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Life Health > Long-Term Care Planning

Clarica Broadens The Living Benefits Scope Of UL

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Clarica Broadens The `Living Benefits Scope Of UL


With its new ProsperityPlus UL policy, Clarica Life Insurance Company, Fargo, N.D., is broadening the living benefits scope of universal life insurance.

In so doing, it is seeking to establish its UL as an “alternative to long-term care insurance,” says Kim OBrien, executive director of marketing and product management for Clarica.

How? By allowing acceleration of up to 100% of the UL death benefit for four care-related events. In most states, it accelerates in four semi-annual payments for convalescent care, home care, or terminal illness, and two semi-annual payments for hospice care.

It has some “piece of mind” extras, too:

1) A “return of premium guarantee” lets owners get their money back, for any reason–for the lifetime of single-premium policies, and during year 11 of flex-premium contracts. (The guarantee can be exercised if the owner has made no accelerations, loans, withdrawals, or death benefit increases.)

2) If the insured dies before receiving all death benefits, the remaining benefits pass on to heirs. But if death occurs after all death benefit has been paid out, the UL still pays a death benefita $10,000 “residual death benefit.”

3) During acceleration, the policy guarantees the policy will not lapse.

The blend of life insurance with care-related acceleration is what makes this product an alternative to LTC insurance, according to the company.

A product brochure terms it “life insurance that gives while you live.”

The policy does contain certain LTC-like qualities. For instance, some of its terminology echoes that found in traditional LTC policies. Examples include “convalescent care,” “care facility,” “home care,” and “medical necessity.”

Also, although the insurer performs regular life underwriting on the applicant (related to the net amount at risk), it also underwrites for the convalescent benefit exposure (on an “accept or reject” basis.).

However, this is still UL insurance, with ULs unique features and flexibilities, OBrien stresses.

“It builds cash value, allows policy loans and withdrawals (as well as acceleration), permits flex premiums, etc. It also pays death benefits, not indemnity claims.”

That distinction is critical, she says. Owners of this policy can get quick and easy access to emergency money, she says, without putting the owners income or estate in jeopardy. “And if the owner doesnt use it all, the policy passes the rest to the heir, tax free.”

In single premium scenarios, in particular, the advantage can be meaningful, she contends.

Say, for example, that a 65-year-old man, rated standard, deposits $40,000 into the contract. This creates an instant death benefit of $97,000, says Clarica. That death benefit is available for acceleration starting in the very first policy year, if the man should qualify for one of the care events, OBrien says.

A person could use existing savings to fund those same expenses, she allows, alluding to money held in annuities, certificates of deposits, and mutual funds.

“But personal savings may not be enough to cover the large costs associated with convalescent care,” she continues.

With average daily care costs of $153, a person who requires 18 months of care will need nearly $85,000, she points out. “And its not unusual for nursing home stays or home care to last twice as long or longer.”

Some people do want to protect against the maximum risk by purchasing standalone LTC insurance, she notes.

But others really dont want to buy LTC, she stresses. “They view LTC premiums as `money down the drain, if they dont actually need care.”

Such clients dont want to take a “use it or lose it” approach to planning for this exposure, she says. “They want to pass their remaining money on to their heirs.”

These non-LTC clients are the market for ProsperityPlus UL. Its a big market, OBrien claims. “Right now, less than 9% of people age 60 and up already have LTC insurance. So over 90% of that age group is our target market.”

Those numbers are all the more significant, she adds, in view of the fact that over 85% of annuity owners do not annuitize before death (source: LIMRA International, Hartford, Conn.).

She thinks the age 60 and up group will favor ProsperityPlus over standalone LTC, because rates for standalone LTC become too expensive at the older ages.

On the other hand, she thinks younger buyers (age 45 to 60) will favor standalone LTC. “They typically want to fund as much LTC risk as they can; they want more benefits; and they want it to pay for a longer period.” The fact that LTC premiums are more affordable at the younger ages is another factor, she says.

Already approved in 30 states, the UL has a minimum benefit amount of $25,000, and a maximum net amount at risk of $300,000. The current credited interest rate is 6% (as of November 9, 2001), and the guaranteed minimum is 4%. Withdrawals are allowed. So are policy loans (and at no net cost if the contract is in acceleration mode). Surrender charges run 14 years, but are waived upon refund of premium or acceleration. Monthly costs of insurance charges are waived at acceleration, too.

Other notes:

–Insureds do have to qualify for acceleration, but they dont have to submit claims related to ongoing care nor undergo requalification. They can spend the money as they wish.

–Tax issues: “Benefits payable under the terminal illness provisionare considered to be income tax-free,” says a product brochure. But where convalescent care benefits are concerned, “the income tax issues are still unclear.” Therefore, Clarica recommends consulting with a tax advisor.

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 19, 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.

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