Do you have outdated Life Insurance?

Accelerated Benefit Riders and Real World Solutions
By Dan Randall
When considering permanent life insurance, we frequently focus on the illustration and whether the numbers “work”. For pure death benefit sales, what’s the premium to carry the policy to age 100 or age 120? For accumulation-driven sales, what’s the projected cash value in 10 years, 20 years, and what’s the projected income at 65? Often, the sales process is based on a illustration-driven / spreadsheet approach, as opposed to a comprehensive solutions-driven approach.
Under a solutions-driven approach, all policy benefits – not just a low premium or high projected cash value – are fully considered. In addition to a competitive premium or high cash values, policy riders, in particular, Accelerated Benefit Rider Critical Illness, ABR Critical, could be considered a very valuable benefit.
What options exist for clients who have serious, life threatening illnesses, but are not technically considered terminally ill? Clients may consider electing the ABR critical illness rider – where available – to cover expenses associated with their life threatening illnesses. The ABR critical illness rider is intended to qualify for income tax favorable treatment. Whether the benefits qualify for favorable tax treatment may depend on the client’s life expectancy and if the benefits are used for related illness expenses. Clients are encouraged to consult with a qualified tax advisor about circumstances where accelerated benefits may be excluded from federal income tax, and with social service agencies concerning how receipt of such payment will effect their eligibility for public assistance.
How does the client access benefits under the ABR critical illness rider? The definition of a critical illness is slightly different than a chronic illness. Critical illness benefits may be accelerated if the insured suffers a heart attack, stroke, major organ transplant, has been diagnosed with cancer, end stage renal failure, ALS or blindness. There is generally no additional cost, waiting period or additional underwriting for this rider. Based on the severity of the illness – minor to life threatening – the policy owner can elect to receive a lump sum cash payment in exchange for the death benefit. The lump sum benefit for a life threatening illness is approximately 80% of the death benefit – up to certain maximum limits.
What is the inherent cost of ABR Critical Illness to the life carrier? The inherent cost of ABR critical to a life carrier is the cost of paying the death benefit – in most ABR claims – prior to the client’s life expectancy. From a profitability standpoint, paying claims before they are “expected” is less profitable for the carrier. However, if additional business is generated by offering ABR critical, the rider can still contribute towards the underlying profitability of the product line. Also, for those clients electing ABR critical, the accelerated benefit is discounted – on a present value basis – so the carrier would be paying a slightly lower benefit than had the client died with the full death benefit. The challenge is to make the benefit attractive enough to elect, yet trying to maintain maximum profitability for the carrier.
Why is the ABR critical illness rider a valuable benefit to the client? Experimental treatments, alternative medicine, and international medical care may be not be covered under your clients’ health insurance, but could qualify as life threatening illnesses under the ABR critical illness rider. Consider the following example as a possible application for the ABR critical illness rider:
Prescription medication must be approved by the FDA before it becomes available to U.S. consumers. Typically, the FDA drug review process may take 12 – 30 months.1 If the medication is not approved by the FDA, generally, it will not be covered by health insurance.
Experience