was able to convert to a Met Life policy that did have that feature.
Remember that conversions don’t require evidence of insurability, so a conversion can be done even when someone is terminally ill. Met Life could have written this program to exclude this kind of a deal, allowing someone to gain benefits they didn’t have before, but they left that door open and this person was able to access 50% of their life insurance policy while they were still living. If they had stayed with their term policy they couldn’t have done that. How cool is that?
Bottom line. Most companies have an accelerated benefit rider these days, so this might not have been a big deal if he had been with almost any other company. But this is one of those deals where you just want to hug a company that knew this possibility existed and didn’t write it out of their program. Way to go Snoopy!
May 1st, 2009
I’ve made no secret of my disdain for whole life insurance and the whole cash value is more important than adequate insurance mentality. I was cruising financial news today and saw an article on life insurance and decided to check it out.
The article did provide some good tips concerning conversion and accelerated death benefits, but being the whole life unthusiast that I am, I was drawn to a statement in Point #3. The sentence at the end of the first paragraph said, “Yet cash value’s purpose is to come to the rescue in these moments.” Excuse me? Cash value is the internal support to keep the policy in force. That is its’ purpose.
Can you borrow against it in times of economic turmoil or need such as this recession? Sure you can. Would you be in the same economic position if you hadn’t paid too much for life insurance for the past 10 or 15 years (which is how long it takes to build enough cash value to even consider it as a source of rescue). There is a good chance that you might not be looking for a bailout if you hadn’t blown the big bucks for too little life insurance to start with.
The problem, as I see it, with whole life insurance is that it either has to be purchased as a savings plan or as a life insurance plan and it falls short of being impressive in either category. As a life insurance plan, in comparison to other guaranteed permanent policies such as a universal life policy with a no lapse guarantee, the cost per thousand is just too high. That leaves a client with the decision of going over budget or under insuring. Both of those issues are what leads to the nearly 20% lapse rate for whole life in the first three years. Definite buyer’s remorse.
Purchased as a savings plan it simply fails to impress anyone that wants to stack it up against a real long term investment. It’s slow out of the chute and because of the charges before interest, it’s slow to grow. The fact that it grows tax free is often hung out there as something unique, but let’s be honest. There is anything new or unique about a tax free investment that can be borrowed against.
And one last thing. The borrowing thing. “Cash value’s purpose is to come to the rescue”. Buyer’s remorse is the first and quickest reason for whole life insurance lapsing. The second is borrowing from the cash value. There is a point where that good idea comes back to bite you in the butt.
Bottom line. For today I won’t say whole life is the worst life insurance you can consider owning. I’ll just leave it up to the discerning buyer. Please discern before you buy.
March 13th, 2009
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
I was recently contacted by a stay at home mom who was, putting it politely, a little annoyed because she was told by an insurance agent that she could only be approved for 1/2 as much life insurance as her husband was carrying.
I explained to her that, in fact, that was the stance with the majority of companies and any exception to that would have to be well thought out and presented if she expected approval. I did let her know that it was not mission impossible, but just not one of those things you can throw against the wall and assume it will stick.
A couple of points that are important to consider. This rule has been around since before mothers really had a choice of having a significant career out side the home. So it is definitely old school thinking. But just for a minute let’s revisit the old school.
I remember questioning an underwriter about this very issue in 1978. Whether or not he could back up his statement I’ll never know, but what he said was that the industry had mortality statistics that showed a higher mortality rate for stay at home moms if they had life insurance equal to or greater than their husband. He also went on to explain that the reason they limited the amount of life insurance on children was, at that time, they had statistics that showed a higher mortality rate in children with life insurance in force on their lives that was significantly higher than what was needed for final expenses.
Again, I have no idea if that was true, or if that’s just what old underwriters told young agents to get us to drop the subject. But, fast forward to today when, in most instances, being a stay at home mom is a choice and the other choice is being a second breadwinner.
So, one half of the husband’s income was based on nothing more than, I suspect, a little paranoia with some skewed statistics. Today I would propose that the amount of insurance available to a stay at home mother should be based either on the amount of income she could be making, or the replacement cost of her stay at home services.
If we were talking salary replacement for the age group that most stay at home moms would fall into, they would be eligible for enough insurance to replace about 20 times their annual income, or if you use my supposition above, 20 times their annual replacement cost. Using the $116,000 from the article that means that an acceptable amount of insurance would be over $2,000,000.
I’m not hearing a lot of women clamoring for that much insurance, but hello!!!, this is 2008 and for a woman to carry as much as a husband is really just prudent family planning. Another plus to this whole idea is that most life insurance now has an accelerated benefit rider that allows a terminally ill insured person to take up to one half of the benefit while still alive. How good would that be if the money was available for the husband to take off and take care of his dying spouse and take the burden of the children off of her. With this type of rider the balance of the death benefit is paid out at the time of death. Time for companies to rethink that rule.
Bottom line. Life insurance is all about lifting the financial burden of a loss of the back of the surviving family members. I suspect that any underwriter who still believes that the old rule applies has never talked to a widowed father with children.
May 21st, 2008
Most life insurance policies issued in the past 5-10 years have a rider called the accelerated death benefit rider. It doesn’t cost anything and it allows the insured to receive, depending on the company, up to half of the death benefit (usually up to a limit like $500,000) if they are terminally ill.
I’ve had clients question why they would want this rider. If you’ve never had a terminally ill relative, it might seem kind of foreign to think about the last year of someone’s life when you know that they aren’t going to survive.
The primary reason we buy life insurance is to take the burden of loss off of our beneficiaries. In the case of terminal illness, that burden can begin to take its’ toll months before someone’s death in the form of lost wages because they are too sick to work or huge medical bills if you are among the 50 million uninsured or underinsured people in our country. With the accelerated benefit it allows you to meet that burden as it comes and not after it has already crushed the family finances.
Bottom line. Before you take exception to the idea of an accelerated benefit, talk to your agent and make sure you understand what it can do for your family at a time when extra hardship and burdens are least needed.
March 11th, 2008
Terminal illness! How many times a day is a person told, or a family told that a person only has months to live? Often this news comes after a stroke that requires extensive medical care in ICU, or after a long battle with cancer. Medical bills pile up and, because the person is usually no longer able to work, the family is short of money due to the lack of income. There isn’t any part of terminal illness that cuts a family slack.
Several years ago life insurance companies started adding an accelerated death benefit to life insurance policies. This was in response to a practice that began early in the AIDS epidemic. The epidemic spawned a business of “helping” the victims out by offering to purchase their life insurance policy for a reduced amount. This gave them the cash they needed to keep up with medical bills and continue treatment. These helpful business people would usually offer one half of the death benefit in cash in return for ownership of the person’s policy. The business idea was of course that upon that person’s death, the full death benefit was collected and the profit was taken.
The downside to this of course is that it robbed many families of the full amount of life insurance that the person had been paying for all those years. The bills might have been paid, but there wasn’t anything left over to help the family move on.
With the accelerated death benefit the insurance company offers the same relief from the bills, often allowing someone to take as much as half of the death benefit when they find out they are terminally ill. The difference is that the policy stays intact and upon the death of the individual, the balance of the policy is paid to the beneficiary.
Check your life insurance policy and make sure your policy has this rider. If you’re not sure, enlist the help of an independent agent to review it. It may be possible to get the rider added to your policy, and if not, it may be prudent to replace your current policy with a new policy that has the benefit available.
May 26th, 2007
In response to a less than reputable business practice, life insurance companies now offer at no additional charge a feature called an accelerated death benefit.
It wasn’t that long ago that there was a prolific market in praying on the terminally ill and especially those whose families were suffering not only the loss of a loved one, but a financial disaster with loss of income and medical bills. Along would come these less than reputable business people (we’ll call them pigs), who would be willing to pay you half of the value of your life insurance policy in exchange for ownership of the policy. A lot of people went for that usually because the terminally ill insured person didn’t want to see the family suffer financially. So, the pig would bail them out and take over ownership of the policy and keep it in force until the insured’s death, netting a 100% profit when they received the full death benefit.
Now, whether you have term insurance, whole life or universal life, the insurance companies have put the pig out of business. If you are terminally ill and have an accelerated death benefit rider, you are allowed to take a portion of your death benefit from the company (usually 50% or more) to use before your death. Consult your independent life insurance agent to make sure your policy has the rider. With the rider the policy remains under your ownership and upon your death the unused balance goes to your beneficiaries.
March 15th, 2007
It’s all over financial news sources. And it’s true. Not often news and truth are in the same corner, but here you go. Due to updated mortality tables and good old competition, the rates, primarily in the healthiest rate classes have been coming steadily down for the past 10 years or so.
Take for example a 51 year old guy in excellent health. 10 years ago he bought a policy from a competitive company at their best rates. He purchased a $500,000, 20 year level term. He has 10 years left on the guaranteed rate of $730 a year, so having heard the rumor he decided to get a life insurance quote on a new $500,000, 10 year term. That would give him an apples to apples comparison with what he had left. The new policy will be $620 a year. So, he can switch to a new policy and save $110 a year for the balance of his 20 years that he wanted to insure.
A further comparison was to drop 10 years back off of his age and see, if he were 41 again today, what his original 20 year term would cost. Try $400 a year. Have term insurance rates really come down? Yes!!!!!!!!!!!!
If you’ve had a term insurance policy for 5-10 years and your health is still good, you’re just crazy not to contact an independent life insurance agent and shop it.
The newer policy may even have built in features at no extra cost like the accelerated death benefit. That allows you, if you are terminally ill, to take a percentage of the proceeds before you die to help pay bills or whatever you need it for. The balance is held for your beneficiaries to receive upon your death. A lot of older policies don’t have these features.
 Lower cost! Better benefits! It’s real and it’s worth checking out.
March 3rd, 2007
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