Wednesday, May 21, 2014
Life expectancy today is much higher than it was in 1935, when Social Security was enacted. People are living longer, and therefore, are in danger of outliving the money they have set aside for retirement. For many individuals, the biggest concern is healthcare. Robert Pokorski, Prudential’s medical director, says that seven out of ten clients over the age of 65 will need some type of long-term care. Unfortunately, family members must cover the costs.
As a result, more than ten insurers have added chronic illness riders to their life insurance policies. Normally, a chronically ill policyholder will tap their death benefits to compensate the family members that have paid for their health care or the facility where it was provided. Up to a point, the distributions are tax-free. Any residual funds go to beneficiaries upon the policyholder’s death. For some plans, once money is disbursed, the cash can be used for anything, such as paying family caregivers.
The response to the life insurance rider has been very positive, “Financial professionals see the feature as a way to provide more value to their clients by offering not only the death benefit protection, but also the ability to access the death benefit should the insured become chronically ill or terminally ill.”
See Alan Lavine, Should You Buy A Critical Care Rider? WealthManagement.com, May 20, 2014.