We have been talking a lot about using qualified money to fund Asset Care. That has obviously hit a chord given all the feedback that I’ve received.
If you will recall, I have never said that the OneAmerica Financial strategy for funding a policy is the only way to do it. I have said that it is the only turn-key strategy in the industry. With this in mind, there are other approaches and in this month’s Coffee Break, I talk about one of them.
If you haven’t take a few minutes to view Coffee Break for April 2025, I simply talked about funding an Asset Care policy using a side fund versus the turn-key Annuity Funded Whole Life – Asset Care (AFWL) strategy.
The AWFL Asset Care strategy has its strengths and limitations with respect to funding. The strength is that it is a turn-key, set it and forget it approach to funding an Asset Care policy using qualified money. The limitation is that inside the strategy, there is only one funding (premium) duration – 10 years.
The other strategies work via “self-directing” qualified money that is outside the strategy. It can remain in a brokerage account, in the bank, sit in an annuity, or some other vehicle as a holding tank.
In either the AFWL or the “self-directed” approach, you have complete control of how the underlying Asset Care policy is designed. It can be an individual or joint case; it can be a pool of money or an unlimited stream of benefits; or it can include inflation on some, all, or none of the policy.
With a “self-directed” strategy, you are buying a recurring premium Asset Care – it’s that simple. This allows you to fund the policy over 5 years, 10 years, 20 years, or pay to age 95. And, like with AWFL, there is a waiver of premium included.
Here’s the weakness of the “self-directed” strategy … the approach involves client (or advisor) intervention to strike the annual premium for the Asset Care policy.
Lets compare what a $200,000 IRA rollover would produce for a self-directed strategy against the turnkey AFWL strategy using the Asset Care 2024 product.
Our client will be a female age 67 and in good health. We will not include inflation and the long term care benefit duration will be 6 years (the classic 2 plus 4 design).
Using the turn-key AFWL Asset Care strategy, the monthly LTC benefit generated is
$9,927 – that is $119,127 annually for 6 years.
In order to generate the same monthly LTC benefits using the “self-directed” strategy, assuming that we are using a 10 pay funding approach and putting the same rollover amount in a side fund (not a Single Premium Immediate Annuity), that side fund would need to generate 4.275% annually. Just a reminder, the side fund is intended to be liquidated after 10 years.
While this is a basic examination, it demonstrated that there is more than one way to skin a cat. Or, in this case, use qualified money as a funding vehicle for Asset Care.
There is, however, one critical element that I did not mention about the “self-directed” strategy. In order for it to execute similar to the AWFL turn-key strategy, that money needs to be in a save designated spot that will perform as expected without any possible interruption. Said another way, that side fund needs to be guaranteed and separated from the other assets.
Here’s a helpful hint for any “self-directed” strategy. If you are paying premiums for long -term care insurance on a recurring basis, allocate the asset that will produce the premium into a separate pool. Let’s just call it the long-term care bucket. This LTC bucket will be responsible for both funding care and funding the premium. It’s simple, it’s easy, and it’s a good way to avoid guess work when a situation occurs.
For more information, you can contact my internal Kelly Hilliard directly at (844) 623-4251 or via email at kelleyhilliard.isp@oneamerica.com
Fridays with Fisher 