I have written several posts about the life insurance accelerated death benefit. As a refresher the practice of offering a partial accelerated benefit to terminally ill clients came about as a way to put some real dirt bags out of business. The bags would prey on terminally ill folks, knowing that many of them because of loss of income and medical expenses, needed cash.
They would offer to pay them half of the death benefit of their policy for ownership of the policy and the ability to change themselves to the beneficiary of the other half. Pretty lucrative! 100% return on their investment in a year or so. This really became big during the early years of the AIDs epidemic when, because the medicines of today weren’t invented yet, all who had it generally died and died quickly.
So, insurance companies stepped in and offered an alternative. The accelerated death benefit was paid out upon documentation of terminal illness and the only charge was an administrative fee of $300-$400. Upon the ultimate death of the insured the balance of the death benefit was paid to the beneficiary. This practice has been an absolute gift from God for many families, removing the money stress so that they could just focus on each other. What a compassionate thing. And the insurance companies don’t charge to add this rider to a policy.
I wrote a post some time back and today received kind of a comment/question concerning accelerated death benefits. The comment is as follows, “Thank you for your articles. Unfortunately we are in a position right now that we are considering accelerated payment on my husband’s life insurance. We received the forms to fill in, but they have used a 12% deduction example on the forms as being withheld for lost interest due them. 12% is a staggeringly high example and I was hoping that you might be able to give us a ball park figure that is more reasonable based on todays investments of what we might expect. The insurance company said because it changes day to day, they couldn’t tell us exactly until they receive our application. All we want is a ball park, not exact..do you think you can advise us on that figure?”
My first thought was that they must have a policy with Swamp Life of Vermont or something. Surely none of the big companies would seriously want to lend them the money, especially at absurdly high levels. Turns out this is with Met Life. Met “Snoopy” Life. That company has more money than, well, most countries.
I was just reading the language in a Banner Life policy I have and speaking to the cost of the benefit, it says, “There is no premium or cost of insurance charge for this rider. However, an administrative fee that will not exceed $250 will apply at the time the ADB is paid and will be added to the lien”. I just checked a United of Omaha policy and they don’t even have an administrative charge. Let me see. If you have a $500,000 Met Life accelerated benefit it would cost you $60,000. With Banner it would cost $250 and with United of Omaha nothing. Let me run it by my accountant.
Bottom line. I have an email into Met Life to ask them if this was a cruel joke or if they seriously want to make 12% on a dying man. You can trust that I will share their response.
What I have found out so far is that the policy is a group policy and we are still waiting to find out if they treat groups differently than personal insurance on this benefit……and if so, why?