One funding approach that has been unique to Asset Care is the “self contained” funding strategy for qualified money and non-qualified deferred annuities. In the original series product, these were know as Asset-Care II (non-qualified money) and Asset-Care III (qualified money).
We have made some enhancements to this strategy which, in my humble opinion, are fantastic!
As with the original strategy, an IRA rollover is used to fund a deferred annuity that will be our funding source. This will be liquidated over a period of time via withdrawals to fund the policy. Those distributions will be a taxable event and generate a 1099. This strategy can be used to fund either an individual policy or a joint policy.
Starting on July 1, when funding Asset Care using an annuity or qualified money, that money will be exchanged into a deferred fixed annuity with an income rider.
- The annuity will fund both the life and LTC benefit (Continuation of Benefit Rider) over a period of 10 years.
- Monies transferred in receive a one-time guaranteed 20% bonus.
- Distributions will be made via the income rider.
- Distributions will be taxed as ordinary income and will generate a 1099.
- Distributions can count to required minimum distributions once owner attains age 70 1/2.
Let’s look at an example:
Mr. & Mrs. Cash are in solid financial position for retirement and have their income needs accounted for; they are 61 and 60. A large portion of their assets are held in qualified money and they have no funding plan to address long term care. Asset Care funded using qualified money is the strategy that they like.
Mrs. Cash, via IRA rollover, funds Asset Care using $200,000 from her traditional IRA. Those monies are deposited into the fixed deferred annuity and immediately bonused 20%. The fixed annuity balance to be used for funding is $240,000.
Over 10 years, $24,000 annually is drawn from the annuity and applied to the policy. The deferred annuity value is reduced dollar for dollar by the distribution. After 10 years, it has a zero balance.
(Here is where it gets good.)
The joint policy projects out like this:
- $234,995 Death Benefit (guaranteed minimum benefit payable)
- $7,050 monthly LTC benefit per person (acceleration rate 3%)
- Unlimited lifetime benefit
- The premium will be waived if either insured is on claim during funding stage
A few key points to remember.
- The distribution pays for both the base and continuation of benefit rider of the underlying policy.
- The death benefit is a level for the duration of the policy and is the guaranteed minimum benefit that will be received from Asset Care.
- This is a joint policy which makes the death benefit payable on the second death but the long term care benefit payable on the first claim.
- If the insured both die during the funding stage, both the tax-free death benefit AND the annuity funding the policy’s account value are payable as death benefit.
- If an insured goes on claim during the funding stage, all LTC benefits are paid tax-free.
Since we will be no longer identifying funding strategy by a product name (Asset-Care II & III will be retired). The funding strategy on the application will be Annuity Funding Asset Care.
If you have questions, contact Justin Fox at firstname.lastname@example.org