Every client is an individual, with different needs and goals. Shouldnt his or her life insurance be just as unique?
Although some life products like universal life and variable universal life are inherently flexible, the only way to truly customize a clients protection is to add a rider or series of riders to the policy.
Today, virtually all UL and VUL policies have riders that can be easily elected or added at time of issue. Built-in riders are included in the overall cost of coverage. Add-on riders have an additional charge. Riders fall into two categories: those meeting specific personal or business needs and those providing peace of mind through guarantees.
Because such a large selection of riders is available, and because all riders are not for all people, its important to understand what riders can do for your clients. For instance, what specific needs can riders address? Here are some:
1) The need to pay for long-term care. Relatively new to the insurance scene, LTC riders allow life policyowners to use their death benefit to pay for LTC expenses such as nursing home, assisted living or home health care costs.
2) The need for funds if faced with a terminal illness. Known as an “accelerated benefit,” a living benefits rider allows life policyowners to use all or part of their policys death benefit if they become terminally ill.
3) The need for additional coverage for a certain period of time. One of the oldest riders in the industry, the term rider allows policyowners to increase coverage for a particular period of time for a low cost. Clients may need this extra protection while their children are in school or may want to cover potential estate tax liability (in case estate taxes return in 2011).
4) The need to counteract large premiums that can affect a business bottom line. Premiums on corporate-owned policies can be large enough to affect business earnings, especially in the first few years when the surrender charge is highest. Typically known as the honeymoon provision, this optional feature lowers the surrender charge in the first years; this potentially increases the cash value that the business can then claim as an asset, thereby offsetting the premium payments.
5) The need to “switch” insureds if a key person leaves the business. Most people change jobs every few years. To protect against turnover in a companys top positions, companies can purchase a life exchange of insured rider that allows the corporate-owned policy to change the insured as needed.
Sometimes a rider just adds security and peace of mind for the insured by way of a guarantee. But what kinds of guarantees can riders offer?
One is a guarantee that coverage will not end at age 100. This has value because people are living longer than ever. (Some scientists even predict people will soon live to 110 or 120.)
Traditionally, UL and VUL policies have been built to “mature” at the owners age 100, when the cash value is paid out and taxable. But the newer maturity extension riders allow the policies to continue past age 100, usually to age 110 or 120. One company offers a unique option in which the policy never matures and coverage simply continues, as long as the policy is in force at age 100.
Another guarantee available in riders is that coverage will continue regardless of the policys performance.
Since UL and VUL policies allow clients to skip payments or make minimal payments, its possible that the coverage could lapse if there isnt enough cash value in the policy and the rate of return on the investment isnt high enough to cover the payments. A secondary guarantee rider can ensure that coverage will continue, regardless of what the policys investment does.
Generally, policyowners need to pay a minimum premium each year for a 20-to-50-year guarantee. Some organizations will even allow policyowners to choose their own time period.
Yet another type of rider guarantee is that coverage will continue if the owner or insured is totally disabled. These guarantees are available in so-called waiver riders.
Such riders pay premiums for the policy if the owner suffers a total disability. Since survivorship life insurance arrangements often include annual exclusion gifts to fund premium payments, one company offers a waiver of stipulated amount rider on its survivorship policies; this can be purchased to offset the gift tax exclusion normally lost upon death of the first spouse.
Keep in mind that just because riders are available, that doesnt mean they should be added to a clients policy. Consider the consequences of adding them. (Some are irrevocable, like the secondary guarantee, and cannot be dropped once added.) Its best to examine the suitability carefully and make sure there is truly a need before recommending or adding any rider to a policy.
However, if chosen carefully, a rider added to a UL or VUL can go a long way toward providing the specific coverage the client needs. Whether your client is looking to cover a specific need or simply wants an added guarantee for peace of mind, youre likely to find a rider that will add the right amount and type of protection.
Randi M. Sterrn is vice president-variable life products, and Leonard E. Scholl Jr. is assistant vice president-universal life products, for Sun Life Financials operations in Wellesley Hills, Mass. E-mail at [email protected] and [email protected], respectively.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.