How a Term Life Insurance Policy Can Be Converted to a Permanent Life Insurance Policy That Also Pays for Care – Part 2 – Long Term Care University – 11/15/24
Long Term Care University – Question of the Month – 11/15/24
Research
By Aaron Skloff, AIF, CFA, MBA
Q: We read ‘How a Term Life Insurance Policy Can Be Converted to a Permanent Life Insurance Policy That Also Pays for Care’ Part 1. Can you give examples of exercising the extended conversion and chronic illness conversion riders?
The Problem – Understanding the Benefits of the Extended Conversion and Chronic Illness Conversion Riders
Understanding the outcomes of exercising the extended conversion and chronic illness conversion riders can be confusing. Some policyholders believe they must complete additional health underwriting, while others believe they may be prohibited from exercising the riders if they are diagnosed with a health condition or disease.
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The Solution – Understanding the Benefits of the Extended Conversion and Chronic Illness Conversion Riders with Examples
Let’s look at two examples below, where the policyholders exercise their extended conversion and chronic illness conversion riders.
Bill Coverts 100% of the Riders. Bill, 40 years old and in preferred health, buys an inexpensive 30-year term life insurance policy with a $1,000,000 death benefit, with extended conversion and chronic illness riders. Twenty-five years, when he is 65, he is overweight and has high blood pressure. Concerned his risk of needing care has increased, he exercises 100% of both riders without any health underwriting requirements – leaving him with a $1,000,000 permanent policy with a preferred health rating that can pay for his care and provide a death benefit. From the age of 80 through age 85, he needs care. His policy pays for $900,000 of tax-free care. At the age of 86, when he dies, his policy pays a $100,000 tax-free death benefit. His policy paid a total of $1,000,000 tax-free benefits.
Sue Coverts 50% of the Riders. Sue, 40 years old and in preferred health, buys an inexpensive 30-year term life insurance policy with a $1,000,000 death benefit, with extended conversion and chronic illness riders. Twenty-five years, when she is 65, she is diagnosed with early Alzheimer’s disease. Concerned her risk of needing care has skyrocketed, she exercises 50% of both riders without any health underwriting requirements – leaving her with a $500,000 permanent policy with a preferred health rating that can pay for her care and provide a death benefit. From the age of 66 through age 71, she needs care. Her policy pays for $500,000 of tax-free care. She pays $400,000 out of-pocket for her care. At the age of 72, when she dies, her policy does not pay a death benefit, since she used all $500,000 of her policy’s benefits to pay for her care. Her policy paid a total of $500,000 tax-free benefits.
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Action Step – Buy an Inexpensive Term Life Insurance Policy with Extended Conversion and Chronic Illness Riders
Purchase an inexpensive term life insurance policy with extended conversion and chronic illness conversion riders and gain the flexibility to convert to a permanent policy that can also pay for care when you are ready, regardless of your health.
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA) charter holder, Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.
