Understanding and managing risk is a key component of generational wealth planning. Risk management is twofold: it involves analysis to identify, assess and prioritize risk factors, then strategies to minimize your exposure to those risks and the consequences they have on your estate.

Living too long, dying too soon or suffering from a long illness are scenarios we all must consider in our lives. Effective risk management serves to prepare your family and protect your legacy in each case. We offer a full range of risk management solutions to integrate into your generational wealth plan.

At Generations Wealth Advisors, we are Independent Agents which means we aren’t captive to one Life Insurance Company. We work with over 50 different companies to find the best plan for you.

You know that you need life insurance. However, with the wide variety of insurance policies available, you may find choosing the right one difficult. It's really not as confusing as it seems, however, once you understand the basic types of life insurance policies.

Term life insurance

With a term policy, you get "pure" life insurance coverage. Term insurance provides a death benefit for only a specific period of time. If you die during the coverage period, your beneficiary (the person you named to collect the insurance proceeds) receives the death benefit (the face amount of the policy). If you live past the term period, your coverage ends, and you get nothing back.

Term insurance is available for periods ranging from 1 year to 30 years or more. You may be able to renew the policy for a new term without regard to your health, but at a higher rate. Your premium goes toward administrative expenses, company profit, and a reserve account that pays claims to those who die during the term period. As you get older, the chance that you will die increases. To cover this increasing risk, your premiums will likewise rise at regular intervals. For this reason, premiums that were quite inexpensive at the time you initially purchased your term policy will become much more expensive as you get older. Most term insurance also has a conversion feature that allows you to switch your coverage to some type of permanent insurance without answering health questions.

Traditional whole life insurance--guaranteed premiums

Whole life insurance is a type of permanent insurance or cash value insurance. Unlike term insurance, which provides coverage for a particular period of time, permanent insurance provides coverage for your entire life. When you make premium payments, you pay more than is needed to pay for the current costs of insurance coverage and expenses. The excess payment is credited to a cash value account. This cash value account allows the insurance company to charge a level, guaranteed premium* and to provide a death benefit and cash value throughout the life of the policy.

As you make payments, the cash value account grows. With traditional whole life insurance, the cash value account is guaranteed* and held in the insurance company's general portfolio--you don't get to choose how the cash value account is invested. However, the cash value can potentially grow beyond its guaranteed amount through the payment of dividends (profits earned by a "mutual" insurer). The cash value grows tax deferred and can either be used as collateral to borrow from the insurance company or be directly accessed through a partial or complete surrender of the policy. It is important to note, however, that a policy loan or partial surrender will reduce the policy's death benefit, and a complete surrender will terminate coverage altogether.

If you live to the policy's maturity date, the policy will "endow," and the insurance company will pay the accumulated cash value (equal at maturity to the death benefit) to you.

Universal life--openness and flexibility

Universal life is another type of permanent life insurance with a death benefit and a cash value account. Like whole life insurance, the cash value is held in the insurance company's general portfolio--you don't get to choose how the account is invested. Unlike traditional whole life, universal life insurance allows you flexibility in making premium payments.

A universal life insurance policy will generally provide very broad premium guidelines (i.e., minimum and maximum premium payments), but within these guidelines you can choose how much and when you pay premiums. Reducing or increasing premiums will impact the growth of the cash value component and possibly the death benefit. You are also free to change the policy's death benefit directly (again, within the limits set out by the policy) as your financial circumstances change. Be aware, however, that if you want to raise the amount of coverage, you'll need to go through the insurability process again, probably including a new medical exam, and your premiums will increase.

Universal life policies reveal all aspects of the policy's cost structure, including the cost of insurance (the portion set aside to pay claims) and expenses. This information is not always available with other types of policies. Another feature of universal life is the option to add the cash value to the face amount when the death benefit is paid. For example, say you die when you have $200,000 of cash value within your $1 million policy. If you chose the enhanced benefit option, your beneficiary receives $1.2 million. Keep in mind, however, that nothing is free--the increased benefit is reflected in premium calculations.

Index universal life is a type of universal llife insurance. Index universal life insurance credits interest based on the performance of an equity index, such as the S&P 500.

Variable life--you make the investment decisions

Like other types of permanent life insurance, variable life insurance has a cash value account. A variable life insurance policy, however, allows you to choose how your cash value account is invested. A variable life policy generally contains several investment options, known as subaccounts, that are professionally managed to pursue a stated investment objective. Choices can range from a fixed interest subaccount to a highly volatile international growth subaccount. Variable life insurance policies require a fixed annual premium for the life of the policy and may provide a minimum guaranteed death benefit*. If the cash value account exceeds a certain amount, the death benefit will increase.

Variable universal life--the ultimate in flexibility

Variable universal life combines all of the options and flexibility of universal life with the investment choices of a variable policy. It is a true hybrid product, and you make most of the policy decisions. You decide how often and how much your premium payments are to be, within guidelines. With most variable universal life policies, you get no guaranteed minimum cash value or death benefit. Your premium payments in excess of administrative costs and the cost of insurance are invested in the variable subaccounts that you choose.

As with both variable and universal life insurance, your policy may lapse if the cash value account falls below a certain level. Low-interest loans can be taken against your cash value account, and cash withdrawals are available. However, keep in mind that your policy's face amount is reduced by the amount of a policy withdrawal, and withdrawals may be taxable. You have the option of choosing a fixed or enhanced death benefit. Today, most variable universal life policies offer a rider that guarantees the death benefit at a certain level regardless of the performance of the subaccounts, provided that a stated minimum premium is paid for a predetermined number of years*.

Note: Variable life and variable universal life insurance policies are offered by prospectus, which you can obtain from your financial professional or the insurance company. The prospectus contains detailed information about investment objectives, risks, charges, and expenses. You should read the prospectus and consider this information carefully before purchasing a variable life or variable universal life insurance policy.

*Any guarantees associated with payment of death benefits, income options, or rates of return are subject to the claims-paying ability of the insurer.

Indexed Universal Life

Indexed universal life insurance (IUL) is a type of permanent, cash value life insurance. Like universal life insurance (UL), IUL offers you the ability to change your level of protection, premium amounts, and payment frequency.

IUL background

Life insurance companies develop new products to meet changing insurance needs and demands. For many years, whole life insurance (WL) met the need for permanent life insurance protection by providing a permanent death benefit, fixed premium, guaranteed* minimum interest, and sometimes dividends. But WL does not offer you much flexibility relative to premiums, death benefits, and earnings.

Universal life insurance adds flexible policy features not found in whole life. UL gives you options regarding the timing and amount of premium payments, and the opportunity to change your death benefit (increasing the death benefit may require additional underwriting). UL policy cash values earn a minimum interest rate, and may earn higher interest if the policy issuer's investments perform favorably. However, the amount of interest credited to cash values is controlled by the issuer.

IUL combines the guarantees* of WL and the policy flexibility of UL with the chance to have cash value growth tied to the performance of an equity index, but without exposure to losses resulting from unfavorable index performance.

*Guarantees are subject to the claims-paying ability of the insurance issuer.

How does it work?

IUL is a form of universal life insurance with excess interest credited to cash values. But, unlike UL, the amount of interest credited is tied to the performance of an equity index, such as the S&P 500. Like some UL insurance policies, most IUL policies provide a minimum interest credited to cash values, even when the index produces negative returns. Determining how much interest will be credited to cash values is based on a number of factors.

The equity index

IUL issuers use different investment indexes, such as the Dow Jones Industrial Average, S&P 500 Index, and various bond indexes. The amount of interest credited to the policy's cash value is determined by the gain, if any, in the investment index over a specific period of time or index term.

Index term

The performance of the index is measured over a period of time, called the term. The term can be one year, two years, or many consecutive years.

Participation rate

If the index experiences gain over the term, a percentage of that gain is credited to your cash value in the form of interest. The percentage of index gain applied to your policy's cash value is called the participation rate. Some IUL issuers apply a participation rate of 100% or more for the duration of the policy. If the participation rate is 100%, then all of the gain in the equity index will be credited as interest to your cash value. A participation rate less than 100% yields a comparable percentage of index gain credited to your cash value as interest.

If the equity index used in the IUL policy gained 20% during the index term, and the participation rate is 90%, then the percentage of interest credited to your cash value is 18% (20% x.9).

The cap

The insurance company may impose an additional limit on the amount of interest credited to your cash value with an interest rate cap. The cap, generally expressed as a percentage, is the maximum amount of interest that can be credited to your cash value during the index term.

Referring to the previous example, if a cap of 12% is applied in addition to the participation rate, then the total amount of interest credited to the cash value is 12%, not 18%.

IUL features

IUL is permanent (cash value) insurance. The cash value is credited with interest based on gains, if any, in an equity index. IUL offers flexibility through the ability to change the level of protection, premium amounts, and payment frequency. In this way, some of your policy provisions can be altered to meet changes in your life insurance needs.

Some IUL policies offer a minimum death benefit. As long as the premium is paid on time, the coverage will not lapse. The minimum death benefit may last for the first five policy years or longer. If the lifetime death benefit option is selected, the coverage will continue in place as long as the policy premium is paid when due. Usually there is an additional cost for the lifetime death benefit option, which may increase your premium payments.

Cash value may be withdrawn

Cash values in IUL grow tax deferred, meaning, in most cases, you do not pay income tax on interest credited to cash values within the policy. However, you can access the policy's cash value during your lifetime. You can take tax-free withdrawals up to your policy basis (premiums paid), and you can take policy loans against the cash value as well. Cash withdrawals may be subject to surrender or withdrawal charges that would reduce the policy's cash value. Also, cash withdrawals and policy loans may reduce the policy's death benefit and cash values.

Other factors to consider

Unlike the higher minimum interest paid on most UL, IUL cash values may experience little or no gain during periods of negative equity index returns. And interest rate caps limit the potential upside growth of IUL cash values.

IUL has more "moving parts" than most UL policies. Caps, participation rates, and crediting methods are added features to be considered. Also, policy surrender charges decrease your cash value if you decide to surrender the policy prior to the end of the surrender period.

Fees, costs, and charges associated with some IUL policies reduce your cash value. In addition, the cost of insurance increases each year as your (the insured's) age increases. If you choose to reduce or skip premium payments, it is possible that your cash value may not be sufficient to cover the cost of insurance, in which case you may have to pay a higher premium to make up for the increased insurance charges.

Is IUL right for you?

IUL may be an option if:

  • You want permanent cash value life insurance.
  • You want the option to change the policy death benefit, and the amount and timing of premium payments.
  • You intend to keep the policy for a long time (at least 10 years).
  • You like the potential of cash accumulation found in UL, coupled with the opportunity to earn interest based on positive equity index returns.

Guaranteed interest accumulation is appealing to you, but you want the potential for higher rates of return than those paid by traditional UL. (Guarantees are based on the claims-paying ability of the issuer.)

If these factors are appealing, you may want to consider IUL for your life insurance needs. However, before deciding on a particular insurance product, be sure to research the company behind it.

Joint or survivorship life for you and your spouse

Some married couples choose to buy insurance together within the same policy. These policies take the form of either a joint first-to-die or a joint second-to-die (survivorship) design. With first-to-die, the death benefit is paid at the death of the spouse who dies first. With second-to-die, no death benefit is paid until both spouses are deceased. Second-to-die policies are commonly used in estate planning to create a pool of funds to pay estate taxes and other expenses due at the death of the second spouse. Joint and survivorship policies are generally available under any type of permanent life insurance. Other than the fact that two people are insured under one policy, the policy characteristics remain the same.

Annuity products have grown more sophisticated over the years to meet the demands of today's more sophisticated investors.

Just as mutual funds grew in popularity as an alternative to certificates of deposit, the variable annuity was developed as an alternative to the fixed annuity. Variable annuities offer potentially higher returns than fixed annuities. Of course, there is a risk of loss as well. So, deciding which annuity product to invest in often comes down to deciding how much risk you are willing to take.

Fixed Annuities

When you purchase a fixed annuity, the issuer guarantees that you will earn a minimum interest rate during the accumulation phase and that your premium payments will be returned to you. If you annuitize the contract (i.e., take a lifetime or other distribution payout option), the issuer guarantees the periodic benefit amount you will receive during the distribution phase. (Guarantees are subject to the claims-paying ability of the issuing insurance company.) The interest rates earned during the accumulation phase will reflect current fixed income rates, changing periodically. During the distribution phase, the payment is based on the prevailing interest rates at the start of the distribution phase, and then remains constant. This fixed payment may lose purchasing power over time due to inflation. Consequently, many investors are hesitant to lock in a fixed annuity payout rate.

Variable Annuities

When you purchase a variable annuity, the annuity issuer offers you a choice of investment options in what are known as subaccounts. The issuer may offer many different types of asset classes such as stock, bond, and money market funds. The issuer of a variable annuity does not guarantee or project any rate of return on the underlying investment portfolio. Instead, the return on your annuity investment depends entirely on the performance of the investments that you select. Your return may be greater than or less than that of a fixed annuity. However, if you die before you begin receiving annuity distributions, your heirs will receive at least as much as the total of your premium payments, regardless of the annuity value.

If you elect to annuitize and receive periodic distributions from your variable annuity, you can choose to receive either a fixed payout (like with a fixed annuity as previously discussed), a variable payout, or a combination of the two. If you select a variable payout, then the amount of each payment will depend on the performance of your investment portfolio. If the portfolio increases in value, then your payments will increase as well. Most annuity issuers offer a third option that allows you to lock in a minimum fixed payment every month, with the possibility of an additional variable payment based on the performance of your investment portfolio. By allowing your principal to remain in investment accounts during the distribution phase, you have the continued opportunity to benefit from rates of return that are higher than what would have been received with a fixed annuity. But remember, you also run the risk that your payout could be lower if your investment choices do not perform well.

Investors should consider the investment objectives, risks, charges, and expenses carefully before investing in Variable Annuities. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from the insurance company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Indexed Annuities

An indexed annuity (IA) is a contract between you and an insurance company. You pay premiums in a lump sum or periodically, and the issuer promises* to pay you some amount in the future. The IA issuer also provides a minimum guaranteed* interest rate on your premiums paid.

With an IA, the interest earnings are tied to the performance of an equity index such as the S&P 500 or the Dow Jones Industrial Average.

With an IA, your interest earnings may increase if the market performs well, but if the market performs poorly, your principal is not reduced by market losses. Indexed annuities are generally subject to a lengthy surrender charge period. Most IAs pay a minimum guaranteed* interest rate (e.g., 3%) on a percentage of premium (e.g., 87.5%). However, if the IA doesn't earn interest greater than the minimum, cashing in the account prior to the end of the surrender period may cause the investor to lose money, and incur surrender charges. Withdrawals are taxed as ordinary income and, if taken prior to 59 ½, a 10% federal tax penalty.

Note, however, that any return, whether guaranteed or not, is only as good as the insurance company that offers it. Both the IA's principal and its earnings are entirely dependent on the insurer's ability to meet its financial obligations.

Also, be aware that buyers of IAs are not directly invested in the index or the equities comprising the index. The index is merely the instrument used to measure the gain or loss in the market, and that measurement is used to calculate the interest rate.

*Annuity guarantees are subject to the claims-paying ability of the annuity issuer.


The first IAs that were introduced worked very simply; the interest rate was determined by computing the difference between the value of the index to which the annuity was linked on the annuity's issue date and the value of the same index on the annuity's maturity date. If the difference was negative (i.e., the market performed poorly and the value of the index decreased), interest was calculated using the minimum interest rate. If the difference was positive (i.e., the market performed well and the value of the index increased), the interest rate used was a percentage of the difference — but usually not the entire difference.

Participation rates

The participation rate determines how much of the gain in an index will be imparted to your annuity. For example, if the difference (i.e., gain) in the index is 7% and the participation rate is 90%, then the interest rate is 6.3% (90% of 7%). Participation rates of 70% to 90% are typical. Obviously, the higher the participation rate, the higher the potential return. Participation rates are set and limited by the insurance company.

Indexing methods

The indexing method is the approach used to measure the change in an index. The original method, which measures index values at the beginning and end of the term, is known as the point-to-point or European method. The point-to-point method is the simplest approach, but it fails to consider market fluctuations that occur in between the issue and maturity dates. This can result in unsatisfactory returns if the market declines at the end of the term.

Another approach, known as the high-water-mark or look-back method, looks at the value of the index at certain points during the term, such as annual anniversaries. The highest value of these points is then compared to the date-of-issue value to determine any gain to be credited to the IA.

A third approach, the averaging method, also looks at the value of the index at certain points during the annuity's term, then uses the average value of these points to compute the difference from either the date-of-issue value or the date-of-maturity value.

The fourth main indexing method is known as the reset or ratcheting method. With this method, start-of-year values are compared to end-of-year values for each year of the annuity's term. Decreases in the index are ignored, and increases are locked in every year.

Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated.

Medicare won't cover all of your health-care costs during retirement, so you may want to buy a supplemental medical insurance policy known as Medigap. Offered by private insurance companies, Medigap policies are designed to cover costs not paid by Original Medicare, helping you fill the gaps in your Medicare coverage.

Medicare Part A (hospital insurance)

Part A covers services associated with inpatient care in a hospital, skilled nursing facility, or psychiatric hospital. Part A covers charges for the room, meals, and nursing services. Part A also covers hospice care and home health care, but does not cover long-term care. Medicare Part A is premium-free for most people, but deductibles and coinsurance costs apply to some services.

Medicare Part B (medical insurance)

Part B covers other medical care, including inpatient or outpatient physician care, lab tests, physical therapy, and ambulance services. Medicare Part B also covers 100% of the cost of many preventive services. Everyone pays a monthly premium for Part B. Most people pay the standard monthly premium, which is $144.60 in 2020. People with higher incomes may pay more than this amount, while some people will pay less. Beneficiaries will need to meet an annual deductible and after that pay 20% of the Medicare-approved amount for most services.

When's the best time to buy a Medigap policy?

The best time to buy a Medigap policy is during open enrollment, when you can't be turned down or charged more because you are in poor health. If you are age 65 or older, your open enrollment period starts on the first day of the month in which you're both 65 or older and enrolled in Medicare Part B. A few states also require that a limited open enrollment period be offered to Medicare beneficiaries under age 65.

If you don't buy a Medigap policy during open enrollment, you may not be able to buy the policy that you want later. You may find yourself having to settle for whatever type of policy an insurance company is willing to sell you. That is because insurers have greater freedom to deny applications or charge higher premiums for health reasons once open enrollment closes.

What's covered in a Medigap policy?

Under federal law, only 8 standardized plans can be offered as Medigap plans (except in Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans). As of January 1, 2020, plans sold to individuals new to Medicare will be Plans A, B, D, G, K. L, M, and N.* Each Medigap plan offers a different set of benefits. All cover certain out-of-pocket costs, including Medicare coinsurance amounts. Some plans also cover other costs, such as all or part of Medicare Part A deductibles, skilled nursing facility care coinsurance, and foreign travel emergency costs.

*Two additional options, Plans C and F, will no longer be sold to new Medicare beneficiaries. However, they may be available to you if you were eligible for Medicare before January 1, 2020, but have not yet enrolled in a plan. If you already have either of these plans (which cover the Medicare Part B deductible), you'll be allowed to keep it.

Medigap policies do not cover certain health-care expenses, including long-term care, vision care, dental care, or prescription drugs (to obtain prescription drug coverage you can purchase a Medicare Part D Prescription Drug Plan).

You can buy the Medigap plan that best suits your needs. But it's important to note that not all Medigap plans are available in every state.

Are all Medigap policies created equal?

Generally, yes. Although Medigap policies are sold through private insurance companies, they're standardized and regulated by state and federal law. A Plan B purchased through an insurance company in New York will offer the same coverage as a Plan B purchased through an insurance company in Texas. All you have to do is decide which plan that you want to buy.

However, even though the plans that insurance companies offer are identical, the quality of the companies that offer the plans may be different. Look closely at each company's reputation, financial strength, and customer service standards. And check out what you'll pay for Medigap coverage. Medigap premiums vary widely, both from company to company and from state to state.

Whether you've had a long-term care insurance (LTCI) policy for years or you're thinking of buying one, it's critical to understand exactly what set of conditions will trigger coverage. This information is the bread and butter of any LTCI policy. In addition, you should know how to file a claim, preferably before you're on the verge of needing care.

What determines if you're entitled to benefits?

LTCI policies differ on how benefits are triggered, so it's crucial to examine your individual policy. Here are some typical ways you can become eligible for benefits:

You're unable to perform a certain number of activities of daily living (ADLs) without assistance, such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Look in your policy to see what ADLs are included, the number you must be unable to perform, and how your policy defines "unable to perform" for each ADL, as criteria can vary from one company to another (e.g., does the definition require someone to physically assist with the activity or simply to supervise the activity?).

  • Your doctor has ordered specific care.
  • Your care is medically necessary.
  • Your mental or cognitive function is impaired.
  • You've had a prior hospitalization of at least three days (this is rare with newer policies).

An LTCI policy may contain one or more of these provisions. The more specific the language in the provision, the less room for disagreements about coverage.

Who determines if you're entitled to benefits?

Just as important as what triggers benefits is the question of who decides if you've triggered them. These gatekeepers are an integral part of any LTCI policy--after all, they're the ones whom insurance companies rely on before paying out claims. In some cases, a policy may have more than one gatekeeper.

The best policies let you qualify for benefits if your own doctor orders specific care, rather than require that you be examined by an insurance company physician. Similarly, it's insurance companies that define performance criteria for ADLs, as well as create and administer tests to see if you satisfy the mental impairment threshold. Make sure you know who the ultimate decision maker is under your policy.

When will benefits start?

Most LTCI policies have a waiting period, commonly known as an elimination period, before you can start receiving benefits after you're judged medically eligible. Common waiting periods are 20, 30, 60, 90, or 100 days. During any waiting period, you're responsible for paying for your care, whether it's in a nursing home, an assisted-living facility, or in your home.

Some LTCI policies have no waiting period--you can start receiving benefits on the first day you need care. However, this type of policy is more expensive than a policy with a waiting period. Generally speaking, the longer the waiting period, the less expensive the policy.

Keep in mind that the calculation of the waiting period can vary from company to company. Some companies may count the days cumulatively (e.g., adding up the total number of days you spend in a nursing home, even with gaps), while others may count the days consecutively (e.g., adding the total number of days you spend in a nursing home without interruption). Also, some companies require only one waiting period for the life of the policy, while others require a waiting period every time you apply for benefits (unless you become eligible for benefits again within a certain period of time, such as six months or a year, in which case only one waiting period will need to be satisfied).

The mechanics of filing a claim

Ideally, you should know how to file a claim before you actually need benefits--you don't want to lose coverage on a technicality. Typically, filing a claim means submitting a written notice to the insurance company, along with a proof-of-loss form (supplied by the insurance company) and relevant medical records.

Most policies require you to give written notice of a claim within a specific time after needing care (e.g., 30 or 60 days). In addition, you may need to verify your condition in writing every 30 to 90 days. The company may also require you to submit to an independent medical evaluation by a physician of its choosing to verify your claim.

Follow the instructions in your policy carefully. If you don't, your insurance company can deny you benefits, in which case your only recourse will be to make a complaint with your state insurance department or file a lawsuit (and most companies limit the period of time in which you can file a lawsuit). Don't let all those premium payments go to waste--take the time now to understand the claims-filing process for your policy.

Life Insurance Riders that Pay for Long-Term Care

Life insurance has many uses, including income replacement, business continuation, and estate preservation. Long-term care insurance provides financial protection against the potentially high cost of long-term care. If you find yourself in need of both types of insurance, a life insurance policy that combines a death benefit with a long-term care benefit may appeal to you.

Here's how it works

Some life insurance issuers offer life insurance with a long-term care rider available for an additional charge. If you buy this type of policy, you can pay the premium in a single lump sum or by making periodic payments. In any case, the policy provides you with a death benefit that you can also use to pay for long-term care related expenses, should you incur them.

The amount of death benefit and long-term care allowance is based on your age, gender, and health at the time you buy the policy. The appeal of this combination policy lies in the fact that either you'll use the policy to pay for long-term care expenses or your beneficiaries will receive the insurance proceeds at your death. In either case, someone will benefit from the premiums you pay.

Long-term care riders

The long-term care benefit is added to the life insurance policy by either an accelerated benefits rider or an extension of benefits rider.

Accelerated benefits rider --An accelerated benefits rider makes it possible for you to access your death benefit to pay for expenses related to long-term care. The death benefit is reduced by the amount you use for long-term care expenses, plus a service charge. If you need long-term care for a lengthy period of time, the death benefit will eventually be depleted. This same rider also can be used if you have a terminal illness that may require payment of large medical bills. Because accelerating the death benefit can have unfavorable tax consequences, you may want to consult your tax professional before exercising this option.

Example: You pay a single premium of $50,000 for a universal life insurance policy with a long-term care accelerated benefits rider. The policy immediately provides approximately $87,000 in long-term care benefits or $87,000 as a death benefit. If you incur long-term care expenses, the accelerated benefits rider allows you to access a portion, such as 3% ($2,610), of the death benefit amount ($87,000) each month to reimburse you for some or all of your long-term care expenses. Long-term care payments are available until the total death benefit amount ($87,000) is exhausted (about 33.3 months). Whatever you don't use for long-term care will be left to your heirs as a death benefit.

(The hypothetical example is for illustration purposes only and does not reflect actual insurance products or performance. Guarantees are subject to the claims-paying ability of the issuer.)

Extension of benefits rider --An extension of benefits rider increases your long-term care coverage beyond your death benefit. This rider differs from company to company as to its specific application.

Depending on the issuer, the extension of benefits rider either increases the total amount available for long-term care (the death benefit remains the same) or extends the number of months over which long-term care benefits can be paid. In either case, long-term care payments will reduce the available death benefit of the policy. However, some companies still pay a minimum death benefit even if the total of all long-term care payments exceeds the policy's death benefit amount.

Continuing from the previous example, if the policy's extension of benefits rider increases the long-term care benefit (the death benefit--$87,000--remains the same) to three times the death benefit ($261,000), the monthly amount available for long-term care increases to $7,830. On the other hand, if the extension of benefits rider extends the length of time the monthly long-term care benefit is available, then the monthly payments ($2,610) are extended for an additional 24 to 36 months beyond the initial number of months (33.3) available

Other provisions

Typically, qualifying for payments under a long-term care rider is similar to the requirements for most stand-alone long-term care policies. You must be unable to perform some of the activities of daily living (bathing, dressing, eating, getting in or out of a bed or chair, toilet use, or maintaining continence) or suffer from a severe cognitive impairment.

An elimination period may also apply: you pay for the initial cost of long-term care out-of-pocket for a specific number of days (usually 30 to 90) before you can apply for payments under the policy. As with all life and long-term care insurance, the insurance company will require you to answer some health-related questions and submit to a physical examination before issuing a combination policy to you.

Is a combination policy right for you?

Deciding whether a combination policy is right for you depends on a number of factors. Do you need life insurance and long-term care insurance? How much life and long-term care insurance will you need? How long will you need it? Will the long-term care part of a combination policy provide sufficient coverage?

A long-term care rider may not provide as many features as a stand-alone long-term care policy. For example, the combination policy may not cover assisted living or home health aides. It also may not provide an inflation adjustment, an important feature considering the rising cost of long-term care. The tax benefits offered by a qualified long-term care policy may not apply to the long-term care portion of combination policies, which could result in taxation of long-term care benefits received from the policy.

What if your life insurance needs change as you get older and you find that you no longer want life insurance protection? It's not uncommon for people to drop their life insurance in their later years if there's no compelling need for it, but if you surrender the combination policy, you're also forfeiting the long-term care benefit it provides, usually at a time when you are most likely to need it.

And keep in mind that as you use your long-term care benefits, you're depleting the death benefit--a death benefit you presumably wanted to pass on to your heirs or perhaps use to pay for estate taxes.

Finally, compare costs of combination policies to other forms of life insurance, such as term insurance, and stand-alone long-term care policies. Depending on your age and health, the cost for the combination life policy may actually be higher than the total premiums paid for separate life insurance and long-term care policies, especially if your life insurance need is temporary (such as income replacement during your working years) rather than permanent.

Disability insurance pays benefits when you are unable to earn a living because you are sick or injured. Most disability policies pay you a benefit that replaces a percentage of your earned income when you can't work.

Why would you need disability insurance?

Your chances of being disabled for longer than three months are much greater than your chances of dying prematurely, due in part to medicine that has made many fatal illnesses treatable. (Source: 1985 Commissioner's Individual Disability Table A--most recent data available.) Although this is good news, it increases your need to protect your income with disability insurance.

Consider what might happen if you suffered an injury or illness and couldn't work for days, months, or even years. If you're single, do you have other means of support? If you're married, you may be able to rely on your spouse for income, but you probably also have many financial obligations, such as supporting your children and paying your mortgage. Could your spouse's income support your whole family? In addition, remember that you don't have to be working in a hazardous position to need disability insurance. Accidents happen not only on the job but also at home, and illness can strike anyone.

If you own a business, disability insurance can help protect you in several ways. First, you can purchase an individual policy that will protect your own income. You can also purchase key person insurance designed to protect you from the impact that losing an important employee would have on your business. Finally, you can purchase a disability insurance policy that will enable you to buy your partner's business interest in the event that he or she becomes disabled.

What do you need to know about disability insurance?

Once you become disabled and apply for benefits, you have to wait for a certain amount of time after the onset of your disability before you receive benefits. If you are applying for benefits under a private insurance policy, this amount of time (known as the elimination period) ranges from 30 to 365 days, although the most common period is 90 days. Group insurance policies through your employer will generally have a waiting period of no more than 8 days for short-term policies that pay benefits for up to six months, and 90 days for long-term policies that pay benefits up to age 65.

You can purchase private disability income insurance policies that offer lifetime coverage, but they are very expensive. Most people buy policies that pay benefits up until age 65; however, two- and five-year benefit periods are also available. Because many injuries or illnesses do not totally disable you, many policies will offer a rider that will pay you a partial benefit if you can work part time and earn some income.