Living Benefits verse No LB.

[LostDollar]

My thoughts are more about product choice. There are carriers that don't offer LB and it would seem like if given the option between a policy with the LB and one without the one with LB wins.

But is the feature being used especially with term. It's said term makes it to death claim 2-3% so I was wondering how often and to what age brackets are the most claims made for LB?

Next would a stand alone CI policy be a better option if major health issues were a concern for middle income. As we know people figure out a death benefit for a reason.

(caveat, not an agent)

Thank you for your answer. That makes your questions make more sense.

In regard to your first paragraph, DHK (and others) beat knobbies on my head a few years back when I was trying to do something with both death benefit and cash values (in a whole life policy) simultaneously. That reminds me that I should have a primary focus for buying a life insurance policy.

I am experiencing that situation twice this year (policies of well under $100K).

In the spring I started out to buy a policy with the idea of wealth transfer. Why is irrelevant here, but that turned out to not be possible. That led to a focus on Living Benefits in a single premium policy. What I expected my agent to focus on for me was the living benefit choices. I did not get the maximum death benefit available for my single premium. I did not get the maximum cash value I could have gotten for that premium, (and the SPWL situation would have made accessing it difficult anyway). Actually I did not get the quotes discussed originally because the carrier raised rates in the middle of my buying decision process. I did not even get what my agent considered the best overall LB option because I was interested in the characteristics of one specific living benefit provided by another carrier, once I learned that particular benefit existed.

This month, using a carrier's website quoter, I discovered I had saved up enough money to buy a small whole life policy for wealth transfer purposes. In my 70's, the premium to death benefit relationship sucks. But with my agent's help I got illustrations for two more whole life products and an IUL. I'm going to buy the whole life product with the highest death benefit. The living benefits with that carrier are apparently going to have the kinds of restrictions rousemark talks about. In short, they stink and I am not sure how accessible the cash is.

Speaking only as one consumer, the important thing to me is for the agent to understand my primary objective with the insurance and maximize that. If you want to deal with a secondary objective, my suggestion would be to first learn what is important to the customer rather than just assuming it is living benefits. Some people may value cash access much more than living benefits. I have no clue about other ways life insurance can be used and no knowledge about term at all; but my experiences this year suggest to me that there are bunches and bunches of life insurance companies and life insurance policy characteristics and if you try to fit them all into a specific sale you will not do yourself or your client a service.

In regard to the third paragraph, my personal challenge with those supplementary kinds of things is whether I could maintain the cash flow ability to make the payments over the remainder of my life. Tahoe Ray makes excellent points but he and I are widely separated on the financial resources scale. I will have trouble just with my STHHC policy when I hit the age 80 band. I don't see any way I can realistically add critical illness or hospital indemnity coverage and keep it in effect until I need it. However I am sure that a lot of folks can afford it and keep it in effect. Keep in mind I am not a sales person, so I don't know if this is right or not, but it seems to me the best approach would be to nail the Life Insurance sale first and then have a marketing approach that goes something like "Cancer and Heart Disease are major illnesses affecting the lives and medical budgets of folks today. Would you like learn about some insurance coverage that would help defray costs associated with those illnesses?" Or whatever the properly worded questions are that make people think, see the need, and some to see that they can also afford to mitigate the risk.

 

[LostDollar]

Those who have $4m-$5m in retirement assets can cash flow it most likely. Those with just $1m or $2m in assets cant.

(caveat, not an agent)

I enjoyed that whole post. this paragraph resonated with me because I was just thinking about this a couple of days ago.

2-3 years ago I talked with a CPA I had known some years earlier about whether his firm could help someone with some accounting issues. The CPA asked me what kind of assets this person had. I said probably around a million dollars. The CPA told me that he did not believe his firm could afford to take that person on as a client. I am going "Huh?".

A couple of situations I have observed recently from the high bleachers have started me thinking that in America today, a person needs 2-3 million to fund a modest retirement with relatively simple health care needs and expenses or pretty short end of life care.

From that I was speculating that a person would need $10 million to fund at levels you might be talking about. I don't know, that might be high, but I'd bet 4-5 is not enough for some.

 

[LostDollar]

@scagnt83

I deleted my earlier post with the carrier name. This is the specific info I was referring to.

Policy has two other riders with similar 100% first paragraph, one with a 95% multiplier, the other with a 90% multiplier.

Extended Care

• The owner may elect to accelerate up to 100% of the death benefit if the insured requires Extended Care, such as home healthcare, adult day care, and other qualified care.
• Extended Care means the insured is chronically ill, has been so continuously for at least 90 days, and requires care provided by a licensed home health care agency or by a licensed or state-certified adult day care center (or is otherwise receiving formal care).
• Chronically ill means that the insured:
  • is unable to perform, without substantial assistance from another person, at least two out of six activities of daily living which are (1) eating; (2) toileting; (3) transferring (i.e., moving into or out of a bed, chair, or wheelchair); (4) bathing; (5) dressing; and (6) continence; or
  • suffers from a severe organic mental illness
• The amount payable to the owner is the elected portion (or all, if elected) of the death benefit multiplied by a specified percentage of 80% and reduced by an administrative charge of $250.00.**

(edits to get correct user name)

 

[toolbelt]

@scagnt83

I deleted my earlier post with the carrier name. This is the specific info I was referring to.

Policy has two other riders with similar 100% first paragraph, one with a 95% multiplier, the other with a 90% multiplier.



(edits to get correct user name)

Is there no caveat on that in that the person must also have been diagnosed with a life-ending condition which will lead to certain death within a prescribed time frame? Otherwise, it sounds a lot like a disability policy?

 

[LostDollar]

(Caveat, not an agent.)

Part of the product features section of product information quoted below (bolding is mine)

(my personal objective with this policy is number 2.)
(This policy would not be my personal first choice for options 4 or 5. I made the posts because I am seeing the details of option 4 as germane to agent discussions of op's topic.):
-----------------------------------------
SPWL is a non-participating single premium whole life insurance product. It is designed especially for individuals who wish to:

• reallocate a portion of their assets to increase their estate;
• provide an inheritance to their beneficiaries that is income tax-free;
• avoid the costs, delays, and publicity of probate;*
• access the death benefit for qualified illnesses while living;
• access the cash value during a time of financial emergency

---------------------end of quote-------------------------------


The following is the complete text under living benefits rider except for a footnote specifying a few states where the rider is not available:
-------------------------------------------------
There are three major living benefits available under the policy rider (Accelerated Death Benefit Rider, Form 8014). The rider is not available in all states.

Terminal Illness

• The owner may elect to accelerate up to 100% of the death benefit if the insured is diagnosed as Terminally Ill with a life expectancy of up to 12 months.
• The amount payable to the owner is the elected portion (or all, if elected) of the death benefit multiplied by a specified percentage of 95% and reduced by an administrative charge of $250.00.**

Qualified Nursing Facility

• The owner may elect to accelerate up to 100% of the death benefit if the insured is diagnosed as chronically ill and confined to a Qualified Nursing Facility continuously for at least 90 days with the expectation the confinement will be permanent.
• The amount payable to the owner is the elected portion (or all, if elected) of the death benefit multiplied by a specified percentage of 90% and reduced by an administrative charge of $250.00.**

Extended Care

• The owner may elect to accelerate up to 100% of the death benefit if the insured requires Extended Care, such as home healthcare, adult day care, and other qualified care.
• Extended Care means the insured is chronically ill, has been so continuously for at least 90 days, and requires care provided by a licensed home health care agency or by a licensed or state-certified adult day care center (or is otherwise receiving formal care).
• Chronically ill means that the insured:
  • is unable to perform, without substantial assistance from another person, at least two out of six activities of daily living which are (1) eating; (2) toileting; (3) transferring (i.e., moving into or out of a bed, chair, or wheelchair); (4) bathing; (5) dressing; and (6) continence; or
  • suffers from a severe organic mental illness
• The amount payable to the owner is the elected portion (or all, if elected) of the death benefit multiplied by a specified percentage of 80% and reduced by an administrative charge of $250.00.**

--------------------------------end of quote----------------------------

Edit-
all of this is from carrier website information, not from an actual policy in hand.
End Edit -

 

[LostDollar]

Is there no caveat on that in that the person must also have been diagnosed with a life-ending condition which will lead to certain death within a prescribed time frame? Otherwise, it sounds a lot like a disability policy?

You dinged me for being lazy. I was trying to reduce my amount of copying and pasting!

 

[Tahoe Ray]

Is there no caveat on that in that the person must also have been diagnosed with a life-ending condition which will lead to certain death within a prescribed time frame? Otherwise, it sounds a lot like a disability policy?

Chronic illness riders (which this looks like) do not typically have that caveat. Some require that the condition remain permanent but others do not.

You are talking about a terminal illness rider which is different.

 

[scagnt83]

(caveat, not an agent)

I enjoyed that whole post. this paragraph resonated with me because I was just thinking about this a couple of days ago.

2-3 years ago I talked with a CPA I had known some years earlier about whether his firm could help someone with some accounting issues. The CPA asked me what kind of assets this person had. I said probably around a million dollars. The CPA told me that he did not believe his firm could afford to take that person on as a client. I am going "Huh?".

A couple of situations I have observed recently from the high bleachers have started me thinking that in America today, a person needs 2-3 million to fund a modest retirement with relatively simple health care needs and expenses or pretty short end of life care.

From that I was speculating that a person would need $10 million to fund at levels you might be talking about. I don't know, that might be high, but I'd bet 4-5 is not enough for some.

It all depends on your lifestyle. But to a large extent, you are correct.

I know people who have retired comfortably on less than $1m. One client Im thinking of has their house paid off, cars paid off, lives modestly, gets SS, has rental income, & occasionally works some consulting gigs (mostly because he wants to). Of course cost of living here in SC is a lot cheaper than many areas, even in the metropolitan area I'm in.

Its just math and inflation. $1m in assets, times a 4% annual income, equals $40k of retirement income per $1m in assets. Many advisors do 5% now so you could say $50k per $1m. Most people get around $20k - $30k in SS income. So the average 70 year old with $1m should have around $60k - $80k in total income.

The idea is that you get a higher return than the 4% or 5% you take in income, so that increases your income over time to fight inflation. (in reality it doesnt always work out that way)

A person can utilize an annuity and often get more than a 4% or 5% income payout on their assets. But a maximum of 70% of their assets should be in an annuity, so you are never going to get that higher rate with all of your assets.

---

In my opinion, the biggest retirement issue is healthcare. You need at least $360,000 to cover healthcare expenses in retirement. That is what forces many "retirees" to still work.

You pay into the Medicare system for decades... only to have the equivalent of catastrophic coverage provided without substantial cost. For a married couple: PartB + MedSup + PartD + Dental Ins + Vision Ins = $1k per month. Then there are deductibles and co-insurance. Many senior couples are paying $1,200+ a month on just healthcare.

So lets say the total cost per month is $1,200 if we include deductibles and co-insurance. Take $360k and multiply by 0.04%, and you get your $1,200 per month needed to cashflow healthcare costs during retirement.


Housing is the second biggest issue for retirees today. Many decided to rent to "avoid excess costs" and are now being priced out in the largest real estate bubble our economy has seen. If a retiree or pre-retiree didnt take advantage of the super low interest rates to lock in an affordable payment before house prices went sky high... they likely made the single largest financial mistake of their life.

Then some of the ones who did take advantage of the low rates decided to move into something bigger or nicer instead of just refinancing/remodeling their current home. So they created an ongoing expense during retirement that costs thousands a month... instead of using their well off financial position to reduce monthly expenses. For the ones who did this over the past 5 years.... they bought in at levels that may or may not sustain themselves in the future. And I just read recently that baby boomers are one of the main drivers of the currently hot real estate market.... beating out my generation with all cash offers that are even higher than asking price, etc. etc. So are they setting themselves up to be underwater on this financial move? Maybe, maybe not. But I cant help but feel that at least a good many are currently overextending themselves. Hopefully most opted for fixed rate mortgages.

Oh, and those who locked themselves into another 30 years of mortgage payments... often feel the need to extend their life insurance coverage for at least another 20 years if not 30... for a 65 or 70 year old thats a very large "hidden" expense.

----

So yeah, retirement has changed drastically over the past 20 years. Getting back to the whole healthcare issue. Boomers essentially gave up a large portion of their retirement to have the "safety" of employer funded health insurance to pay for their healthcare. Meaningful raises for the bottom 70% of the workforce were essentially tossed out the window when group health took over (compare the graphs if you dont believe me). And with deep corporate pockets paying for the cost of care... insurers had less and less of a reason to negotiate with providers. Higher medical bills means higher insurance premiums, & rich corporations could absorb many of the initial price increases without too much of a fallout... now 30 years later the sh*t has hit the fan and wages are next to nothing compared to the real inflation rate. But hey, most working people only have to pay $200 a month for health insurance... totally worth it!!?? The average cost per employee to a business for group health is now over $1,000 a month, I think its around the $1,200 level nationally. That is almost 1/3 the average employees income... there is your wage gap... And that is just the "national average" which is $50k. The median is $35k, that is 42% of their income being paid by the company for insurance.

Imo, group health & not having universal healthcare is the single largest detriment to the US economy. I could point out so many other economic factors it affects. The cost of maintaining group health has decimated small businesses over the past 20 years. Not only is it a hard cost for the premium, but its a soft cost with HR/admin labor and time spent from the owner. And for around 30 years now, the #1 reason people dont start their own business is because of health insurance.

I could go on, but Im getting off topic and the alt right extremists will jump on me soon and derail what so far has been a great thread.

Retirees. They are feeling the brunt of the healthcare issue. And they should... they created it. Just being blunt and speaking my mind there.

 

[toolbelt]

Chronic illness riders (which this looks like) do not typically have that caveat. Some require that the condition remain permanent but others do not.

You are talking about a terminal illness rider which is different.

I would imagine the cost of care required for people with that level of chronic illness means the living benefits would eat up the payout for most of the life insurance component, so the rider could really be described as a substitution for life insurance rather than an additional benefit?

 

[LostDollar]

I would imagine the cost of care required for people with that level of chronic illness means the living benefits would eat up the payout for most of the life insurance component, so the rider could really be described as a substitution for life insurance rather than an additional benefit?

(caveat, not an agent)

I think, to be careful with wording, I would say the policy holder's use of a living benefits rider would substitute for their use of the policy's death benefit.

I suppose you could use the word additional in relation to optional uses of the death benefit of a policy.

I have a life insurance policy purchased 40 years ago. It provides me with the options of doing something with its cash value dollars myself or allowing my beneficiaries to do something with the death benefit dollars after I've croaked.

The policy I'm talking about above will give me 3 options after I have purchased it.

I can allow my beneficiaries to use the death benefit after I've croaked.
OR
I can share the death benefits between me and the insurance company, taking my share as a living benefit, if I meet the insurance company's criteria for the benefit.
OR
I can obtain cash, pay interest, and reduce the amount available for the policy beneficiaries.
SUBJECT TO
I can't use any combination of options that exceed the maximum death benefit of the policy I've purchased.

(I may not have that quite technically correct for an insurance agent, but I think it is close enough to keep me out of trouble.)

The reason buying this particular policy to use its cash benefits or living benefits is not a wise move for me is that my premium will be around 82% of the death benefit and its cash value immediately after purchase will only be around 64% of the death benefit.

There is no way the cash value will build back to purchase price within a reasonable life expectancy for me.

With the living benefits, the insurance company is going to keep 5%, 10%, or 20% of the death benefit (plus a service fee) depending on the benefit I choose. I think they have scaled the amount they keep to how likely they think I am to use the particular living benefit. And... I think they have it structured so they are mostly using my money (or my money plus a small portion of the earnings they have made from it) to pay me the living benefit. (A younger person, with a lower "buyin" requirement, might find these living benefit options more attractive than I do.)