Self-funding Cap

Last week, I started a conversation about self-funding a long term care and I shared a few examples of potential future costs. 

As a reminder, OneAmerica offers an  Interactive Cost of Care Map that can help you find the cost of care anywhere in the country.  It’s a great tool to have on your mobile device. 

This week, I will build on the idea of self-funding. 

As I mentioned last week, many self-funders are willing to accept the risk to their wallet because they never had a personal experience related to receiving care.  In this case, you have some work to do by sharing other people’s experiences and ask them to reflect upon their plan if something were to happen.

What’s their plan?  Who will help them?  Where do they want to be?  And, how do they plan to pay for things?  These are a few questions to ask. 

Let’s assume that they recognize that a risk exists and there is a potential need but they believe that they have adequate resources.  Here is a question that might open the door to introduce an insurance-based solution.

“At what point will you say that you’ve spent too much of your money on care?”

I’ve found this to range from $100 to more than a million.  Every person will have a different perspective of what is too much to spend on their care and divert from their plans (income, charitable endeavors, their legacy, etc.). 

Everyone has a number.  For many, that point will be between $200,000 and $500,000.  Let’s assume that the figure is $500,000 (it’s what a client told me earlier today).

Here is one way to fund a stop-loss strategy using Indexed Annuity Care.

Reposition that amount into Indexed Annuity Care with a lifetime continuation of benefits rider that includes 5% compound inflation.  Here is how it can work for a female age 65:

$200,000 of single premium is used to fund the base portion of the Indexed Annuity Care policy.  This will provide our initial “self-funding pool” that will grow year over year and provide tax-free LTC benefits when a claim occurs.  This is the base policy.

Every year, an annual premium of $13,000 will purchase lifetime tax free long term benefits that will grow annually at a rate of 5% compound.  This is the continuation of benefits rider (COB).

Here is a snapshot of how the guaranteed benefits illustrate:

At Issue:

Monthly LTC Benefits Base           $8,417 

Monthly LTC Benefits COB            $8,417                

Year 10 (age 75)

Monthly LTC Benefits Base               $11,843*

Monthly LTC Benefits COB               $13,058**

Year 20 (age 85)

Monthly LTC Benefits Base               $15,927*

Monthly LTC Benefits COB               $21,269**

*based on guaranteed ledger illustration guaranteed crediting rate of 2.55% in fixed account

** based upon 5.00% compound inflation rate

For the illustration that compliments this example, follow this link:

https://fridayswithfisher.files.wordpress.com/2023/05/iancf65allyears5cob200krecurringcobb.pdf

Here is the thumbnail version of this idea – you plan to reposition the amount that is “an acceptable cost for care” between the base indexed annuity and the COB. This is now the dedicated long term care funding source. In the example shown, on day 1 of the policy, the annual benefit available is $101,004. When you fast forward 20 years to “prime claim time”, the annual benefit available from the base annuity portion has grown to $191,124 and the COB to $255,228.

Keep in mind, this is a quick example of how a stop-loss strategy might be deployed. This represents the most costly solution (lifetime benefits with 5% compound inflation). There are other ways to implement this strategy. Like I always say, the solutions that we offer at OneAmerica are not cookie cutter solutions where everyone is recommended 72 months of benefit; the solutions that we provide are unique to each client’s specific situation.

Should you care to dive deep into the illustration and/or learn more details about the Indexed Annuity Care product, please contact my internal Justin Fox at (844) 658-3725 or via email at justinfox.isp@oneamerica.com

---