A few days ago I wrote a post about a blog comment concerning a person who was looking into the accelerated death benefit on their Met Life group policy. Her husband is terminally ill and they remembered that they could take a portion of the death benefit up front.
Her concern was that when they contacted their benefits person to get more information they were told that the company could charge as much as 12% interest on the money the accelerated benefit and that it would be taken, or rather deducted from the payment. In other words, if they chose to withdraw $250,000 they would only get a check for $220,000.
I quickly read through my own policies to assure myself that the companies I have insurance with couldn’t do that and found that the only charge they could make was a comparatively tiny $150 to $250 administrative charge. Frankly I was convinced there was a misunderstanding or that the benefits person was confused, so I emailed an authority with Met Life and asked, “I WAS CONTACTED BY SOMEONE WHO IS ELIGIBLE FOR THE ACCELERATED BENEFIT RIDER BENEFIT, BUT THINKS THEY ARE GOING TO BE CHARGED AROUND 12% INTEREST BY MET ON THE BENEFIT. DO YOU HAVE INFORMATION ON THIS BENEFIT REGARDING WHAT THE COST IS TO CLAIM THE BENEFIT. THANK YOU”
I got a response from an internal wholesaler who after researching the question, answered, “There is no charge for the Acceleration of Death Benefit rider while it is inforce. If the client were to exercise the rider we may charge a processing fee up to $150, and the proceeds may be subject to taxes. The attached rider spec indicates that the interest rate charged will be no greater than the “current yield on 90 day treasury bills, and the current maximum statutory adjustable policy loan interest rate.” This rate is subject to fluctuate on a monthly basis, and the current rate for the ADBR through July is 5%.”
So, currently there wouldn’t be a 12% charge, but just because it is 5% in July doesn’t mean squat when it can fluctuate monthly. The fact that there is a charge at all is, I think, disgraceful. Accelerated death benefits were started to get loan sharks out of people’s life insurance proceeds and now Met Life, and probably more companies are going right back in to the same honey jar.
Bottom line. The accelerated death benefit is tapped so rarely that cash cow life insurance companies really ought to do the right thing, make it available to those that need it, those whose life and end of life can be changed by it, for free.
My 20 years of experience give me the knowledge and leverage to find reasonably-priced life insurance for people who have been declined or are paying more than they need to.
Sheesh. You clearly don’t understand accelerated death benefits, nor even interest discounting. You also appear to have a blatent mistrust of the insurance industry, that colors your advice.
The discounting in the policy is an actuarial present value, which means it takes into account not just interest but also survivorship probabilities and not just the death benefit, but future premiums that won’t be paid. The methodology must be approved by each state and, by law, must be fair to the policyholder. Insurance companies discount this benefit so that it is neutral to them and they do not make big profits on these accelerated amounts.
Please stop offering such biased and unhelpful advice.
Well Sheesh. You clearly don’t understand the evolution of the accelerated death benefit. If you did you would be more focused on the customer unfriendly changes that have been made than my perceived biased and unhelpful advice.