How Do Single Premium Life Insurance Policies Really Work?
Solving for long term care through life insurance has become a hot topic these days. More and more people are investigating this alternate approach to the traditional method of solving for long term care. With these single premium life products, policy owners are able to own a life insurance product that will protect them should they pass away, but at the same time accelerate the death benefit should they need long term care.
Basically, you determine a single premium amount you want to invest into the policy. Based on your age, the policy will determine how much of a monthly long term care benefit this permanent life policy will generate. With the flexibility of these products, you can also solve for a monthly benefit and the contract will determine how much you need to put in to achieve that benefit.
Within the first year of the contract, depending on how much you put in, the life insurance death benefit is usually double your investment. Internally, that death benefit acts like a “decreasing term”. In other words, every year that you live, the death benefit goes down. Simultaneously, the long term care benefit will typically increase over time if you put inflation on the contract. So while your life insurance need decreases over time, your long term care need will increase.
One of the typical arguments of traditional long term care is that it’s a “use it or lose it” contract. Prospective long term care owners are concerned that their investment would be wasted in a traditional product if they never need a day of long term care. With this permanent single premium life approach should you pass away early, the death benefit will go to your beneficiary. At the same time, should you need long term care, the death benefit can be accelerated for your care.
One last comment is that long term care carriers can reserve the right to increase premiums over time depending on the ever-changing bond market where they invest these premiums for growth. Since the base contract is a life insurance contract, your one time investment is fixed.
About the author: Mark Yurkovic has been in the life insurance business for over 12 years, and holds CLTC, LUTCF, and CES designations. He enjoys building remote control boats, and playing instruments including the piano, guitar, banjo, and mandolin. Mark would love to discuss life insurance options and work towards finding the best policy fit for your family. You can contact Mark at 1-800-651-1953 or MYurkovic@Pivot.com.