A Sept. 6, 2005, report from National Underwriter’s Online News Service noted this living benefit development: New York has issued accelerated benefits rules mostly pertaining to accelerating a death benefit for long term care needs.
The news was brief, but the ramifications will be huge for the industry.
For years, some insurers have offered living benefit riders on life insurance contracts that paid out for terminal, chronic and sometimes even critical illness. Generally these riders cost nothing to add to the contract; as a result, a discounted death benefit is available, on a tax-favored basis, to pay for living benefit needs.
But New York and some other states have been holdouts on allowing all of these benefits to be available. Many insurance companies have been perplexed by these states not allowing what appears to be a tremendous living benefit for insureds.
Now, a major state has shifted position. That is an important milestone.
Meanwhile, product development has been continuing in this area. A few insurers have features that go a step further than basic acceleration: The companies provide additional cost riders that don’t discount the death benefit for chronic and/or critical illness protection. Generally, these riders pay 2% of the death benefit per month for 50 months for qualified expenses.
Some insurers even offer more riders that would provide additional benefits after the initial death benefit is exhausted.
While these riders are not a replacement for stand-alone-type coverage, they can provide a tremendous benefit for customers who just can’t afford buying stand-alone coverage for every possible type of illness. The riders also provide another reason to think twice about surrendering or selling an existing life insurance contract.
A recent study from LIMRA International, Windsor, Conn., “Life and Long-Term Care Insurance Combination Products,” includes opinions from companies on why consumers find these plans appealing. They are enlightening:
o 2-for-1 option for life and LTC insurance.