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 8 – Inflation
While inflation protection is common on traditional LTC policies, it is not commonly found on extended care riders. Some insurance companies do give clients the option to increase their monthly coverage at rates including 3% or 5% simple or compound interest, but this is rare. How else can we match the increasing benefit commonly found on LTC policies? One way to approximate the increase is to use an increasing death benefit option on a universal life policy. The death benefit (and corresponding extended care benefit) is the initial death benefit plus the accumulated cash value. The increase depends upon both the amount of money placed into the policy and the performance of the index account or the dividends declared by the company. An increase in death benefit equals an increase in extended care benefits. Another option to increase the benefit amount would be use the Federal per diem amount as the monthly payout. With the per diem option, the client’s monthly benefit is equal to the current Federal per diem benefit amount ($340/day in 2016). The amount has traditionally been increased by the Federal government an average of 4% per year. Although not guaranteed, this could mimic inflation protection. Keep in mind, the per diem monthly benefit does not increase the total amount of money available for extended care, just the monthly amount.