by masurkar » Fri May 29, 2009 08:28 pm
I am in the process of buying a term life insurance policy and happened to see that this rider is offered free of cost. The agent advised me not to take the rider since it can impact eligibility for govt programs and also create tax consequences. He also mentioned that the death benefit is reduced by 10 to 15% if the rider is ever exercised. Also it carries administrative costs at the time of making the claim.
So I am trying to understand, who is an ideal candidate for this rider.
Does anyone here have any experience with this? I am trying to weigh the pros and cons on taking such a rider.
So I am trying to understand, who is an ideal candidate for this rider.
Does anyone here have any experience with this? I am trying to weigh the pros and cons on taking such a rider.
Posted: Fri May 29, 2009 08:47 pm Post Subject:
Get a new agent. Everybody is an ideal candidate for this rider.
It doesn't cost anything and it doesn't have to be used. It simply gives you options. I can't think of a single reason not to have it on your policy.
Posted: Sat May 30, 2009 01:50 am Post Subject:
Hi OP...good question!
First off, I think your agent gave you some really bad information. Accelerated Death Benefit options/riders/provisions can't hurt you, period. Let's dissect what your agent told you:
The agent advised me not to take the rider since it can impact eligibility for govt programs
Nope. The only thing that I can imagine as to what he was thinking was possibly relating to Medicaid, which is a state run program that covers a number of things, one of which is medical costs. In order to qualify for Medicaid, you have to be, well, basically dirt-poor. Cash Value life insurance policies can have an effect on Medicaid eligibility, but you have a term insurance contract you're considering and not a cash value contract. So, ask your agent specifically what programs could be impacted by exercising this rider. Next:
and also create tax consequences
Nope again. Payment under an accelerated death benefit will NOT trigger any tax consequences. If he's confusing this with a "viatical settlement," he's still wrong. Internal Revenue Publication 554 (2008) specifically says: "Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill." Next:
He also mentioned that the death benefit is reduced by 10 to 15% if the rider is ever exercised.
Let's see if we can get this right, ok? Any benefit paid under the rider will reduce the end-game death benefit accordingly. For example- if you purchased a $500,000 term policy, qualified for the accelerated death benefit, took $100,000 from the insurer and then died, your beneficiary would only get the "balance" of $400k. I have no idea where the "10-15%" thing came into play, unless his carrier limits how much you can accelerate. Most companies I have worked with will normally limit 50-75% of the face amount as an accelerated benefit. I can't say he's wrong on this, but I will say that the way he explained it to you is terrible.
Finally, don't get this without making sure that you have the "waiver of premium" rider as well. You must keep the policy in force in order to receive an accelerated payment, and the waiver of premium rider will actually make your premium payments for you if you meet the insurance company's definition of "disabled" in the contract.
Finally...I think your producer needs to get some "product and tax learnin'" in him pretty quick, eh?
InsTeacher
Posted: Sat May 30, 2009 05:35 am Post Subject: Accelerated Death Benefit Rider
Please find a new agent or a new company to buy from. I never sell a life policy without this rider. It definitely does not affect your eligibility.
Posted: Sat May 30, 2009 09:30 pm Post Subject:
Does anyone here have any experience with this? I am trying to weigh the pros and cons on taking such a rider.
[opinion]
There aren't any Pros and lots of Cons with the Accelerated Benefits Rider.
This is life insurance marketing sizzle over substance and nothing more.
It's "sales talk" NOT sound financial advice.
It's useless.
[/opinion]
ALL hate mail welcome on this one.
I'm in the mood for a good old fashioned THREAD WAR!
Posted: Sat May 30, 2009 10:45 pm Post Subject:
Gary, sorry, but there won't be a thread war on this one. You are 100% correct. It has zero impact on what policy I sell or don't sell.
Posted: Sun May 31, 2009 08:44 am Post Subject:
Gary, sorry, but there won't be a thread war on this one.
Fine.
I'll argue with myself then.
It doesn't make any financial or legal sense to take payment of 50% of the life insurance death benefit because the insured became terminally ill.
Remember, life insurance death benefits are EXEMPT from creditor claims of the insured when those benefits are paid to a natural person beneficiary.
Payment prior to death to the insured person could create tremendous legal problems and expose those proceeds to legal attachment.
The "sales talk" almost always directed at the man is... Hey if you become terminally ill they'll pay YOU 50% of the benefit to spend as you please.
Sound good? Now you can go on that dream vacation. Buy the boat you always wanted. Go out with a bang and party at fancy bars and buy a fast car.
The only problem is if you are terminally ill you're a very sick person. You're more than likely in pain, not to mention the emotional depression of knowing you have whatever terminal disease. You're in no physical or emotional shape to enjoy any of what I described above.
Most of us feel like crap and stay home from work with a bad cold or the flu. So now that we're chronically sick we're now going to enjoy life to the fullest with our new found wealth? That's not reality. Go into a hospice and shower a terminally ill patient with money and see if they don't tell you the money is useless and they'd trade it all to be healthy and simply go home and have a peanut butter and jelly sandwich.
Now since I'm argueing with myself I'll have to quote myself:
This is life insurance marketing sizzle over substance and nothing more.
It's "sales talk" NOT sound financial advice.
Posted: Mon Jun 01, 2009 04:55 am Post Subject:
OK Gary...this time I have to argue with you some. While I won't dispute all of your points, I will say this- I have seen the accelerated death benefit actually save 2 lives. Not all contracts require that the insured be terminally ill in order to receive an accelerated benefit.
Case in point: had a client with a $1 mm contact, and he lost his job and his benefits. Surprise, catastrophic medical condition and no insurance at the worst possible time. Needed a heart transplant and the hospital wouldn't take him until he put down a $100k deposit. The life insurance contract enabled him to do so.
Second case. Woman with a terminal illness but found an out-of-country alternative treatment which her insurance carrier wouldn't pay for. Took some money from the life contract and lo and behold, the treatment worked.
Granted, what you described I would also consider most common, and in the end-game you are detracting from the death benefit. I would therefore suggest maybe having it in the policy for certain eventualities. I still say it can't hurt used judiciously.
InsTeacher 8)
Posted: Mon Jun 01, 2009 09:36 am Post Subject:
As I summarise adding the accidental death benefit to the policy would purely be the decision of the policy holder. However, since it'd not cost extra, adding this rider can be beneficial under certain circumstances (as the case studies presented by Teacher). Am I right guys?
Posted: Mon Jun 01, 2009 09:44 am Post Subject:
I tend to agree with the logic presented by Teacher, adding accelerated death benefit can be useful if used wisely. Here are certain situations where this rider can come handy.
If you have a health condition where you may need extensive medical care the accelerate death benefit can help you in meeting the cost of treatment.
It can also provide for the extended long term care if you haven’t arranged for it otherwise.
Posted: Mon Jun 01, 2009 01:35 pm Post Subject:
As I summarise adding the accidental death benefit to the policy would purely be the decision of the policy holder. However, since it'd not cost extra adding this rider can be beneficial under certain circumstances (as the case studies presented by Teacher). Am I right guys?
We're not talking about an accidental death benefit.
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