Whole life provides death benefit protection, and with new riders and features, it can fulfill a variety of consumer needs all within one product, making it the Swiss Army Knife of financial products.
From coffee cups to contact lenses, most of the products we purchase today are disposable and built for quick replacement. But when it comes to life insurance, which protects the people we most cherish in life, we want and need a product that is built to last and lives up to its promise.
Whole life insurance is a fundamental product in our industry: it both protects and provides. The question is, do consumers know how truly versatile it is, and are we helping them to understand that the benefits whole life provides while clients are alive may be as valuable as when they're gone?
Whole life is protection
However, whole life insurance, at its core, is about death benefit protection so families can maintain financial stability in the event of the loss of a head of household or primary caregiver. It helps families continue to maintain their lifestyles, live the dreams they've planned for and not suffer financially when they have lost so much already. And, unlike term life insurance, whole life coverage is permanent and premiums are guaranteed by the issuer never to increase.
The product also provides clients with tax-deferred cash value accumulation, which they can access during their life through loans and partial surrenders. Loans accrue interest and accessing the cash will reduce the cash value and death benefit.
Addressing chronic care needs
The good news is that we're living longer. The bad news is that we're more likely to need assistance with care as we age. New whole life policy riders are available at an additional cost to help people pay for the care they need, without depleting their savings.
While it's not necessarily something we like to think about, according to a recent report on long-term care from Morningstar, nearly 70 percent of people who reach age 65 will not be able to perform two of six activities of daily living (such as eating, bathing, walking, toileting) or will suffer a debilitating disease like Alzheimer's over the course of their lifetime. New chronic care riders allow policyholders with these permanent conditions to access the death benefit of their policy — as opposed to just the accumulated cash value — to help offset expenses such as nursing care costs, medical bills and daily living expenses.
Some rider designs pay out the chronic care benefits using an indemnity model: Once policyholders qualify, they automatically receive a set amount of funds each month or year until the distributions are exhausted, without having to worry about submitting receipts and waiting to be reimbursed by the insurer. Having an indemnity model also means the money can be used without limitation, to support a family caregiver, adapt a home or take a recovery retreat.
Another benefit of these new riders is that the consumer can qualify to access the full benefits immediately after the policy is issued without having to wait for the cash value in the policy to grow in order to take advantage of the benefit. This also avoids a risk faced by those attempting to self-insure, who may not save enough before a chronic care type event occurs.
In many cases the benefit amounts on these riders are determined at time of purchase, providing certainty to the policyholder in the amount of coverage they'll receive in the event of a chronic care claim. Additionally, some products guarantee the rider premium for the duration of the policy, meaning the policyholder never has to worry that their premiums will increase — a fundamental aspect of whole life products.
Although Medicare, Medicaid and health insurance plans pay for some expenses, there are often significant restrictions on what they'll fund. That leaves many consumers to pick up the tab for the remainder. According to the results of an independent study conducted in 2014 by Univita Health, the nation's largest long-term care administrator, and commissioned by New York Life, the average cost for nursing home care in the U.S. has climbed significantly in the past five years, up 20 percent to $95,706 per year from $79,935 in 2009. That can drain savings much faster than people may imagine.
When we talk to consumers about why they buy life insurance, they often say, "To avoid burdening my family." Very often, however, we need care that can burden our families before we pass away. Having a whole life policy with a chronic care rider allows people to lessen the financial burdens of chronic care situations.
Diversity in retirement planning
