The Eight Elements of Extended Care Riders – Element 8 – Inflation

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.

The Eight Elements of Extended Care Riders – Element 6 Payment Amount

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.

The Eight Elements of Extended Care Riders – Finding the right formula for each client

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 5 – Elimination Period

The elimination period is the amount of time an insured has to wait for benefits after qualifying for them. Put yourself in the insured’s shoes, if you qualify for benefits, why would you have to wait to receive them? Despite this disconnect between consumer expectations and company practice, most policies contain a 90 day elimination period. Some have a shorter period for home health care and only a very few offer clients benefits immediately upon qualifying for claim.

Look for Element 6 – Payment Amount in June.

The Eight Elements of Extended Care Riders – Element 4 – Tax Code and Benefit Qualification

Presented by Brian Leising

The Eight Elements of Extended Care Riders

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 4 – Tax Code and Benefit Qualification

Insurance companies file their extended care riders and provisions under one of two (or both) tax codes, 7702(T) or 101(g). What’s the difference? Only the riders filed under 7702(T) may use the words “long term care” to describe the rider. Since the 7702(T) riders are viewed as tax-qualified LTC polices that have been added to a life insurance contract, the LTC benefit in many cases will exceed the death benefit of the underlying policy. Chronic illness riders (101(g)) may only accelerate up to the actual death benefit amount. The difference of greater concern pertains to benefit qualification. With either tax code, benefit qualification depends upon the client losing physical and/or mental abilities. The insured can qualify for benefits by losing the ability to perform two of six activities of daily living (ADL’s) or severe cognitive impairment (such as Alzheimer’s or dementia). With chronic illness riders (101(g)) an additional requirement must be met: the condition must be deemed to be permanent. An insured may recover, but the expectation they will not triggers the chronic illness (101(g)) benefit.

Look for Element 5 – Elimination Period in May.

New Benefits

Per Gary Peterson

A new form of life insurance has hit the market.  Not only can the family benefit through a Death Benefit, but the insured can now receive benefits through Living Benefits, Income Riders and Return of Premium (ROP).  Several carriers offer one or all of these benefits for you to give your clients options and flexibility.  Give us a call at 800-397-9999 to discuss the many ways to assist you in your insurance business.