New Alternatives for Long Term Care Solutions

Costs, and supply, of coverage spurs innovation

by Jay Drucker

Mr. Drucker is Vice President, Product Management for American General Life Companies. He can be reached at

As we all look for opportunities to continue delivering smart solutions to clients in 2014, let me ask: have you ever known anyone who needed – or whose parent, friend or relative needed – long-term care? You likely have, since seven of 10 people who reach the age of 65 will need long-term care at some point, according to federal health statistics.

What’s more, America is aging; by 2020, the number of people in this country who are age 65 or beyond is expected to reach 54.8 million, more than double as many as in 1980, per the Department of Health and Human Services. By 2030, the figure is projected to grow to more than 72 million people who are age 65+.

As an increasing number of Americans face the potential need for long-term care, the cost of long-term care insurance (LTCi) has risen dramatically. According to a recent press release from the American Association for Long-Term Care Insurance, a 55-year-old single individual purchasing long-term care insurance protection can expect to pay $2,065 per year for $162,000 of current benefits which will grow to roughly $330,000 of coverage at age 80; that’s a price tag 20 percent steeper than the cost of identical coverage in 2012.

In light of burgeoning premiums for LTCi policies, recent contraction in the market in the supply of such products, the rising population of older Americans and the escalating costs of long-term care, the coming new year seems an opportune time to educate clients and prospects about the value proposition of a chronic illness accelerated benefit rider on life insurance as an affordable alternative that can help cover many of the same types of needs as a costly LTCi policy.

Without question, it’s imperative to help guard clients and families from the difficult financial burden that can arise from the physical or mental frailties that often lead to the need for long-term care. Therefore, agents and advisors can provide a valuable service by educating consumers about smart solutions that can help protect them from having to tap into their retirement portfolios to pay for needed care.

Chronic Illness benefit rider

A chronic illness accelerated benefit rider available on certain universal life insurance products can be a boon, providing an income tax-free acceleration of the policy’s death benefit: in other words, life insurance the client doesn’t have to die to use. Clients can access the policy’s living benefits if they qualify during their lifetime. Of course, the death benefit is reduced by the amount of the living benefits paid to the policy owner; at death, the remaining death benefit is paid to policy beneficiaries, income tax free.

Typically, a policy holder qualifies for chronic illness accelerated benefits on life insurance if a Licensed Health Care Practitioner certifies that for at least 90 days, the insured has been unable to perform, without substantial assistance from another person, at least two of the six Activities of Daily Living (bathing, continence, dressing, eating, toileting, transferring) or has suffered from a severe cognitive impairment (measured by clinical evidence and cognitive tests). A physician must also certify that the conditions are likely to be permanent.

When the health impairment criteria are met, the funds from the chronic illness accelerated benefit rider can be used to help pay for adult daycare, assisted living, nursing home care, and more – virtually any expense, even if unrelated to the illness. That’s because a chronic illness accelerated benefit rider is not an LTCi product; thus, benefits are paid on an indemnity model rather than a reimbursement model.

A chronic illness accelerated benefit rider available on certain universal life insurance products can be a boon, providing an income tax-free acceleration of the policy’s death benefit: in other words, life insurance the client doesn’t have to die to use

That can be welcome news to clients. Imagine the satisfaction they can get from knowing that the payout from a chronic illness accelerated benefit rider could be utilized, for example, for home modifications to accommodate the policy holder’s condition, or to compensate an adult son or daughter to provide care, enabling the policy holder to live at home longer – without the need to secure carrier pre-approval or submit receipts.

A life insurance policy with an accelerated benefit rider for chronic illness therefore can serve as a highly flexible solution for some of life’s most pressing needs. What’s more, accelerated benefit riders can help clients and prospects make the most of their budgets. It’s not hard to comprehend the value of being able to meet multiple needs with a single product rather than purchasing separate policies.

Providing appropriate solution for clients:

  • who know they need life insurance to protect them and their families,
  • who have experienced a recent health care event with a family member or friend, and realize how expensive it can be,
  • who realize that they need an additional financial safety net in the event of an unexpected chronic illness, and
  • who are generally in good health but want options in the event their health deteriorates later in life.

When reviewing chronic illness accelerated benefit riders, you’ll want to be aware of the most innovative, new designs. Look especially for flexible benefit payment options, including a unique payout methodology to help protect against inflation.

Many accelerated benefit riders for chronic illness are paid at 2 percent of the face value of the rider per month for 50 months. However, it is now possible to obtain a rider that can pay either 2 percent or 4 percent of the benefit amount per month, and even offers the option to have the benefit amount set at the maximum Internal Revenue Service (IRS) allowable per diem at the time the benefit is exercised. (In 2013, that’s $320 per day, rising to $330 per day in 2014.)

Other rider attributes to look for include affordable premiums that are fully guaranteed for the life of the contract, and a waiver of monthly premium that applies as long as the policy holder qualifies for benefits – even if he or she chooses not to take the benefits.

As with most products, some conditions and limitations apply to chronic illness accelerated benefit riders on life insurance. For example, the ability to accelerate all or a portion of the death benefit may be a function of the benefit selected, the death benefit of the policy, and prevailing IRS limitations at the time the benefit is paid. In keeping with best practices, a policy holder should consult a qualified tax advisor. Regardless, the newest designs in chronic illness accelerated benefit riders absolutely merit serious consideration.

We’re all in this industry to help match client needs to products that can fulfill those needs. Given the aging of America and the ongoing concern over rising costs of care, agents and advisors seeking opportunities to truly bring value to client relationships in 2014 will look closely at a uniquely structured chronic illness accelerated benefit rider as a potential alternative to an LTCi policy – an alternative that can provide clients with peace of mind as well as prudent protection.


American General Life Companies,, is the marketing name for the insurance companies and affiliates comprising the domestic life operations of American International Group, Inc., including American General Life Insurance Company and The United States Life Insurance Company in the City of New York. American General Life Companies insurers offer a full line of life insurance, annuities and accident & health products to serve the financial and estate planning needs of its customers throughout the United States.