June 28 is Insurance Awareness Day. To participate in this observance day, we are pleased to bring you an article by guest author Lynn Lavender, CLTC.
Lynn Lavender of GuideINS is in the business of protecting families from the financial consequences of an untimely death or financial loss due to illness or accidents. Here she tells a story about the value of disability and life insurance. In her attachment (PDF) she explains the difference between disability and long-term care insurance.
Early in my career as an insurance agent, I was assigned an “orphan” by the name of Arnold. In insurance parlance, an orphan is a policyholder whose agent has left the business. Orphans are assigned to new agents for continued service.
I called Arnold to make an appointment and introduce myself as the person he should contact if he had any questions about his coverage. Not knowing anything about him except his policy information, I was taken aback when I arrived at his home and he greeted me from a wheelchair.
Over a cup of coffee, I learned that he had been a business owner and had suffered a stroke two years earlier at age 53. Although he was totally and permanently disabled and unable to work, he was lucky in that his cognition, speech, and memory were not affected.
Arnold was married to Suki, who was foreign-born. She did not speak English, had no work experience, and did not have any marketable skills. Arnold was worried about her future. His retirement plan was underfunded since he stopped working at age 53 and his term life insurance was about to expire.
He produced his policies which I reviewed and discovered the following:
- Although his term life insurance was about to expire, it was guaranteed convertible to any permanent policy offered by that insurance company. That meant that the conversion to permanent coverage was automatic upon the completion of a form..no health questions.
- The expiring term policy also included a waiver of premium rider. That meant that after 1 year of being disabled, Arnold would no longer have to pay premiums… ever!
We completed the paperwork to convert the term to a whole life policy and activated the waiver of premium. Because of these 2 provisions, Arnold now had permanent insurance that would grow over time AND he would never have to pay another premium.
If he predeceased his wife, she would have the proceeds from his life insurance in addition to Social Security as his widow. If she predeceased him, he had the option of transferring the cash value of the whole life insurance policy to an annuity to supplement his income, take the cash, keep the policy for his children or ultimately sell the policy as a Life Settlement for more than the cash value.
Arnold’s previous agent had taken good care of him. He had protected Arnold from the unexpected. His disability income policy was covering his monthly living expenses. He was receiving 67% of his previous earned income and because he paid the premiums personally, the benefits were not taxable.
Although Arnold had not previously believed in permanent insurance, his agent had been wise in providing him with a term policy with added value. Arnold did not remember the built-in features of his coverage. Had I not visited him that day, it is most likely the term policy would have lapsed and he and his family would not have benefited from the additional coverage available to him.
If you have experienced a life event or if you have not reviewed your insurance coverages in several years, schedule an insurance review with your agent.
Click here to learn about the difference between long-term care insurance and disability insurance