What are the activities of daily living and why are they important?
Usually, when we hear insurance professionals talk about the activities of daily living it is in the context of Long-Term Care insurance. However, new advances in life insurance are replacing the need for individual Long-Term Care insurance, saving customers money and improving their quality of life.
What Are Basic Activities of Daily Living?
There are six Basic Activities of Daily Living;
· Bathing – including brushing teeth, shaving and other grooming activities.
· Eating – being able to feed oneself
· Dressing – being able to dress and undress without assistance.
· Continence – bowel and bladder control.
· Toileting – ability use a toilet and transfer in a bathroom.
· Transferring – ability to walk, transfer from a wheelchair to bed and back.
In general, insurance companies often consider a person’s chronic condition has deteriorated enough to qualify for benefits when they are unable to perform two or more Activities of Daily Living (ADLs) without assistance, and that condition has persisted for at least the past 90-days. In terms of Long-term care riders on life insurance or living benefit life insurance, activities of daily living are mostly considered when defining the severity of a chronic illness like Lupus, Alzheimer’s, Multiple Sclerosis, arthritis, diabetes etc.
According to the CDC (Centers for Disease Control and Prevention); Chronic Diseases are the leading cause of death and disability in the United States. They state that as of 2012, about half of all adults have one or more chronic health conditions. One in four adults (25%) has two or more chronic health conditions. Seven of the top ten causes of death in 2010 were chronic disease, with heart attack and cancer accounting for 48% of all deaths.
There may also be wording within a living benefit life insurance policy that allows for benefits in the case of critical or terminal illness that are less restrictive than requiring the inability to perform at least two activities of daily living. Some conditions like cancer and heart attacks can be defined as either critical or chronic depending on the stage of the disease. Terminal illness is most often defined as having a life expectancy of two year or less.
Now here is the kicker; because of advances in modern medicine people are not just living longer, they are living through chronic and critical illness. While this is fantastic in regards to longevity, it should also be noted that most bankruptcies in the United States are a direct result of living through chronic or critical illness. While health insurance may cover the medical bills, being severely ill means a loss of income. It is no coincidence that the average age of a severe medical event as described above is 45 years old, and the average age of bankruptcy is 46. For those caught in this unfortunate cycle, it may mean their children don’t go to college, or they need to spend their retirement funds just to get by, and may never retire. They lose their home and their quality of life
How does this apply to life insurance?
Every life insurance we know of that also offers living benefits will have some conditions that require a loss of two or more activities of daily living to receive benefits for chronic illness. (There is no such requirment for critical illness) Every Long-term Care policy we know of includes these loss of activities of daily living as a condition for benefit. It is important that consumers understand the concept of activities of daily living so that they understand the benefits of long-term care insurance and long-term care riders within some life insurance policies.
Because of the advent of living benefit life insurance, consumers no longer need to purchase two separate policies to protect themselves and their families. In some cases, the long-term care benefits within a life insurance policy do not require a higher premium than the old life insurance, no other cases the premium is nominal.
This means that we can now own a life insurance policy that also acts as a long-term care policy without paying extra! This substantial cost savings means more families can protect themselves from life events that can destroy their next-egg and severely disrupt their quality of life.
Three Types of Living Benefit Life Insurance
Living benefit life insurance is still a relatively new concept, but it is taking the market by storm. We suspect that in the years every new life insurance policy will have these benefits. However, as we write this blog only 1% of all outstanding life insurance policies have a living benefit feature. It is important to note that for most incurance company’s that offer living benefits, these benefits are available with whole-life, universal life and term life insurance policies.
There are different ways that insurance companies apply living benefits. We will describe these briefly, but also caution that new policies will be coming online in the years ahead. In addition, there are still many insurance professionals who think that a living benefit is the cash value that some insurance policies accrue. Nothing could be further from the truth. The living benefits we speak of are in addition to any cash value accrual and are also available on some term (temporary) policies.
For now, the different ways that life insurance companies provide living benefits are:
1- % of death benefit applied as monthly income
2- % of death benefit as a lump sum withdrawal
3- Full accelerated death benefit
In the first option is typical of what we refer to as a long-term care rider to life insurance. The insured can choose a fixed percent of their death benefit to be paid monthly upon the occurrence of a qualified chronic, critical or terminal illness. Usually this is limited to 1%, 2% or perhaps 4%. For example, a person with a $500,000 life insurance policy can choose a 2% of the death benefit as a monthly living benefit which means a $10,000 monthly check payable to the insured. (Two percent of $500,000 is $10,000.) The monthly checks will continue until insured is no longer in need of long-term care, or until the $500,000 benefit is exhausted (50-month). Any remaining balance will be the policy death benefit.
As an aside, $10,000 per month may seem like a lot, but that is close to the average cost of long-term care in some areas. In Miami, for example, the average cost of a semi-private Nursing Home room is $7,695 per day. A private room is $9,733. Do you want to know what Nursing Home Costs are in your area? Check out this web page from John Hancock. Choose a state and major city and it shows you the average costs.
The second option means that the insured can access a fixed percent of their total death benefit as a living benefit, this could be limited 25% for example. In this case, a person with a $500,000 life insurance policy could access $125,000 as a lump sum payment in the case of a qualifying chronic, critical or terminal illness. The remaining 75% can only be accessed as a death benefit. In some cases, a portion of the remaining 75% can be accessed upon a second qualifying disease.
The third option is also a lump sum payout, but will be enough to exhaust the life insurance policy. In other words, the lump sum payout will terminate the policy. While this sounds like the best option at first blush, there is a caveat. Some insurers using this benefit system will adjust your benefit based on the average life expectancy for a person your age. (This is the same math that is used in the lottery where a person wins a $10 million lottery, but only gets $5 million before taxes.) As an example, let’s say the insured is 45-years old and has $500,000 policy when he /she suffers a critical, terminal or chronic illness. If the average life expectancy of all 45-year olds is to 80-years of age, then a healthy 45-year old could expect to live another 35-years. So, from the insurance company’s point of view they did not expect to pay the death benefit out for another 35-years. They then calculate what the current value would be of a portfolio that would be worth $500,000 35-years from now. That diminished sum is what you would get as a benefit. Obviously, it will be much less than $500,000.
Which type is best for you?
Our first response to the question of which is better is that any of them are better than none at all. If you have the old type of life insurance you are doing yourself and your family a disservice if you don’t at least check out what living benefit insurance will cost you. I can’t even count how many times we have helped people improve their insurance benefits to include living benefits, and reduce the amount of money they spend each year on life insurance. Remember, the living benefit feature can be found in whole life, universal life and term insurance policies. Often, the best choice for many young families is a combination of both term (temporary) and cash value (whole-life and universal-life) insurance.
We can’t say which is best for you without understanding your situation. Call or email us. We offer price quotes without cost or obligation, and most find our 30-years of financial experience to be a benefit beyond anything they pay. Our goal is to find the best life insurance rates and policy for you and your specific needs.
Life can be a long journey, like a road we have never been on before none of us know what is behind the next turn. The objective of insurance is to pass the financial risk of unexpected and unfortunate events on to someone or something else. If you have life insurance, you have taken the first step of passing along the financial risk of your untimely death, so your family does not have to bear that burden. But what about chronic, critical or prolonged terminal illness? We are very likely to experience one of the major medical events prior to death. What will happen to your finances if you are too ill or disabled to work and cannot earn a wage? Insurance is available for that as well, and with living benefit life insurance it is more affordable than ever.
Shield Insurance Solutions is independent. Our goal is to find the best insurance company and policy for you. We specialize in living benefit life insurance and work with nearly 100 different insurance companies in order to find the right policy at the right value for you. We are transparent and have been in the financial services industry since 1984. Our life products include Whole Life, Universal Life and Term Insurance and mortgage protection insurance. As independent agents, we work hard to find the best life insurance company for you, with the best life insurance rates and value. We are based in Jupiter and Palm Beach Florida and licensed in almost every state. If you are shopping for a life insurance quote, we can show you what many of the top insurance companies will offer. The price differences will amaze you. Visit www.ShieldInsuranceSolutions.com to get a free life insurance quote comparison, or call us at (800) 847-9680.