Understanding Living Benefits

1. Understanding Living Benefits Life Insurance Benefits for the Living

2. Life Insurance Far too often a person may object to purchasing life insurance because: • the insured fails to face own mortality • too confusing…what kind to buy • “I don’t benefit…my beneficiary gets the money. I don’t.” • “My family lives a long time. I won’t die for years.”

3. Long Term Care People fail to purchase long term care insurance because: • Too expensive • Too confusing • Premium increases during policy years • Instability of the market…carriers getting in and out • “What if I die without using it?”

4. Critical Illness People fail to purchase critical illness because: • They don’t know about it • Agents don’t know about it • “My health insurance covers that” • Too expensive • “What if I don’t get the illnesses covered by the policy?”

5. Life Insurance Benefits While the Insured is Still Alive Life insurance carriers can now answer the objections of all three. Life insurance can now provide benefits to the insured WHILE STILL ALIVE Provide benefits for Critical illnesses Long term care services Terminal illness

6. Life Happens • 70% of all Americans will require chronic care. • 90% of those requiring chronic care will not have the insurance to cover it. • The average age of a first time heart attack is age 66! • By age 65, most of us will have had an incident of heart disease, cancer or stroke. • 75% of bankruptcy filings for medical reasons are by people with health insurance!

7. Four Benefit Life Insurance • Death Benefit • Terminal Illness • Chronic Illness • Critical Illness All in One Plan!

8. Life Insurance with a LTC Rider • Mostly Traditional Whole Life or Universal Life • Life contract has an optional LTC or Chronic rider • Triggers are similar to traditional LTC policies Can’t perform 2 of 6 activities of daily living Cognitive Impairment • Access to 1%, 2%, or 4% of death benefit each month for LTC services $300,000 life policy with 2% LTC rider = $6,000 month for 50 months

9. Long Term Care/Chronic Rider • Tax Free benefits • If chronic, no health license or additional CE required • Indemnity or Reimbursement • Family and informal care may be allowed Cost to the rider example: $300,000 UL policy standard Male age 58:$5,301 w/o rider $5,619 with rider Female 65: $6,225 w/o rider $6,598 with rider

10. Life Insurance with LTC Rider • Premiums can be single or on going • Can 1035x from other polices • If on claim, any unused death benefit paid to beneficiaries • Once death benefit is fully used for LTC needs, policy ends. Some carriers have riders to extend benefits • Most issued up to age 80

11. Life Insurance with LTC Rider Ideal client Ages 45+ who are concerned about LTC but have objections about traditional LTC policies. Death without use Rate increases Instability of carriers Too expensive Clients want more value from life coverage “Kill two birds with one stone”

12. LINKED BENEFITS Chronic Illness or LTC rider provides access to death benefit ONLY Linked Benefit provides an additional pool of money over and above the death benefit or account value. $100,000 death benefit $300,000 for LTC

13. Linked Benefits • WHAT ARE LINKED BENEFITS? • Single Premium Products • Some Annual Premium Paying Products Available • Annuities, Universal Life and Whole Life • Better Leveraging Assets for These Benefits • Non-Qualified or Qualified funds • NOT LTC Partnership Approved

14. Linked Benefits HOW DO LINKED BENEFIT PRODUCTS WORK? • Creating tax advantaged withdrawals from annuities and life insurance to reimburse or fund long term care events • Doubling, tripling or creating a lifetime of unlimited benefits • Withdrawing from accumulation value first, then extending benefits

15. Linked Benefits- Going on Claim • Similar triggers to traditional LTCI policies-2 ADLs • Tapping into death benefit or annuity accumulation value first, then rider kicks in and provides additional pool of money. • Premium paying policies usually tapping into death benefit only and no additional pool of money. • TAX FREE BENEFITS

16. Comparing Products Life/LTCFemale age 60 standard NT $100,000

18. LTC LIVING BENEFIT Summary Combination Life w/ LTC Linked Benefits • UL or WL • On going premiums • Optional LTC rider-extra cost • Access to death benefit in 1-4% increments each month • When death benefit is used up for LTC, policy ends • Annuity or Life (WL or UL ) • Single Premium $50,000+ • LTC benefits built in • Access to death benefit or annuity value first then an extra pool of money for LTC • Can be designed to provide more life then LTC or more LTC then life…meet client needs ALL BENEFITS IF USED FOR LTC TAX FREE

19. Life Insurance with Critical Illness Rider Access to death benefit while still alive

20. Critical Illness Odds of death before age 65 for a 25 year old male are 19% Same male has a 24% chance to be struck with cancer, heart attack, or stroke before age 65. Odds increase to 49% for a smoker 62% of personal bankruptcies due to health issues 75% of those filers had health insurance

21. Critical Illness Rider Provides for advance of death benefit if insured experiences a qualifying critical illness. • 8-16 different illnesses Stroke ALS Heart Attack Invasive Cancer AIDS Blindness Major Burns Major Organ Transplant Severe disease of an organ Loss of Limbs Paralysis • Some carriers free rider, others small charge • Tax free dollars • Administrative fee

22. Critical Illness Rider • The more severe the triggering event, the more dollars available from the policy. • 90% of death benefit up to a cap or % of policy $500,000 is common • Some carriers will pay the remaining 10% at death • Some carriers have policy end if accelerating policy.

23. How much $ is available? It is important to stress that the exact amount of accelerated death benefit can not be determined At claim, the carrier will obtain medical records, calculate premiums paid, life expectancy, cash value if any, and future premiums that could be paid during life expectancy and calculate an accelerated benefit.

24. Common Formula This according to a carrier actuary on ABR riders: • LE + Loss of premium + PV at 7.5% discount rate yields the payout. • Life expectancy + loss of premium + policy value at 7.5% discount- payout amount • All carriers that do the indemnity payout use the same formula above to calculate the payout;

25. How much $ is available? The carrier will make an offer of accelerated benefit. The client can choose to accept or decline the offer. If declining: policy continues as normal If accepting: • Policy could end • Policy could continue but with a reduced remaining death benefit Client will lose some death benefit in either case

26. Accelerated Death Benefit for Critical Illness Example • Joe bought a 125K 30yr LBT tobacco policy for an annual premium of $1,306 at age 40. • 5yrs later Joe has a serious heart attack with a life expectancy after heart attack of 16.2 yrs. Joe elects to accelerate 90% of his DB. • Elected Face Amount (Accelerated) $112.500; Accelerated Benefit Amount $43,462 (44%) lump sum. • Remaining DB = $12,500 • New Premium = $175.63 $69,038 of death benefit is gone, but insured has cash.

27. Accelerated Death Benefit for Chronic Illness Example • Jane bought a 250K 20yr LBT non-tobacco policy at age 45 for a $1,257.50 annual premium. • 2 years later she is in a serious car accident and now qualifies for an accelerated death benefit for being unable to perform 2 of 6 ADL’s and life expectancy after car accident 2.5 yrs. Jane elects to accelerate 80% of her DB. • Elected Face Amount (Accelerated) 200K; Accelerated Benefit Amount $175,036 (87.5%), Settlement Option 1, Monthly payment = $7,502.04. (Elected Face Amount & Settlement Option chosen by client) • Remaining DB = $50,000 • New Premium = $291.50 $25,000 of death benefit is gone, but client has cash

28. 32 Male $250,000 Chronic and Critical Illness Available Dollars $105 mo prem. Cash value @ 55 is $34,132

29. How much $ is available? DO NOT OVER PROMISE There is no way to predetermine how much is available. Benefit amount is determined when triggering event happens and severity.

30. Critical Illness Rider In Action Jim awakes with a massive heart attack and spends several days in ICU before he can go home and recover. Due to his job and stress, he is unable to return to work for 2-3 months. His DI policy had a 90 day elimination so it was questionable if it would pay claim before he recovered. Jim takes a lump sum from his death benefit to help him through the financial strain without having to drain his qualified accounts.

31. How do I differ? Think about it Everyone is selling and buying term. Consider showing at minimum an additional $100,000 UL with accelerated benefits that can provide benefits for Terminal Illness Critical Illness Chronic Illness Cash value???

32. HUGE NEWS • Some carriers have terminsurancewith living benefits built in. • Some have top 10 pricing. • Terminal, Chronic (LTC) and Critical Illness • Lump sum access to death benefit TAX FREE • Issue ages 0-65, up to $250,000 death benefit NO PARAMED

33. How do I differ? Think about it Living Benefits = “Life insurance you don’t have to die to use” Everyone knows someone who had a heart attack, stroke, cancer, or perhaps needed LTC services. 43% of home foreclosures result of medical issue 72% of these people had health insurance 86% of Cubs fans realize there is no hope

34. How do I differ? Think about it Can someone tell me why they would not recommend a life insurance policy with all three living benefits built in? Can someone tell me why you would not buy one for yourself?

35. Living Benefits- So Now What? • Contact your company or favorite brokerage agency to help you research the concepts that appeal and find products with quality carriers • Call your clients and schedule time to discuss “Dorothy, there has been a tax law change that I think may have a positive affect for you. I’d like to schedule a time to go over this with you.” “Frank, I know you have that old annuity with XYZ Company. Thanks to a tax law change, I may be able to enhance the benefits of your annuity.”

36. Call your clients “Pete, I’m glad we were able to get that $500,000 of term life to protect your family. I’d like to share with you a couple features on another policy that could allow you to access the policy while you are alive and need money.” “Jason, I know you want to apply for that $300,000 term policy for $14 per month. I really don’t want to drive the 44 miles to your house at 7 pm and listen to your kids fight and dog bark. What do you say we take 10 minutes and do this right over the phone?”

37. Don’t Want to Work “Small” Cases? If you are going to offer life insurance with living benefits to all your clients, you are going to develop cases that are small…$400-500 term cases. If you don’t want to work these, partner with a YAT. Find that newer advisor in your office or association and have them work with your smaller cases. They would LOVE to work 3-4 $500 term cases per week.

38. Ideas Using Living Benefits I am not a believer of blatantly replacing existing insurance. There is a reason current coverage exists. Living benefit claims will cause the insured to lose some death benefit. Policy could end or have some remaining death benefit. You may want to suggest living benefits in addition to existing coverage.

39. SPLIT POLICY Does it make sense to have more then one policy? Insured needs $750,000 of life coverage. Split into 3 policies? $250,000 –lowest cost term $250,000- term with living benefits- convert at retirement? $250,000- permanent with or without living benefits

40. Protect a loan or mortgage Secure living benefit life on each party who is on the loan. Husband and Wife if a mortgage Partners who have entered into a business or corporate loan.

41. Protect Family Income and Emergency Fund Often time is lost at work for both a husband and wife if one needs care. Time to take ill partner to/from appointments… Doctor visits, Out of state treatment facilities, Hair appointments

42. Protect Retirement Savings and Accounts You help clients save for retirement. Clients have IRAs, Roth, 401k, assets under management. If a client gets seriously ill, are they continuing to contribute? Do they pull money out of accounts to pay for expenses?

43. Protect Retirement Savings and Accounts • Consider at minimum having each client obtain term life insurance with living benefits up until the age of retirement. • Should that critical illness hit when the client is in the accumulation phase, the living benefits paid out from the life insurance could allow the client to keep assets in retirement accounts and under management. • A $250,000 term policy with living benefits could mean $125,000 while the client is alive. How helpful would that be??

44. Living Benefits on Kids/Grandkids Consider permanent life with Living Benefits on minors. Provides a lifetime of protection. Protects insurability Cash Value Critical Illness Even LTC

45. Focus on the Hot Button • Know your client • Clients 20-40 will not care about LTC features on a life policy. There will care about the CRITICAL illness features. • Clients 40-55 will care about both critical and LTC features. • Clients 55+ will care about LTC features

46. Buy Sell Agreements • Few businesses have a current buy/sell agreement • If funded, it is usually just with life insurance • Disability Buy Out Insurance is best to fund if disabled Consider Life Insurance with Living Benefits including Critical Illness and Chronic Illness (LTC) Term for the critical illness Permanent for the Chronic

47. Key Employee Businesses often put life insurance on a key employee whose untimely death could harm the business. CEO, Vice President, Top Sales Person, COO But traditional life insurance only pays at death Show LIVING BENEFIT life that could pay benefits if the employee has a critical or chronic illness

48. Health Care Benefits If your client has a health issue and is denied benefits, for example the treatment is considered “experimental” and thus not covered… Tap into the living benefits of the life policy to obtain the money to pay for the care.

49. Who else should get life with living benefits?

50. Who else should get life with living benefits?