Today, countless living benefit riders are available or included with various life insurance contracts, whether index universal life (IUL) insurance or guaranteed universal life (GUL) products. This article will focus on the role one specific type of rider, an accelerated benefit rider for chronic illness, is designed to serve when paired with an IUL product, and review some features to seek in this type of rider.
According to the Kaiser Family Foundation, by 2050 the U.S. population will have four times as many nonagenarians and centenarians—people in their 90s and 100s—as it did in 2010.1 As Americans age, their health care costs surge, and traditional sources of retirement income come under increasing pressure. These consumers are grappling with uncertain financial futures. As The Wall Street Journal’s David Harrison has shared, “With roughly half of all Americans who turned 65 in 2014 projected to need expensive long term care and with new strains on pension systems and Social Security, it remains to be seen how tomorrow’s seniors will make ends meet.”2
If they can barely make ends meet, what will their quality of life be like in retirement? Consider that while some consumers plan for only a 20-year retirement and some don’t plan at all, the average American female who reaches age 65 in 2015 has more than a one-in-three chance of seeing her 90th birthday.3 It doesn’t take a rocket scientist to deduce that a client’s income may be insufficient to cover health care and other expenses during a retirement of 25-30 years or longer.
Not only are Americans living longer, they’re doing so with more chronic illnesses. In 2014, chronic disease cost our nation $2.3 trillion—four times the amount of the national debt for the year.4 What’s more, 95 percent of health care costs for older Americans can be attributed to chronic diseases.5
For the chronically ill—those diagnosed by a physician as unable, for the past 90 days, to perform two or more Activities of Daily Living (ADLs) such as feeding themselves, getting dressed, bathing and toileting, or suffering from a severe cognitive impairment—the potential need for long term care looms large. The prospect of nursing home care is alarming for clients and their families, from both an emotional and a financial perspective.
Fact: A private room in a nursing home costs more than $91,000 per year6 and long term care expenses will likely continue to escalate. Since 2005 the cost of nursing home care has risen 4.5 percent per year, compared to an overall inflation rate of 2.5 percent. If this trend continues, the average expense for a stay of one year in a nursing home will reach $146,000 in 2030.7 If, at that time, the average stay for a female in long term care is still 3.7 years (as it is now, according to the Department of Health and Human Services),8 the cost may total more than $540,000.
While some long term care insurance (LTCI) policies still are available on the market, how cost-efficient are the contracts these days? A certain type of value-intensive IUL policy, when properly structured and funded with an affordable chronic illness living benefit rider, may constitute the most appropriate solution for clients seeking flexibility, guarantees and the opportunity for upside market potential.
As chronic illness riders typically are based on an indemnification model, policyholders who experience a qualifying event are subject to virtually no restrictions on how they can utilize the accelerated portion of the death benefit and don’t have to furnish receipts for their health care or other expenses (whether or not related to the illness). How many consumers are up to the task of submitting receipts while grappling with a debilitating chronic illness or a profound cognitive impairment?
Clients deserve options. Some chronic illness riders available with IUL policies offer a choice of payout levels, such as 2 percent or 4 percent of the benefit amount per month, or the full Internal Revenue Service (IRS) allowable per diem at the time the benefit is exercised. Chronic illness riders with flexible payout options such as these are designed to empower clients to access the amount of money they need when they need it.
Furthermore, some chronic illness riders available with IUL contracts allow for a waiver of premiums on the entire policy if the client becomes eligible for benefits, even if he or she chooses to forgo the benefits. What client wouldn’t appreciate such a consumer-friendly feature?
Consumers who may be interested in pairing an IUL policy with a chronic illness accelerated benefit rider include those:
• who would appreciate the potential for their life insurance policy to earn index interest crediting, based in part on an underlying index, while providing downside market protection;
• who have experienced a severe health issue of a loved one and understand how costly it can be; and
• who are in good health, overall, but would appreciate knowing they have flexible options if their health deteriorates later in life.
Life insurance doesn’t have to serve just one purpose, and consumers don’t have to settle for costly, impractical products to protect them from the financial ravages of chronic illness. Brokers who partner an accessibly priced IUL solution with a smartly structured living benefit rider for chronic illness may just become their clients’ preferred partner.
Footnotes:
1. Tricia Neuman, Juliette Cubanski, et al; “The Rising Cost of Living Longer: Analysis of Medicare Spending by Age for Benefici-aries in Traditional Medicare;” Kaiser Family Foundation; Jan. 14, 2015; accessed July 30, 2015 at http://kff.org/report-section/the-rising-cost-of-living-longer-section-1-medicare-per-capita-spending-by-age-among-traditional-medicare-beneficiaries-over-age-65-2011
2. David Harrison: “We’re Living Longer, and Other Reasons to Worry About Americans’ Retirement Outlook”; WSJ.com; June 23, 2015; accessed July 30, 2015 at http://blogs.wsj.com/economics/2015/06/23/were-living-longer-and-other-reasons-to-worry-about-americans-retirement-outlook
3. Ibid.
4. Don C. Reed; “Disease-a-Week Challenge #1: How the California Stem Cell Program is Battling Lou Gehrig’s Disease;” Huffington Post; May 28, 2015; accessed July 30, 2015 at www.huffingtonpost.com/don-c-reed/diseasea
week-challenge-1-_b_7455178.html
5. “The State of Aging and Health in America 2013;” Centers for Disease Control; 2013; accessed July 30, 2015 at www.cdc.gov/features/agingandhealth/state_of_aging_and_health_in_america_2013.pdf
6. “Seniors’ Independence Shouldn’t be a Political Game”; AARP, updated June 2015; accessed July 30, 2015 at www.aarp.org/politics-society/advocacy/info-2014/where-aarp-stands-older-americans-act
7. Andrew Melnyk, PhD, and Harsh Sharma; “Who Will Pay for Our Long-Term Care?” American Council of Life Insurers; Nov. 2014; accessed July 30, 2015 at https://www.acli.com/Consumers/Long-Term Care Insurance/Documents/LTC_Report-2.pdf
8. “How Much Care Will You Need?” U.S. Department of Health & Human Services; accessed July 30, 2015 at http://longtermcare.gov/the-basics/how-much-care-will-you-need
