Presented by Brian Leising
Finding the right formula for each client
Not all extended care riders on life insurance policies are created equally. Do you know the differences? Different combinations will appeal to different clients more than others. Here are eight of the major distinguishing features among insurance companies offering extended care riders. All include some combination of the eight elements. This allows you to find the right formula for each client.
| Premium Payments |
Benefit Qualification |
Benefit Amount |
| Pf Payment Frequency |
|
Pa Payment Amount |
| Lg Lapse Guarantee |
Tc Tax Code |
Pm Payment Method |
| Wp Waiver of Premium |
Ep Elimination Period |
If Inflation |
Element 6 – Payment amount
Insurance companies use two primary methods to determine the benefit amount paid to your client. The payment amount will be either based upon a known figure up front, or will be determined at claim. If there is no cost for the extended care rider up front, charges are assessed at the time of claim. In this scenario, the company will set a maximum acceleration amount available to the client. The client may elect to request that entire amount or a lesser amount. The carrier will then base their charges on the client’s life expectancy and current interest rates. For instance, they may determine the client has a life expectancy of five years. They will take the dollar amount requested, calculate the interest they would expect to earn on that money over the next five years, and then subtract that amount from the client’s benefit as their fee. With this type of payout calculation, it is impossible for a client to know exactly how much money they will receive until they actually file a claim. This works well for clients who absolutely will not pay for a feature they believe they will never use as there is no upfront cost for this type of rider.
If there is a charge up front for the rider, the benefit will be a known number. Most carriers express the monthly benefit as a percentage of the face amount. 2% is common, but some offer 3%, 4% or the full Federal per diem amount as the monthly benefit. At least one company allows the client to name a specific dollar figure on the application. This method gives the client the ability to know exactly what to expect upon filing claim.
Look for Element 7 – Payment Method in July.
