Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 4, 1990 TAG: 9003023430
SECTION: BUSINESS PAGE: BUS5 EDITION: METRO
SOURCE: MARY ROWLAND THE NEW YORK TIMES
DATELINE: LENGTH: Medium
These policies appeared about two years ago in response to the increasing demand for insurance to finance long-term care. Most attach a long-term-care rider to a life insurance policy and the benefits and the charges vary greatly. The additional charge for the long-term-care provision might range from $100 to $1,000 a year on a $100,000 life policy.
Although the Prudential policy is under the same umbrella, it works differently. Prudential offers the option of taking the death benefit in advance to two groups of people: current policyholders who have six months or less to live or those who have been in a nursing home for six months with no chance of leaving. It does not demand evidence of insurability. And the only cost is the interest that the company would lose on the money.
For example, if a policyholder with six months to live opts to collect a $100,000 policy in advance, he or she might get $95,000 to $98,000, according to Robert Hill, a Prudential senior vice president.
Prudential is not marketing its policy as ideal long-term planning. Rather, it is geared to desperately ill people, such as those with AIDS, who have nowhere to turn to pay their final medical bills.
Most of the other accelerated death benefit policies, which are offered by about 30 companies and approved for sale in 26 states, are marketed as a solution the high nursing home costs. Two out of five people aged 65 or over risk entering a nursing home, which can cost $20,000 to $30,000 a year or more, according to Janet Patterson, a spokeswoman for the American Council of Life Insurance, an industry trade group. The prime market for these policies is people in their 50s.
Many financial planners say this type of policy is not a good buy. "From a financial planning standpoint, they're absolute nonsense," said Harold Evensky, a Miami planner and author of "Planning for Long-Term Health Care." Benefits and premiums vary considerably, making them difficult to compare. And, he said, "the quality of coverage for the long-term care doesn't meet the minimum criteria. They're not quality policies."
He also said the need for life insurance is not necessarily linked to the need for long-term care insurance. "Buying life insurance to get long-term health coverage is like buying car insurance that will pay if your home burns down," Evensky said. "The two are unrelated."
The Prudential policy, approved for sale in 20 states, offers policyholders a more clear-cut choice: paying final medical bills or leaving life insurance money for heirs. Policyholders should not think they will be able to do both.
"When you split a dollar, you don't wind up with $2," says Robert Waldron, director of the New York office of the American Council of Life Insurance. "You wind up with half a dollar for each need." His assessment? "These policies are not for everyone," he said. "They are for people in desperate straits who are incurring huge debts."
Two other companies, the Metropolitan Life Insurance Co. and the Connecticut Mutual Life Insurance Co., have these policies in the planning stages, Waldron said. And the Capital Holding Corp. of Louisville, Ky., will advance half the death benefit on any other company's existing policy. The fee is $300; Capital Holding gets its money back after the policyholder dies.
Some states have banned accelerated death benefits because regulators argue that mixing life insurance and health insurance is confusing to consumers. Neither type of policy has been approved for sale in New York, which has one of the nation's toughest insurance departments. New York insurance law does not provide for this type of benefit, said Frederic Bodner, chief of the state's life and health policy bureau. But Gov. Mario Cuomo promised in his State of the State message to push through legislation that would authorize policies such as the one offered by Prudential. It is now being drafted, Bodner said.
by CNB