Some of the biggest news in the employee benefits industry lately is less about new products and more about what insurance companies aren’t offering: long-term care insurance. Several major players have exited the individual long-term care market, and some carriers are discontinuing their group products as well.
However, long-term care coverage can still reliably be found in one place — tagged onto universal life policies as an optional rider. Long-term care benefit riders are among a growing number of optional coverages available on some UL policies. These riders allow people to customize their plans to meet their specific needs and obtain protection they may not have access to otherwise. They also offer you new ways to market universal life, increase interest in this more complicated type of life insurance and build your sales.
Let’s take a look at some of the newest and most popular riders on the market and how you can position them with your clients.
Long-term care benefit rider
This coverage advances the death benefit of a universal life insurance plan in monthly indemnity payments to help pay for the long-term care services needed if the insured is unable to perform at least two activities of daily living or requires substantial supervision due to severe cognitive impairment. Typical benefits include monthly payments of 6% of the death benefit for nursing home or assisted living care or 4% for at-home or adult day care.
For a policy with a $50,000 face amount, this equates to payments of $3,000 a month for about a year and a half in a nursing home, or $2,000 a month for two years at home. With nursing home costs averaging $75,000 per year, that’s not enough to cover the whole bill — but it’s not meant to be. A long-term care rider isn’t meant to be comprehensive coverage like a long-term care policy. Instead, it’s a way to get some very affordable coverage to help meet those expenses.
Look for a long-term care rider with a built-in waiver of monthly deductions provision, which waives all monthly deductions for the UL coverage while long-term care benefits are being paid. This can be important since the insured isn’t working while receiving long-term care and therefore may struggle to keep the life coverage in force.
Waiver of monthly deductions rider
The waiver of monthly deductions can also be added as a separate rider to a UL policy, without the long-term care rider, and helps keep the life coverage in place if the insured becomes totally disabled before age 65. It’s especially popular in the worksite market, where many employees are living paycheck to paycheck. In fact, 61% of all American workers are in this situation.1
Let’s face it, paying life insurance premiums isn’t the highest priority when a worker becomes disabled and has not only a reduced income but also medical and nonmedical bills to pay. However, the worst-case scenario for a disabled worker would be for the life coverage to lapse due to nonpayment of premiums right before the worker dies from the disabling injuries or their complications. Such a scenario would leave no income and no protection at all for the worker’s family. The waiver of monthly deductions rider adds a lot of value for people who could face this situation.
Restoration of benefits rider
This important rider can help protect the value of the life coverage when paired with a long-term care rider. It restores the death benefit on a monthly basis when long-term care benefits are paid. So instead of the long-term care benefits gradually depleting the value of the life coverage, the full face amount is available should the insured die during the time he or she is receiving long-term care payments. This rider stays in effect until the base policy is terminated, the full death benefit has been restored or the long-term care benefit rider is terminated.
Spouse term rider
This rider allows an employee who purchases a UL insurance policy to add coverage for a spouse without buying a separate spouse policy. Typically, the spouse doesn’t even have to be present at the enrollment to sign the application, making this coverage very convenient to buy at the worksite. This kind of coverage makes sense when the family wants additional protection for a certain period of time, such as until the home mortgage is paid off or the children are out of school and on their own. The rider also typically can be converted to a cash value plan later, without evidence of insurability.