Universal Life Riders to the Rescue

Some of the biggest news in the employee benefits industry lately is less about new products and more about what insurance companies aren’t offering: long-term care insurance. Several major players have exited the individual long-term care market, and some carriers are discontinuing their group products as well.

However, long-term care coverage can still reliably be found in one place — tagged onto universal life policies as an optional rider. Long-term care benefit riders are among a growing number of optional coverages available on some UL policies. These riders allow people to customize their plans to meet their specific needs and obtain protection they may not have access to otherwise. They also offer you new ways to market universal life, increase interest in this more complicated type of life insurance and build your sales. See also: The Return of Cash Value: A Tipping Point for the Life Industry

Let’s take a look at some of the newest and most popular riders on the market and how you can position them with your clients.

Long-term care benefit rider

This coverage advances the death benefit of a universal life insurance plan in monthly indemnity payments to help pay for the long-term care services needed if the insured is unable to perform at least two activities of daily living or requires substantial supervision due to severe cognitive impairment. Typical benefits include monthly payments of 6% of the death benefit for nursing home or assisted living care or 4% for at-home or adult day care.

For a policy with a $50,000 face amount, this equates to payments of $3,000 a month for about a year and a half in a nursing home, or $2,000 a month for two years at home. With nursing home costs averaging $75,000 per year, that’s not enough to cover the whole bill — but it’s not meant to be. A long-term care rider isn’t meant to be comprehensive coverage like a long-term care policy. Instead, it’s a way to get some very affordable coverage to help meet those expenses.

Look for a long-term care rider with a built-in waiver of monthly deductions provision, which waives all monthly deductions for the UL coverage while long-term care benefits are being paid. This can be

important since the insured isn’t working while receiving long-term care and therefore may struggle to keep the life coverage in force.

Waiver of monthly deductions rider

The waiver of monthly deductions can also be added as a separate rider to a UL policy, without the long-term care rider, and helps keep the life coverage in place if the insured becomes totally disabled before age 65. It’s especially popular in the worksite market, where many employees are living paycheck to paycheck. In fact, 61% of all American workers are in this situation.1

Let’s face it, paying life insurance premiums isn’t the highest priority when a worker becomes disabled and has not only a reduced income but also medical and nonmedical bills to pay. However, the worst-case scenario for a disabled worker would be for the life coverage to lapse due to nonpayment of premiums right before the worker dies from the disabling injuries or their complications. Such a scenario would leave no income and no protection at all for the worker’s family. The waiver of monthly deductions rider adds a lot of value for people who could face this situation.

Restoration of benefits rider

This important rider can help protect the value of the life coverage when paired with a long-term care rider. It restores the death benefit on a monthly basis when long-term care benefits are paid. So instead of the long-term care benefits gradually depleting the value of the life coverage, the full face amount is available should the insured die during the time he or she is receiving long-term care payments. This rider stays in effect until the base policy is terminated, the full death benefit has been restored or the long-term care benefit rider is terminated.

Spouse term rider

This rider allows an employee who purchases a UL insurance policy to add coverage for a spouse without buying a separate spouse policy. Typically, the spouse doesn’t even have to be present at the enrollment to sign the application, making this coverage very convenient to buy at the worksite. This kind of coverage makes sense when the family wants additional protection for a certain period of time, such as until the home mortgage is paid off or the children are out of school and on their own. The rider also typically can be converted to a cash value plan later, without evidence of insurability.

Children’s term rider

A children’s term rider can usually be added to an employee’s UL insurance policy with no health questions for children ages two weeks to 18 years, with coverage staying in effect until age 25. At that point, the child typically can convert the rider to a cash value policy without evidence of insurability. This means if the child develops a health condition that might limit his or her ability to get coverage as an adult, the protection is already in place. Be sure to ask what happens if the employee dies while eligible children are covered by the rider. For example, Colonial Life’s plan provides a paid-up policy for the children until age 25. We find the children’s term rider to be twice as popular as the spouse term rider.

Guaranteed purchase option rider

This rider allows the employee to purchase additional coverage without evidence of insurability at specified dates, such as the second, fifth and eighth policy anniversary dates, or when a specified life event, such as a birth or marriage, occurs. It’s a great option for employees who know they’ll need to increase their amount of coverage later. For example, a recently married employee might anticipate starting a family in the next five years and need additional coverage at that time. The guaranteed purchase option rider makes that convenient and affordable, even if the employee’s health status changes during that time.

Accidental death benefit rider

This rider pays an additional death benefit if the insured dies as a result of an accident before age 70 — in effect, doubling the amount of coverage. It’s a less expensive way to increase the death benefit for those who don’t qualify for or can’t afford more coverage. If your clients have a younger employee base, this rider is worth looking at, since younger people are more likely to suffer accidents. For example, drivers under age 25 are much more likely to be involved in a fatal car accident than older drivers.2 Some riders include extra benefits for accidental death while a passenger on public transportation or while wearing a seat belt.

If the life has gone out of your sales lately, take a new look at the riders available with today’s universal life plans. Look for a carrier that offers a wide variety of riders on its plans so you have many options to help your clients and their employees customize their coverage. Universal life can be more complicated to explain and sell than other types of life insurance, but with even more flexibility thanks to riders, it just might rescue your bottom line.

Jeff Koll is assistant vice president of life and disability products for Colonial Life & Accident Insurance Company. 

Footnotes

1 CareerBuilder.com, “More Than One-Third of Workers Will Put Their Tax Refund Into Savings, Finds New CareerBuilder Survey,” April 12, 2011.

2 National Safety Council, Injury Facts, “Licensed Drivers and Number in Accidents by Age: 2009,” as reported by the U.S. Census Bureau, 2012.

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