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Insurance for Life: the Case for Accelerated Benefit Riders

The honest truth is that there is no one reading this article who hasn’t had a heart attack, stroke or cancer, or known someone close to them who recently had to deal with one of these illnesses. The good news is that more and more people are winning the battle to live longer, although they are likely to be financially devastated. It is a sad fact indeed that when we know someone who is going through these major storms, we also hear about the financial havoc wreaked upon their retirement savings.

It wasn’t that long ago that I had my own brush with death after experiencing my own heart attack at a young age of 54. I had been an avid basketball player nearly all my life and thought myself to be in pretty decent shape. But familial history sometimes has a way of ignoring those things and comes visiting your door anyway, bringing your mom and dad’s genes along with it.

That period of time was difficult, to say the least, as we were still paying for our youngest daughter’s last year of school and I was suddenly out of work for nearly five months. You agents reading this article understand that being a sole proprietor insurance agent means that if you aren’t out there selling, you are unemployed, and being unemployed means no money. Get the picture?

Such is the case for millions of Americans across the country. The biggest threat to our ability to earn an income is sickness. And for the purposes of this article, I’m focusing on sudden illness through heart attack, stroke and cancer. They are at the leading edge of maladies that can impact us in such a manner. Today a whopping 58 percent of all deaths of those between the ages of 45 and 64 are a result of these diseases, according to the Centers for Disease Control. This is not taking into account those who will get sick and still live. These are the people I am talking about.

More than 140,000 people in the U.S. die each year from stroke. It is the leading cause of serious, long-term disability, according to the Centers for Disease Control. Nearly one-quarter of those afflicted with stroke suffer it prior to age 65, while the stroke death rate fell by 30 percent during the 10 years from 1995 to 2005. This means that even though the stroke sufferers survived, they now have to deal with the financial fallout.

And today, heart disease is the No. 1 cause of death for both men and women in the U.S., claiming approximately 1 million lives annually. This year more than 920,000 Americans will have a heart attack, and 250,000 of them will die from it. That means 670,000 will live to tell about it.

To add further insult, one in two men and one in three women will be diagnosed with cancer in their lifetimes, and one cancer diagnosis will be made every eight minutes. The chance that you will know a person with cancer during your lifetime is nearly 100 percent. If you are a man, there is a 50 percent chance it will be you, and for women, there is a 33 percent chance it will be you.

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Now, I know all this sounds very bad – and it is. But it is critically important that we as life insurance underwriters understand this. Because we know that roughly 50 percent of all bankruptcies are due to medical expenses.

Life insurance agents have the ability to influence and maybe even change the financial picture for those afflicted through the use of life insurance with accelerated benefit riders (ABRs) for critical, chronic and terminal illnesses.

Because ABRs have been relatively new on the marketplace for the past four years, some insurance companies have incorporated these riders into the plans being sold today for both permanent and term insurance policies. There are roughly 160 companies in the market today that offer some form of accelerated benefits on their plans, but it’s still a relatively small number of insurance companies that offer all three – critical, chronic and terminal accelerated – benefits.

These provisions in life insurance policies will allow the insured to apply for a settlement to have a portion of the life insurance coverage be paid out.  At this point, the amount paid is still considered nontaxable. The companies will collect medical documentation to determine the severity of the claim in order to make a settlement offer. Depending upon the carrier, the settlement offer can be either an all-or-none deal or the insured can take a portion of the offer and have an adjustment made on the remaining life insurance benefit. Up to as many as 17 major illnesses can be covered under the critical illness provision, depending on the carrier.

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For example, Jim Smith (the insured) owns a $500,000 life policy with the three ABRs; he has a heart attack and survives. Jim contacts his agent and starts the claims process under the critical illness provision. After gathering statements and records related to the event, the insurance company determines that Jim had a moderate heart attack and makes an offer of $200,000 to settle it. If available, Jim elects to take $50,000 to cover his income loss and has an adjustment made on the remaining benefit. To Jim, the $50,000 tax-free settlement is a godsend. He can now focus on being able to stay at home and recover. He and his family do not have to worry about which bills to pay and can avoid those harassing collection calls. They now have the ability to handle all of that.

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In a second example, we have Nancy, who has a $750,000 permanent policy with the same three ABRs. Nancy suffers a stroke and is admitted as a patient in a nursing home. Under the chronic illness provision, Nancy meets the requirement of not being able to do two of the six activities of daily living, which is the same number that would apply under a long-term care policy. Again, depending on the company insuring her, she will receive either a monthly payout or a lump sum settlement. Policies and guidelines vary greatly from one company to the next, so it’s best to speak in generalities on payouts. It also is important to note that these plans are not meant to be replacements for long-term care plans.

You as an agent can make a huge difference in your clients’ lives when these plans are in place and your clients are faced with health-related earthquakes. You give them the opportunity to stabilize their income and avoid going through their savings, potentially taking early withdrawals from their retirement accounts, facing tax penalties and perhaps even declaring bankruptcy. By implementing this strategy, you provide your clients with a crucial service and further validate your position as trusted insurance advisors. And in the end, isn’t that why we are here in the first place? We are here to serve, and these plans give us a wonderful way in which to do that.

 

Val Mikesell is 34-year veteran in financial services and is currently recruiting and instructing agents on how to build their agencies. Val may be contacted at [email protected] [email protected].


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