Page 22 - Bancroft Legal Planning Guide

WHOLE LIFE. Many if not all traditional “whole life” life insurance policies offer an “accelerated death benefit” rider that allows the owner to convert the death benefit into a lifetime benefit in the event of chronic incapacity or terminal illness. With some, the monthly premium is higher. With others, there is no increase in the monthly premium but the lifetime benefit is discounted, yielding less than what would have paid out at death.
UNIVERSAL LIFE. These life insurance policies, sometimes referred to as “as-set-based” life insurance, are sold primarily for the purpose of paying for long-term care but also offer a death benefit if the owner does not become incapacitat-ed. There are many variations on these policies and they have replaced long-term care insurance (LTCI) as the primary financial product for funding long-term care. They are not a “use it or lose” product. But because they carry an investment feature, guaranteeing a return on investment beyond strictly insuring against a risk, they do not provide as much “bang for buck” for the same amount of money as available from LTCI.
VIATICAL SETTLEMENTS. A viatical settlement is a contract between a person (the viator) who owns a life insurance policy and a third party that buys the policy. It’s often an attractive alternative to surrendering the policy for a far smaller cash surrender value. These settlements are relatively new, having first appeared following the AIDs epidemic, when people needed to obtain funds for medical care and to maintain their standard of living. They are typically used by owners who are either terminally ill or chronically incapacitated. The payout will rarely if ever match the long-term care benefit available from a hybrid. If the insured person on a life insurance policy is not expected to live very much longer due to terminal illness or chronic incapacity, the insured has a
low “longevity” risk and therefore will more readily find a buyer and at a better price that a healthy person, who poses a greater risk of living longer. The longer the insured lives, the longer the buyer of the policy will need to pay premiums before collecting proceeds at death.
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