Thursday, May 25, 2017

Bridging the Gap from Annuities to Life Insurance

By: Charlie Gipple CLU, ChFC, SVP Sales and Marketing at Partners Advantage Insurance Services, LLC

Today, there are about 325 million people that live in the United States. However, only around 4.8 million of those people have a long-term care policy, and long-term care can be expensive! In 2015, the median cost of a private room in a nursing home was around $90,000 per year and the median assisted living facility was around $42,000 per year. Considering there is a 70% chance that if you are over the age of 65 you will experience a long-term care event, these statistics are worrisome. Especially considering the persisting hesitancy for consumers to purchase long-term care insurance because of the high cost, premium increases, and the big one; if the consumer doesn’t use the benefit, they lose it!

The good news is Single Premium Life Insurance can help in this area as well. Many products have long-term care, chronic illness and/or terminal illness benefits that come along with the product, whether in the form of a rider or an imbedded benefit. 

Many times what these riders will allow is an “acceleration” of X percent of the death benefit if the consumer has a condition that qualifies. Taking one very popular SPL product in the marketplace as an example; this product has a terminal illness rider that will pay out 95% of the death benefit if the insured is diagnosed with a terminal illness. Furthermore, 100% of the death benefit (minus a $250 charge) can be paid to the insured over a period of time if the client is either confined to a nursing home or diagnosed with a chronic illness. If the client wants the nursing care confinement benefit or chronic illness benefit in a lump sum, there are “discount factors” that would be applied to the death benefit, for example 85% and 75% respectively for the nursing care confinement and chronic illness benefits. 

Furthermore, the underwriting for these extra “morbidity” benefits many times amounts to nothing as the insurance company may only underwrite for mortality (Death) and not morbidity (Illness). So, for a consumer that has been denied traditional long-term care insurance, these benefits attached to an SPL policy may be a good alternative. 

The time has never been better for the “Live, Die, or Quit” value proposition of Single Premium Life. To clarify, if the consumer lives long enough to have a chronic illness, there is great value in SPL. Conversely, if the consumer dies, the death benefit will pay out to a beneficiary. Or lastly, if the consumer realizes they want to “quit” their policy, they can do that at any time and get at least their original premium back.

Learn more in the full white paper "SPL: Bridging the Gap from Annuities to Life Insurance," by Charlie Gipple, CLU, ChFC. It provides case examples, addresses costs, and how you can find success in explaining these products to clients.  

Questions or Need Case Assistance: Contact the Partners Advantage Brokerage Team at 888-251-5525, Ext. 700.

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For financial professional use only. Not for use with consumers.

This material is intended for educational purposes only and is not intended to serve as the basis for any investment or purchasing decision. Insurance and annuity products: Are not deposits. Are not guaranteed by a bank or its affiliates. May decrease in value. Are not insured by the FDIC or any other federal government agency. This information is written in connection with the promotion or marketing of the matters addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice. Pursuant to IRS Circular 230, Partners Advantage Insurance Services and their representatives do not give tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Encourage your clients to consult their tax advisor or attorney. The information contained in this article is not intended to serve as tax or legal advice and is not intended to provide financial or legal advice and does not address individual circumstances. Encourage your clients to consult their tax advisor or attorney. The information contained in this article is not intended to serve as tax or legal advice and is not intended to provide financial or legal advice and does not address individual circumstances. Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy’s account value and death benefit. Assuming a policy is not a modified endowment contract (MEC), withdrawals are taxed only to the extent that they exceed the policy owner’s cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions. These characters are fictional and are not actual customers. Your own decisions should be made in light of your own financial situations. This hypothetical examples used are for illustrative purposes only, is no guarantee of return or future performance, and does not depict the actual performance of a specific product or its investment options. In order to provide a recommendation to a client about the liquidation of a securities product, including those within an IRA, 401(k) or other retirement plan, to purchase a fixed or variable annuity or for other similar purposes, you must hold the proper securities registration and be currently affiliated with a broker/dealer or registered investment adviser. If you are unsure whether or not the information you are providing to a client represents general guidance or a specific to liquidate a security, please contact the individual state securities department in the states in which you conduct business. Indexed Universal Life is not a stock market investment and does not directly participate in any stock or equity investments. Market Indices do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; a market-indexed insurance product is not comparable to a direct investment in the equity markets. Clients who purchase IUL are not directly investing in a stock market index.