On average, people are living longer today than ever before. This means more time to spend with your families and doing the things you love, but it also puts you at a higher risk of developing an illness or getting injured. In this episode of Money Script Monday, Luke explains the advantages of using living benefit riders to protect yourself from the potentially vast costs of long-term care.

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Video transcription

Hello, and welcome to another episode of Money Script Monday. My name is Luke Geller and today, we're going to be talking about living benefit riders, what they are, and how they work.

Now, before I get into it, the reason I really wanted to talk about this subject and really bring light to this topic is because, one, it's huge in today's world and today's industry.

Also, because it's something that really hits close to home. What I mean by that is in my lifetime, both my parents have been diagnosed with cancer.

Most recently, my mom has. And that really took a huge toll on my family mentally, emotionally, and financially.

Lucky for us, my mom still was working and does have some really strong health coverage to where we didn't have to go out of pocket with a lot of the money that's needed for long-term care, nursing home, things like that.

But not everyone is as lucky like us.

Now, if I think about it and I break it down, my mom had to be at home needing nursing care, basically 24/7. Help in and out of bed, things like that.

She had to be in a wheelchair if she had to move around. So, if someone wanted to put ramps in their house, if someone wanted 24-hour home nursing care, those are all costs that are covered with a product or a rider like a living benefit.

That's really why I want to talk about this today, and really get into what it means, and how it can affect you.

We're going to go over three things. We're going to go over some different long-term care statistics, then we're going to cover some of the benefits and break those down. And then finally, some speed bumps that you might hit along the way.

Long-Term Care Statistics

First let's take a look at some of these statistics. Now, you're going to see a graph here that’s talking about annual nursing home charges.

If you'll notice, it starts at 1995, just under $50,000 a year for nursing home care.

Now, if we fast forward to 2010, it's over $100,000, and then finally, what we're expecting in 2030 is $275,000.

That is way outpacing inflation and almost doubling what it was in 2010. So, if you think about that, that's a very scary thing and something you want to make sure that you're aware of.

Now as far as long-term care costs as well, for men average annual long-term care costs are lifetime long-term care cost is $138,000. For women, it's $182,000.

The reason it's more for women is because statistically speaking, they actually live longer. And the longer you live, the longer you need long-term care, the more it's going to cost.

So, having something to protect yourself financially if that does happen is huge.

And then finally, the last statistics we're going to look at, strokes are a leading cause for disability in the U.S.

There's a stroke that happens every 40 seconds.

That's a huge, huge deal. And so, that's really why I want to cover a lot of these different benefits.

So, now we went over some statistics. Let's go into the benefits and break those down a little bit.

Benefits Breakdown

The first benefit I want to talk about is chronic illness. How you can accelerate that benefit and how you can activate that benefit is if you cannot perform two of the six activities of daily living.

Now, the way I remember these activities of daily living is thinking about what I do when I first wake up.

When I first wake up, I'm going to get out of bed, that's transferring. Then, once I get out of bed, I'm going to make sure I didn't wet the bed, continence. Making sure you can go to the bathroom, toileting.

After you go to the bathroom, I'm going to jump in the shower, bathing. After you bathe, I'm going to put on my clothes, dressing.

And then finally, I'm going have breakfast and eat. That's how I kind of remember those six activities of daily living.

If you cannot perform two of those six, then you're eligible to accelerate your death benefit with chronic illness.

The next benefit we're going to look at is terminal illness.

Now terminal illness, it's pretty straight forward. If you are designated terminally ill, then you can accelerate a lump sum of the death benefit.

What you want to look at, and what you want to find out when you're looking at these products that have a terminal illness rider is what's that length of time.

Some products or some riders are 6 months, some are 12 months, meaning that you are diagnosed with 6 months to live, 12 months to live or even 24 months to live.

That's an important feature that you want to know about.

Finally, the last benefit we're going to look at is critical illness and injury.

With critical illness and injury, I lump them together because the benefit works the same way.

If you have ALS, heart attack, cancer, those are all going to be critical illnesses. If you have severe head trauma, severe burns, critical injuries. There's a lot more on that list, but those are just a couple examples of that.

Now, what I really want to look at are the different categories. So there's four categories. You have minor, moderate, severe, and life-threatening.

If you want to activate your critical illness or injury rider, you're going to have to go through another underwriting process. All they're going to do is they're going to look and see how severe that injury is, whether it's minor or moderate.

If you remember in my story earlier today, we were lucky and we didn't have to activate a chronic illness rider. But what it would have done is it probably would have been in that moderate category.

You can still accelerate a portion of death benefit but the more severe that illness or injury is, the more that death benefit that you can accelerate.

We went over some of the different statistics, talked about a couple of breakdowns, now, let's go ahead and look at some potential speed bumps.

Speed Bumps

The main thing I want you to think about here is what's called discounting.

Discounting, these are accelerated benefit riders that come on life insurance products. Most the time, there's no cost to them right away, or once you're paying for premium, there's no additional cost.

When that cost comes into play is actually when you turn on that benefit and how they are allowed to do that is by discounting that death benefit.

What I mean by that is basically looking at the present value of the future death benefit.

In 20 years, if that's what your life expectancy is and you have $100,000 death benefit, in today's dollars, that death benefit is worth $45,639. You'd be able to accelerate $45,639 from that death benefit.

Now, if you have 10 years to live, it's a little bit more. It'll be $67,556. That's basically how an insurance company is allowed to add these additional riders on without you having to pay for them right away.

A lot of people might say, "Well, you still have to pay for them." But at the same time think about this when things are most expensive is when you need them the most, most of the time.

Now, in this case, you're taking a discount of the death benefit to pay for something that you extremely need in a very tough time.

That's what I like to think when talking about discounting and why it's worth it even though the death benefit is going to be discounted a little bit.

Finally, I want to talk about the different benefit payouts as well.

You're usually going to have three different types of benefit payouts. You have an indemnity payout, you have a reimbursement payout, and then acceleration.

The benefits we've been talking about mostly today are acceleration benefits. With an indemnity benefit you get a portion of the death benefit accelerated to you or sent to you ahead of time.

You don't need receipts, or anything, or proof of what you've done to receive those funds. Whereas reimbursement, you do need to provide receipts to get reimbursed your own money.

You need to put in your own money and get reimbursed from receipts, or other transactions that you've done. So that's a little breakdown of how those benefits can pay out.

Today we covered some different long-term care stats. We went over the benefit breakdown and finally some of the potential speed bumps, talking about discounting and how those are benefits are actually paid for.

I just want you to remember that these are very important things to know especially if you're wondering about long-term care, accelerated benefits. And trying to figure out what you need for you and your family.

It's been a great time. Have a wonderful day.