Category: Increasing Face Amount for cash accumulation

Hybrid life insurance with LTC benefits: tap into or pass on

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June 6, 2014

10:07 AM

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101(g) chronic illness rider, 7702B Long-Term Care rider, Accelerated Death Benefits, In your 50's, In your 60's, Increasing Face Amount for cash accumulation, Indexed Universal Life

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Baby boomers postponing purchasing long term care insurance, despite what may be going on in their parents advanced age, have plenty of reasons to balk at conventional LTC plans.

One of the six primary reasons people do not buy long term care insurance.  pdf

Sixth, the structure of policies themselves (benefits
denominated in dollars per day, inflation risk of purchasing insurance for an event that is probabilistically far away, increases in premiums for everyone when insurance companies face insolvency, denial of applications) reduces purchase rates.

Potential premium rate increases, big ones, are are the glaring weakness of stand alone LTC plan. The track record of existing policies has not been good with the double digit premium increases over the past few years.

To the rescue for viable avenue of coverage, Hybrid life/LTC insurance offers rate stability. Guaranteed Universal Life (GUL) products lock in a fixed premium guaranteed for life.  The majority of these GUL products come with some sort of accelerated benefit targeted for long term care.

Hybrid Life plans provide a benefit one way or another. If you never need LTC coverage, your beneficiaries get the life insurance. Then if long-term care becomes a necessity, accelerate out a portion of the benefit. It may be only a small portion of the benefit ends up being needed; the rest can remain as a life insurance benefit.

Life hybrids are not perfect. Look for plans that specifically titled “long-term care” for more comprehensive benefit. Life policies with “chronic care” accelerated benefits are not as inclusive as their long term care benefit counterparts. With chronic care, the condition must likely be permanent. That benefit threshold would be a problem with for example a stroke, however debilitating a stroke might be, it may be considered to be recoverable. Many more conditions like a broken hip are not going to qualify for a chronic care benefit where they would if the plan’s benefits are full fledged long-term care.

There are other limitations that pull from the edges of rock solid LTC coverage. For example, the structure of benefit is generally limited by a monthly amount or daily maximum tied to the HIPAA per diem limit currently allowed by IRS rules, but just review carefully what’s optimal given the choices for plans and your situation.

Look for plans that have indemnity benefit, paid in cash, rather than reimbursement: better to receive a check than submit bills to be repaid.

How much coverage is enough?

Fifth, a sizable portion of the population has neither sufficient wealth to protect nor income to pay long-term care insurance premiums.

Most people have a desire to leave something to their children, or if nothing else, not be a financial burden on their children. It’s hard to judge how much money would be needed to cover LTC.  It really runs the gambit but coverage for $100,000 provides at least something. One life plan with chronic care starts at a $25,000 face amount.

With the exception of certain plans like Lincoln National’s MoneyGuard, hybrid life benefits do not provide inflation protection. LTC benefits are no higher than the death benefit. Chronic Care plans have no upfront charge, but reduce the benefit with a discount charge. How big a policy is enough if determined by the face amount: $100k, $250k, $1m?  The solution to choose a plan that builds cash value with an increasing face amount death benefit, either an Indexed Universal Life or a Current Assumption UL, to access cash value through policy loans or partial surrenders.

Hybrid life premiums with accelerated living benefits for LTC are affordable, not for or some worst case scenario like Alzheimer’s, but still something is better for nothing. There are hybrid life plans with $100,000 to $250,000 face amounts for people in their 50’s or 60’s with reasonable premiums. Chronic Care riders have no up front charge for the benefit. Check them out by reviewing the sample quotes by age on this website.

Increasing death benefit option

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April 17, 2012

3:29 PM

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Burial insurance, Cash accumulation, Cash Value, Increasing death benefit, Increasing Death Benefit / increasing cash value option, Increasing death benefit for cash accumulation, Increasing Face Amount / increasing cash value option, Increasing Face Amount for cash accumulation, Option A level death benefit, par whole life, participating whole life, Whole Life

The coverage amount for permanent life insurance can either be level or increasing death benefit.  Either the benefit always remains the same, a fixed $250k for example, or it goes up over the years: $251k, $253k, $257k, etc. Which is best?  Obviously a rising death benefit is preferable, but whether its value outweighs its additional cost depends mostly on your age. Generally when under age 60, an increasing death benefit is better. Over age 60 a level death benefit works better simply because it’s more cost effective. Those in higher income brackets usually should opt for an increasing death benefit.  This is also called a level or increasing face amount.  With life insurance the initial benefit is called the face amount, and thereafter it’s called the death benefit.

Level Death Benefit:  Option A

pros:  less expensive; builds higher cash value

cons: the value of death benefit amount erodes due to inflation; less flexible

Increasing Death Benefit:  Option B

pros:  death benefit amount rises over the years to help the policy value keep pace with inflation; better for partial surrender of cash value; better for loans; more flexible, most policies will allow the owner to change from an increasing death benefit to a level death benefit.

cons:  more expensive

An increasing death benefit is used often with Indexed Universal Life (IUL), at least in the cash value accumulation phase. For policy loans to generate tax free retirement income switching the death benefit from increasing to level produces higher income amounts.

A level death benefit is best for Guaranteed Universal Life, also called no lapse Universal Life

For current assumption Universal Life, a regular UL, an increasing death benefit is preferable since most of those plans are geared for those in their 30’s, 40’s and 50’s.  A structure of an increasing death benefit UL and cost will depend on the assumption of the target case value: how much and a what age.  Typical cash value targets will be $1 or to endow, to be worth the initial face amount in cash, at either age 100 or age 120.  Whole life, the high quality ones, age guaranteed to endow at age 100.  A proper analysis of a UL should compare it structured like a whole life, to endow on the non guaranteed side at 100.  I have found, especially at younger ages. that whole life premiums are very competitive, sometimes even less expense, than a UL if they are both structured to endow at age 100.  Sometimes agents will solve a UL for $1 at age 100 to cut its cost, but for the policy holder that runs the risk of the policy underperforming and running out of cash value in later years. This was part of the problem for many UL policies written in the 1980’s and 1990’s.  At the very least the target cash value assumption at age 100 should be half of the original face amount, for example a $125k target cash value at age 100 for a $250k initial face amount.

Whole life is either level or increasing death benefit.  Participating whole life, called “par” whole life for short, offers dividends that increases the death benefit over the years.      Final expense whole life for seniors is level death benefit “non par” or non-participating whole life. They do build some cash value, but the key is the benefit amount, affordability and simplified underwriting.

Choose “par” whole life for child life insurance.  Mail offers for child life insurance are level benefit “non par” whole life, non-participating, and they are a rip off considering how much more value you get for just a few dollars more with a increasing benefit whole life plan like Mass Mutual.

Equitable “Long-Term Care Services Rider” has an increased death benefit option.  This is a very distinctive feature offered for a hybrid life/LTC product.  Most other carriers only allow Option A, a level death benefit, for LTC benefits.

Please request a quote : free and strictly confidential

increasing death benefitLicensed Agent: Sean Drummey
phone: (910) 328-0447
email: spdrummey@gmail.com

revised: 4/29/2022

Equitable checked 8/1/2022