Insurance World

With life insurance, the insured is transferring the risk of death on to the insurer. It is not always the case that the insured is insuring their own life. Therefore there are three parties in a life insurance contract, the insurer, the insured person, and the owner of the policy. The other vitally important party is the beneficiary; this is the person who receives the insurance money if the insured’s death does occur. One or more of these parties could be the same person, for example, if I insure my own life and make my spouse the beneficiary, then I am the insured and the owner. Likewise, if my wife insures my life and makes herself the beneficiary, then she is the owner and the beneficiary.

An important concept in this regard is insurable interest. You must have what is known as an insurable interest in the life of the person you are insuring. Believe it or not there was a practice in the nineteenth century whereby people would take out speculative insurance policies on the life of another.

For example, if I knew you were going on a dangerous voyage, I might take out a life insurance policy on you in the hope that you wouldn’t make it and I would get a big payout. These days you cannot insure anybody’s life. You must show that you have an interest in that person being alive. You are presumed always to have an interest in the life of your spouse and guardians, if you are a minor, but all other relationships will have to prove the insurable interest. If employers have a very highly valued employee, or sports teams have a star player, or a famous actor contracts to make a film, their employers will be able to insure their lives.

Most life insurance policies will have a suicide clause stating that if the insured commits suicide, usually within a period of two years, the policy will not pay out. There is also a contest period. This will also be approximately two years and if the insured dies within this period, the insurance company has greater rights to investigate the death before deciding whether or not to pay out.

The value of the insurance policy will be subject to the principle of insurable interest also. For example, if your spouse provides you with $10,000 per year in support, you probably will not be able to take a $50 million insurance policy on their life. The premium will be calculated based on the amount to be paid out and the assessed risk of the insured’s death.

A new study by the American Council of Life Insurers (ACLI) shows that baby boomers need to pay attention to the very real possibility they may need long-term care. The reason: escalating long-term care costs.

“Long-Term Care Insurance or Medicaid: Who Will Pay for Baby Boomers’ Long-Term Care?” sounds the alarm on a potential national long-term care crisis. More important, it is a call to action for individuals to include long-term care in their retirement planning, said ACLI President & CEO Frank Keating.

The study shows that a one-year stay in a nursing home averages nearly $70,000 for a private room or more than $61,000 for a semi-private room. By 2030, the same stay in a semi-private room will cost an estimated $190,000, more than tripling over the next 25 years. Most Americans cannot save enough to cover these high costs on their own.

“Americans are living longer than ever before. That is good news, but it has some risks. One of those risks is that many future retirees will be facing astronomical long-term care costs,” Keating said.

The issue is of particular interest to women because they tend to outlive men. A 65-year-old woman has a 50 percent chance of needing nursing home care in her lifetime-a cost that could potentially wipe out her retirement savings.

What can be done? Life insurers recommend long-term care insurance.

Long-term care insurance is a vital component of a sound financial plan for retirement. It helps people maintain independence in retirement if they require long-term care services. Long-term care policyholders don’t have to rely on government programs or their family to pay for care. Moreover, the product has evolved over the years. It now offers a wide range of services in a variety of settings. Some policies may include reimbursement for respite care, medical equipment, care coordination services and even home modification.

“Long-term care insurance provides retirement security to millions of Americans. But more need the protection it offers. With long-term care insurance as part of a retirement plan, Americans are better equipped to protect their life-long savings and maintain their standard of living,” Keating said.