Critical Illness Plan Comparisons

[somarco]

how much would a CI policy cost that can do what it does?

In looking at CI, as with any other insurance product, you need to look at the total value.

A policy that generates tax free benefits is preferable over those that are taxed.

Generally, life insurance proceeds are tax free but if you had a $50,000 policy that was tax free vs. one that is taxable, which is the better value? Even if the tax free plan is more expensive, would that be a better value or not?

Too often agents look at price and the number of conditions under which a CI policy MIGHT pay and often conclude that the policy with the most covered conditions and lowest premium must be the best policy.

They do the same for dental insurance.

And let's not forget the one that pays the highest commission . . .

Agents that specialize in LTD or LTCi typically take a hard look at policy definitions, benefits and price.

If you use the same critical eye in evaluating CI and dental you might come up with a different perspective.

 

[0b1kanobee]

Generally, life insurance proceeds are tax free but if you had a $50,000 policy that was tax free vs. one that is taxable, which is the better value? Even if the tax free plan is more expensive, would that be a better value or not?

I would say it would be determined on an individual basis. I know if it were me, and I have a CI policy that pays me a lump sum benefit of say 20k and one that may pay me several times that over a longer period, I'll take the one that pays more over time even if I may have to pay tax on the money.

20k or whatever the average CI policy pays probably won't be enough money to save my house and other liabilities if I'm not working. Also, If I'm not working I'm not paying taxes on income from a job either.

If I'm looking at tax benefits vs. keeping what I have worked so hard for, tax benefits go out the window now.

To be fair, I haven't fully studied how CI benefits within a life policy are actually taxed and if they are taxed all the same ect. ect.

My comment was based on your comment which was "You never want to write a CI plan that is a rider to a life policy".

That word "never" frightens me a little is all.

To compare CI with LTC policies or even put them in the same context is a good example and a terrible one at the same time. People with LTC policies, especially ones where benefits are being taken are in all likelihood at a totally different place in their lives than a 'still working' person and thus 'if' they are being taxed on benefits would just be par for the course IMHO.

Nobody ever said there was such a thing as a free lunch.

 

[somarco]

How about never touch a live wire, or never blow dry your hair while in the shower, or never tug on Superman's cape . . .?

Here are some things I would never do.

Sell someone a major med policy that did not cover Rx.

Sell a dental insurance plan.

Sell any supplemental insurance plan that I do not believe will pay a benefit without a hassle.

 

[0b1kanobee]

You never want to write a CI plan that is a rider to a life policy.

just clarifying you said "you" not "I". What you would do and what you are telling others to do is two totally different things.
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How about never touch a live wire, or never blow dry your hair while in the shower, or never tug on Superman's cape . . .?

Here are some things I would never do.

Some things YOU wouldn't do as in the above "Here are some things I would never do" is way different than telling somebody else something they should never do.

Just because you wouldn't do it doesn't mean it should "never" be done is all.

 

[somarco]

OK, Obi1, how about this.

YOU should never offer a product to a client unless you understand the ramifications of that product and how it might come back and bite you on the a$$.

But if YOU choose to do so, be prepared to deal with the consequences.

Now go have a beer and enjoy the weather.

 

[0b1kanobee]

OK, Obi1, how about this.

YOU should never offer a product to a client unless you understand the ramifications of that product and how it might come back and bite you on the a$$.

But if YOU choose to do so, be prepared to deal with the consequences.

Now go have a beer and enjoy the weather.

I actually read most of your posts. I have several of them printed out when I was learning and continue to learn about products I'm not familiar with.

When I see someone such as yourself say certain things with such definitive remarks I raise my eyebrows as to why. What is so bad to make this guy tell someone "you never do this" only to find out it is an opinion.

When I state my opinion I usually put IMO.

I'm not the one who has my panties in a knot.

No more beer for me this weekend. I'm all beered out if there is such a thing. Getting ready for the week. OK well I might have a drink later. You twisted my arm.

 

[Guest]

Interesting. I haven't thought of it from the tax angle before, but want to do right by the client. I would have thought an accelerated DEATH BENEFIT rider would not be taxed, whereas a standalone CI payout would.

Is there any carrier site that has verbiage that might confirm one way or the other?

Thanks!

 

[somarco]

Is there any carrier site that has verbiage that might confirm one way or the other?

Carriers "don't give tax advice" so you won't find any information on their site addressing the issue.

One clue is if there is a death benefit associated with the policy. If so, it is probably a CI rider to a life insurance policy.

If the CI benefit reduces (or wipes out) the death benefit then what you have is an accelerated death benefit which MAY be taxable.

Critical Illness Test

 

[0b1kanobee]

Why don't we see what the IRS has to say?

Publication 554 (2011), Tax Guide for Seniors

'Accelerated Death Benefits'

"Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. However, see Exception , later. For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit.

In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill.

To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return.

Terminally or chronically ill defined. A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions.
The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity.

The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment.

Exception. The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured:
Is a director, officer, or employee of the other person, or

Has a financial interest in the business of the other person."

 

[Guest]

Thanks for the info, guys!