New Use for Life Insurance
Read this post carefully if you or your parent has assets they want to pass on to their kids.
Most senior citizens consider buying long-term-care insurance because they know that the cost of significant care is exorbitant. Many people take a pass on this insurance because it can be very expensive, especially if they never actually need the care they are insuring.
One Potential Solution is LIFE INSURANCE
Life insurance has always been a very favorable asset to transfer to one’s heirs. There are a couple of reasons why I like it so much today.
1. The death benefit is inherited federally income tax-free.
2. Improved life policy design allows for the insured to purchase a “Guaranteed” death benefit (not subject to stock market risk) that is much cheaper than traditional “whole life” insurance because no cash value accumulates for the insurance company.
3. Now you can take an advance on your death benefit while you are alive to pay for long-term care expenses.
While life insurance has always provided a terrific wealth transfer benefit, an unexpected event could derail those plans:
- An accident,
- A sudden injury.
- A stroke or debilitating illness.
Such tragedies can severely affect your ability to protect your family and care for yourself. Imagine yourself suddenly unable to perform several of life’s basic functions, or “Activities of Daily Living”, on your own. What if you (or your parent) couldn’t get around? Wash? Dress? Eat? It’s hard to think about, but you should prepare for such possibilities.
Now with a special rider added to your life insurance policy.
You can access your life insurance death benefit as a contingency plan for unexpected chronic conditions.
Hartford Life Insurance Company refers to this as their Life Access Rider.
Chronic illness can be physically and financially devastating. This long term care rider allows access to your death benefit value if you become chronically ill and your condition otherwise satisfies the terms of the rider. These funds can ease the pressure on your income or life savings. To draw 
on them, you must be certified as “chronically ill” by a physician, meaning:• Unattended, you cannot perform at least two Activities of Daily Living for a period of 90 days or more.
• You suffer from a cognitive impairment that requires substantial supervision to protect you from health and safety threats. Your physician must also determine that you need services under a plan of care that will likely continue for the rest of your life. This must be affirmed annually.
Activities of Daily Living:
• Bathing • Toileting
• Continence • Eating
• Dressing • Transferring
With Hartford’s Life Access Rider, you could access up to 2% of your death benefit as a monthly distribution. If you never use the benefit, your beneficiaries would receive the entire original death benefit, otherwise they would receive the benefit less any qualified advances you received. For example, if you had a $500,000 death benefit, assuming you qualified for the benefit, you can take an advance on your death benefit of up to $10,000 per month and spend it any way you like. If you took $10,000 per month for 18 months and then passed away, your beneficiaries would receive ($500,000-$180,000) $320,000 income tax free.
YOU CONTROL YOUR BENEFITS
There are no restrictions on how you use the funds. You may pay for medical or non-medical expenses, such as:
• Family care • Home health care
• Assisted living • Skilled nursing care
• Adult day care • Intermediate care
• Hospice or respite care • Transportation
• Home remodeling • Entertainment or Groceries
Plus, there is no requirement to submit receipts. You can use your benefits however you choose to best help your situation, without having to account for your decisions. The benefits may be taxable, depending on your situation. Including whether qualified expenses1 are incurred, benefits are being received under similar contracts, or qualified expenses are reimbursed.2
Of course there is a cost for the long term care rider that allows us to use some of our death benefit while we are alive, but it should be far less than a premium for a long-term care policy.
The ideal candidate’s for the plan I’ve written about is financially comfortable and will likely have a six to seven figure nest egg to pass on one day to their heirs and be in reasonably good health for their age.
If you would like to explore this further for yourself or possibly your parent, send me an email or call directly at 630-942-9007.
1 Qualified expenses means costs incurred for the necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal care services needed by a chronically ill individual.
2 When the insured and policy owner are not the same [e.g., a policy owned by an Irrevocable Life Insurance Trust (ILIT)], policy owners should consult their advisers to assure there are no unintended consequences of the unavailability of funds to the insured or unintended tax consequences related to the availability of funds to the insured (e.g., defeating the estate planning purpose of the ILIT). In addition, if the policy owner has an insurable interest in the insured’s life based on certain business or financial relationships, the rider’s benefits may be subject to income tax.
Brad, how does this compare with Lincoln’s Moneyguard?