3 Ways To Add Value To Life Insurance Benefits At No Cost

    By
    Cindy V. Gentry, CLU, ChFC, LUTCF
    -

    Americans are worried!  They are worried about getting sick as they age and those costs eating away their assets.  The biggest problem is that they are not doing any early planning for that financial challenge.

    The good news, you can help.  Today’s life insurance benefit plans will allow your clients to create a pool of money that they can either pass to their loved ones or use during their lifetime if they have a chronic illness later in life that may be very costly.  And they can create this pool of money at no additional cost!

    What I am talking about is the living benefits in life insurance plans that use the “discount method” of distributing the benefit when necessary.  Let me explain. There are two types of living benefits available in life plans today.  One your clients pay for up front that allows them to know that they will receive the living benefit if they need to use it.  Typically they can choose to receive two to four percent of the benefit amount on a monthly basis. With the discount method your clients do not pay any additional premium up front for the benefit, but if it is needed, they can choose to accelerate a certain percentage of the face amount and then that amount is discounted based on certain factors like:

    • Severity of the chronic impairment

    • Client’s age

    • Administration fees

    There are several different formulae in life plans so let’s look at a common one to get a better understanding of how they work.

    Example: 
    Joe, age 50, purchases a $500,000 life insurance policy to protect his loved ones.  This policy has a chronic illness rider that utilizes the discount method of payment, for which he pays no additional premium.

    At age 75 Joe is diagnosed with a chronic illness and cannot perform two out of the six activities of daily living.

    He elects to receive the maximum benefit amount (24 percent or $240,000, whichever is less) during each election period (12 months). He can elect to receive his benefit:

    • Lump sum

    • Every 6 months

    • Monthly

    • Joe has passed his 90 day elimination period and the benefit is paid.

    What does that look like from Joe’s $500,000 pool of money?

    • His maximum benefit per election period—24 percent or $120,000.

    • Discount based on age and charges are applied. Actual payment received—$87,298.

    • What happens to the difference? Lost.

    • Pool of money reduced by maximum benefit election.

    Each election period, Joe can elect the maximum benefit based on the full face amount.  He can receive money until his pool of money is used up.

    Table 1 shows another way of looking at it.

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    So which is better?  I will let you be the judge of that.  But if you can add this type of value to your client’s life insurance policy at no extra cost, I certainly think it is worth talking to them about. 

    BBA Life Brokerage Agency

    CLU, ChFC, LUTCF, is president of BBA Life Brokerage, an independent life and annuity brokerage agency. She began her insurance career in 1980, and has been in marketing and management with BBA Life Brokerage since 1987.Most of Gentry's insurance career has been in the brokerage business, starting as a service representative in the group health business. She moved to Texas in 1982, and landed a position with a small health brokerage, later moving on to personal production, then joining BBA Life Brokerage.Gentry has been an active member of Corpus Christi Association of Insurance and Financial Advisors since 1989, serving on the board and executive committees and ultimately as president of the local chapter in 1996. She is a member of the Society of Financial Services Professionals. In 1997 she was presented the “Agent of the Year” award.Gentry has served as education chair of the National Association of Independent Life Brokerage Agencies (NAILBA), going on to serve on the board in 2000, on the executive committee in 2001, and serving as chairman for NAILBA in 2004. In 2007, she was presented with the inaugural NAILBA Education Excellence Award. Gentry served as the chairperson of Life Happens in 2014, a nonprofit organization formerly known as the LIFE Foundation.Gentry may be reached at BBA Life Brokerage Agency, 4838 Holly Road, Suite 102, Corpus Christi, TX 78411. Telephone: 800-747-4445 or 361-993-3820. Email: [email protected].