Benefit of a Cap to Self-funding

Last week’s Fridays with Fisher was about a strategy to cap the risk that a self-funding strategy presents. 

A lot of people reached out to me and told me that they did not like it.  I hear what you say and understand why. 

One thing that I believe that many people did not pick up in the post was this … there are many ways to accomplish that goal which was limit the financial exposure for the client.  I believe that many readers missed that point and focused on the total number going into the strategy versus what comes out.

With this in mind, I want to remind you that last week’s idea what about introducing a funding limit using our Indexed Annuity Care product with the intent of capping the out of pocket at $500,000 or less.

In that design, we provided that cap by including our lifetime continuation of benefits rider (aka COB) which featured a 5% inflation factor.  Simply, year over year, the COB grew at a rate of 5% compound for the duration of the policy.  And, we funded that portion of the policy on an annual basis.  This is the most costly plan design for the client who was a 65 year old female.

Why did I show it?  To illustrate that in aggregate, the most premium intensive strategy is still more efficient than self-funding.

Let’s assume that she requires care starting at age 80. 

If she requires care for a year, the total guaranteed benefits received from the policy would be a bit more than $140,000.  That is tax-free.  Should she pass after that care, the balance of the policy would be paid to her beneficiaries – more than $150,000.

Let’s say she requires care for the average duration of time for a woman – 3.8 years starting at age 80.  She would derive more than $660,000 of guaranteed tax-free benefit from her policy.  Of course, this would wipe away opportunity to pass money to her beneficiaries, but it is far less than what she contributed to her policy.

Remember – the initial premium was a $200,000 1035 exchange from an existing non-qualified deferred annuity and augmented each year with an annual premium of $13,147 which paid for the continuation of benefits rider.  All in, she paid a little over $423,000 in premium yet received more than $660,000 in benefits.

Consider this – if her care was the average duration for an Alzheimer’s claim of 8 years, she would have received over $1 million in benefits.  And, remember, because of the inflation component of the plan, every year – the monthly benefits grew.

My question to you is this.  Is it really too expensive not to consider at least shifting some of the risk away from the client?

Have a case or want to discuss ideas?  Give me a call or you can reach out to my internal Justin Fox at (844) 658-3725 or

For the illustration that compliments this example, you can go to

If you haven’t checked out this month’s Coffee Break.  Jen Wagoner, Elaine Marvin, Niki Johnson, and I discuss the OneAmerica Indexed Annuity Care product.


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