4 Recent Innovations in Life Insurance Policies

Today’s life insurance policies are not the policies our parents and grandparents grew up with and purchased. They offer more features and more customization, at a price lower than many consumers expect to pay.

In fact, a recent study showed that more than 50% of people assume that the cost of life insurance is three times higher than it actually is ^[1]. Furthermore, 44% of millennials, a group whose net worth continues to rise more rapidly than any other generation ^[2], overestimate the cost of term life insurance by more than six times.

Price, however, isn’t the only barrier holding people back from looking at what life insurance has to offer. Lack of information, explanation and time to research options, combined with the fact that no one enjoys thinking about and planning ahead for their own death, can make life insurance a tough subject.

New life insurance policy features are designed to quell those worries, as insurance companies look for more ways to build client-oriented policies. Here are some of the latest innovations in the life insurance industry:

1. Cash Value Component and Living Benefits

Life insurance used to be exactly what it might sound like: insurance for your life. In the event of their unexpected death, policyholders wanted to protect their families, usually by purchasing term life insurance. Term life insurance covers policyholders for a predetermined period of time, typically for a low monthly rate.

Now, carriers offer whole and universal life insurance, which are permanent policies with a tax-deferred cash value component that allows retirement planners to create another avenue to build a nest egg, or savers to save for other things, like college or self-funding a business startup venture. Though the cash value component often increases the monthly premium costs, with these types of policies, the cash value can grow at a rate guaranteed by the claims-paying ability of the insurance company.

One advantage of universal life as opposed to whole life is flexible premiums, allowing you to increase or decrease your premium and the amount that goes toward your cash value. Indexed universal life, a type of universal life insurance, can offer principal protection with market upside potential in correlation with a market index or indexes. (It’s important to understand that indexed universal life is a contract between a consumer and an insurance company, and unlike variable life insurance, isn’t actually subject to stock market risk.)

Permanent life insurance policies that can build cash value can be a good option for healthy younger investors with time and low likelihood of death in the near future. Depending on their situation, healthy retirees can also sometimes benefit from single-premium permanent life insurance which can provide tax-advantaged retirement income.

2. Long-Term Care Hybrid Policies

Just as no one enjoys planning for their own death, no one likes to imagine needing long-term care. Unfortunately, 70% of people currently age 65 or older in America will need long-term care, with 20% needing support for longer than five years ^[3}. Additionally, Medicare does not cover long-term care, necessitating some sort of plan to pay for long-term care to avoid the accelerated depletion of funds in retirement.

One solution to the problem is a modern life insurance and long-term care hybrid plan. Obviously, the main sticking point and fear when it came to traditional long-term care insurance was the potential for not needing long-term care, and that fear was completely rational and well-founded. Older policies were “use-it-or-lose-it.” If you didn’t end up needing long-term care, all of those premiums you paid through the years were for nothing.

Now, hybrid policies provide flexibility. Policyholders have the ability to use their benefit to fund long-term care if they need it. If they don’t need it, it becomes a death benefit provided to their beneficiaries.

3. Riders

One of the biggest expansions in life insurance is in the way you can customize a policy to your needs using a wide array of options available as riders that can be added to an insurance policy. A guaranteed insurability rider, for example, allows the policyholder to purchase more coverage without additional medical examination. It can be helpful to have a guaranteed insurability rider if you expect changes in circumstances that would have affected your original premiums.

Accidental death riders are also common, usually doubling the death benefit in the event that the policyholder dies in an accident. Additionally, accelerated death benefit riders can give the policyholder access to the death benefit if diagnosed with a terminal illness ^[4]. The amount accessed is typically subtracted from the death benefit, meaning that the policyholder’s beneficiaries receive a smaller death benefit, but it’s yet another example of a feature allowing access to funds during life.

4. Better Support for Policyholders

Whether it be because of life insurance riders or enhanced operations, life insurance does not have to be difficult to obtain. Modern technology, increased access to better medical information and simplified underwriting have helped innovative companies that are always looking for ways to reach broader audiences with better products.

With an independent financial advisor who works with multiple insurance companies, you can find the insurance policy that suits your own unique situation and budget, with the most beneficial features and/or riders for your needs.