Personal Savings – Your clients may set aside funds dedicated to providing for their future care needs.

Long Term Care Insurance – Traditional long term care insurance policies offer a cost-effective way to provide a reliable source of funds to help pay long term care expenses.

Medicare or Medicaid – Government programs such as Medicare or Medicaid have limitations. For example, Medicare will only provide coverage for long term care that is part of a rehabilitative plan or skilled care. Medicaid will pay for care only after certain eligibility requirements are met, including significant restrictions on income and assets.

The Advantages of Planning Ahead

Preparing for their long term care needs may not be top of mind for young and middle-aged clients, who often have other financial priorities. However, what they may not realize is that starting a plan earlier in life may help them to be better prepared by the time they retire.

Accelerated Death Benefit for Chronic Illness Rider – Questions & Answers

What is the Accelerated Death Benefit for Chronic Illness Rider?¹

This rider allows the policyowner to accelerate the payment of a portion of the policy death benefit if the insured is certified as chronically ill and the condition is expected to be permanent. Payments are generally income tax free and paid on an indemnity basis. There is no elimination or waiting period to begin receiving benefits. The rider is included on Universal Life Guard and Apex VUL policies that meet the underwriting requirements with an issue age of 18 to 65. No additional underwriting is required; however, the underwriter must approve the rider at issue. The rider is not available with policies issued in New York and California.

What is the eligibility criteria to receive benefits?

Within the previous 12 months, a Licensed Health Care Practitioner has certified that the Insured:

• Is permanently unable to perform, without Substantial Assistance, at least two (2) Activities of Daily Living (bathing, continence, dressing, eating, toileting, and transferring) due to loss of functional capacity; or
• Requires Substantial Supervision to protect the Insured from threats to health or safety due to permanent Severe Cognitive Impairment.

How much does the benefit cost?

There is no monthly charge for this rider. However, when a benefit payment is made, the death benefit will be reduced by an amount greater than the benefit paid. If there is an outstanding policy loan, a portion of the benefit payment will be applied to repay a portion of the loan, which, in turn, will reduce the benefit paid.

Under what circumstances will the rider not be issued on policies?

The rider will not be issued on policies:

• With table ratings higher than table D.
• With permanent or temporary flat extra ratings higher than $10 per $1,000 of face amount.
• Where any portion of the initial face amount is made up of a segment resulting from a term conversion or exercise of the Guaranteed Insurability Rider (GIR) option.

What types of expenses does the rider cover?

There are no restrictions on how benefits may be used, giving your clients flexibility on how to spend them. They may wish to:

• Modify their home (i.e., build a ramp, expand doorways, etc.).
• Pay for in-home care (including compensating family or friends).
• Pay for transportation.

Your client does not need to provide proof of any expenses to receive benefits, and they may be used for any purpose.

How often will clients be eligible to receive benefit payments?

The policyowner is eligible to receive one payment under this rider in any 12-month period, unless the policy is issued in a state that requires more frequent payment options.

How much of the death benefit will be available for acceleration?

The amount available for acceleration is called the Eligible Amount, which is determined when the rider is first exercised. The Eligible Amount is equal to the base policy death benefit (before reduction for any policy loans) on the monthly charge date prior to application for rider benefits.

The Eligible Amount does not include:

• The amount payable upon death of the policy Insured under any life insurance rider.
• The amount payable upon death of someone other than the Insured under the policy.
• Any Face Amount increase, unless the increase was the result of exercising an increase option on a guaranteed insurability rider attached to the policy at issue, if applicable.

The Amount To Be Accelerated is the amount of the death benefit that the policyowner elects to accelerate as rider benefits for a given 12-month period, and is subject to the following limitations:

• The minimum annual Amount To Be Accelerated is $10,000.
• The maximum annual Amount To Be Accelerated is the lesser of 20% of the Eligible Amount and $200,000. This is intended to provide benefits for up to five years.
• The Maximum Lifetime Amount To Be Accelerated during the life of the insured cannot exceed $1,000,000. This is an aggregate amount, i.e., if an insured is covered under three policies (one Apex policy and two UL Guard policies, each having this rider), the $1 million maximum lifetime amount incorporates all three and is not applicable to each policy.
• The Amount To Be Accelerated must not cause the policy to no longer qualify as life insurance according to the Internal Revenue Code.
• The face amount remaining after acceleration cannot be less than the minimum face amount for the policy (currently $50,000), plus the amount of any face amount increase(s) that were not the result of exercising an increase option under a Guaranteed Insurability Rider attached to this policy at issue, if applicable.
• The resulting Chronic Illness Benefit Payment cannot exceed the annualized Per Diem Limitation under sections 101(g)(3)(D) and 7702B(d) of the Internal Revenue Code less the amount received under any other qualified long term care coverage. The IRS generally updates the limit each tax year and the limit for 2024 is $410 a day, so the maximum amount we would pay out in a given year under this limitation is $149,650.

The insured is responsible for ensuring that their total benefits from all sources do not exceed the Per Diem Limitation should they want to minimize or avoid tax consequences.

How will benefit payments impact the policy?

The Chronic Illness Benefit Payment will be the present value of the Amount To Be Accelerated, based upon an interest rate and mortality assumption specified in the rider. As a result, the reduction in the policy death benefit will be greater than the Chronic Illness Benefit Payment.

If there is a policy loan at the time the benefit payment is made, the loan repayment will be proportional to the reduction in the account value as a result of the benefit payment.

Benefit payments will affect the policy as follows:

• The policy death benefit will be reduced by the Amount To Be Accelerated.
• The following will be reduced in proportion to the reduction in the policy death benefit:
  • Face amount.
  • Account value (including both the variable account value and GPA).
  • Cost basis.

Monthly Charges, including insurance charges, will be based on the new Face Amount and Account Value. Planned premiums will not be reduced automatically, but policyowners may choose to reduce such premiums.

Here is an example of the effects of an accelerated death benefit payment:

Assume that your client Wayne is 75 years old. He purchased a life insurance policy with a death benefit of $120,000 and recently was diagnosed with a chronic condition and is permanently unable to perform, without substantial assistance, at least two Activities of Daily Living. As a result, he needs to make several home modifications. Below is an example of the effects of an accelerated death benefit payment.

Chronic Illness Rider – Example of Impact of Acceleration²

In some cases, it may make sense for clients to consider taking a withdrawal instead of taking a Chronic Illness Benefit Payment, or possibly a combination of the two. For example, a younger insured with a well-funded policy may find he or she can take a tax-free withdrawal of cost basis. This would reduce the policy’s death benefit dollar-for-dollar, while a Chronic Illness Benefit Payment of the same amount would reduce the policy’s death benefit by a greater amount. If applicable, the claims department will present this as an alternative.