In trying to attract new sales, many life insurers have added various new features to their life policies through the use of riders.
A prime example is the addition of long term care acceleration riders to life policies. These pay benefits in the event the insured needs long term care due to chronic illness or other event. (The benefits provided by riders can alternatively be structured as integral parts of the life contract, but care is required to assure compliance with Internal Revenue Code requirements for LTC insurance.)
Not only does such a policy-rider combination provide protection against the 2 main financial risks facing seniors, it does so at a lower cost than 2 stand-alone insurance policies (one life and one LTC policy).
Such lower cost does not arise as a result of actuarial insight, but rather because the insurer is ultimately paying out only one benefit, the life benefit, at either death or during chronic illness.
A number of insurance companies have been especially successful in marketing this concept and show no signs of letup. The marketing story addresses buyer objectives such as those in the accompanying box.
The basic design of such contracts is quite simple. If you become chronically ill, the company will pay 4% (or another percentage) of the death benefit for up to 25 months. Such a time frame encompasses a significant percentage of the duration that LTC benefits will be needed.
If the insured should die earlier, then a significant percentage of assets will pass on to heirs.
If the insured survives the entire period, then the “extended LTC rider” (if the contract has one) provides a continuation of LTC payouts either for another 25 months, or for lifetime.