Good news from the non-profit Society of Actuaries – you’re likely to live longer. Since “mortality” tables were last updated in 2000, the average 65-year old woman will now live 88.8 years (up from 86.4 in 2000); and men will live to 86.6 (up from 84.6 in 2000).
But there’s bad news too. We’re going to live longer.
That means we’ll have to have more nuts squirreled away to make it to the end – putting even more pressure on our need to save aggressively and smartly, AND think more about shifting some of the financial risk of living longer (longevity risk) – to others.
From an income point of view, the best way to shift longevity risk is with annuities – contracts that offer a guaranteed lifetime payout no matter how long you live. We’ll talk more about the power of annuities in a future article, but today, let’s focus on shifting long-term care risk.
An unexpected benefit of increased life expectancy is a decrease in life insurance premiums, which we’re likely to start seeing over the next year as this news is digested by life insurance carriers.
Even better, many newer life policies contain a feature that allows you to dip into the death benefit while you’re still living, if you have certain qualifying conditions. Most often, this feature is completely free until/unless you need to use it.
How can the insurance companies do this?
They’re ‘advancing’ you a portion of the death benefit at a discounted rate. For example, if you qualify for a $10,000 advance, they may lower your eventual death benefit payout by $15,000 (example only).
On the theory that we’ll probably need less life insurance – but more long-term care benefit as we age, this can be a great deal. Qualification for this benefit is generally the same as it would be for traditional long term care – the inability to perform two of the 6 Activities of Daily Living (bathing, dressing, feeding, toileting, transferring [getting from one place to another], and continence).
The benefits are usually paid tax-free, and are most often ‘indemnity’ benefits – meaning they don’t have to be used for expenses related to the ailment. If you’re able, you can use the money to travel, remodel a home, pay a relative to help care for you, whatever.
Believe it or not, even some term life insurance policies contain this feature which introduces a whole new value proposition to term life insurance.
With rates on the decrease due to expanded life expectancies, and features like this – it would be foolish not to seek out your insurance agent and take a look at what’s available to you.
If 15 minutes can save you 15% on your car insurance – imagine what it could do for your life insurance – or your life for that matter.