Life insurance carriers have been building better life insurance. How? By designing innovative life insurance policies that are proving to be very reliable over time and during various trying economic events.
These innovative policies add unique policy riders – provisions that modify the terms and benefits of the insurance – to deal with different challenges that people commonly face. Two such riders are Guaranteed Death Benefit (GDB) Riders (sometimes referred to as Guaranteed Minimum Death Benefit (GMDB) riders) and Long-Term Care (LTC) riders.
Guaranteed Death Benefit (GDB) Riders
When many people think of life insurance, they think of term life insurance, where the policy only applies and pays death benefits during a certain time period, called a “term.” A major stumbling block has been the unavailability of term life policies that go up to age 100, for example, or even beyond.
Permanent life insurance avoids this stumbling block. As the name indicates, a permanent life insurance policy is in effect for as long as premiums are being paid – there is no set term limit.
A permanent life insurance policy also often includes some kind of savings mechanism. This allows you to invest and borrow against your policy, but also creates another possible stumbling block: That policy death benefits could be affected by factors such as investment performance.
The Guaranteed Death Benefit (GDB) rider is designed to avoid this issue. With a GDB rider in place, the beneficiary(ies) receive at least the guaranteed death benefit specified in the rider.
Long-Term Care (LTC) Riders
Long-term care insurance policies came to the market in the late 1970s, as Americans started dealing with the high cost of nursing homes and other forms of long-term care for their aged and disabled parents. Since interest rates began dropping in the 1990s, consumers have been disappointed with the performance of these policies due to increased premiums and decreasing benefits.
Life Insurance carriers responded with LTC riders. As with GDB riders, this approach starts with a permanent life insurance policy – either universal life or whole life, due to the actuarially predictable costs and benefits – and then adds an LTC rider. When triggered by a chronic illness, the rider allows the policy to pay for long-term medical care costs in the form of what’s called “living benefits.”
These long-term care living benefits decrease the value of the policy, but are designed to pay cash proceeds equal to the face amount of the policy to cover the cost of long-term care.
The actuarial projections for long-term care utilization have been problematic for LTC policy issuers, causing carriers to change the policy terms or raise premiums after issue. But humans expire at a very predicable rate. This factor, combined with the favorable tax status of life insurance, produces more reliable results for policy owners.
Making the Complex Simple
With some innovative designs that better address people’s needs as they age, insurance carriers have been building better life insurance lately.
Call Saginaw Bay Underwriters at (989) 752-8600 if you’d like to start a conversation with one of our risk advisors about your life insurance options.
Saginaw Bay Underwriters has made every attempt to ensure this information has been obtained from reliable sources. Current as of: June 2021