In last week’s Fridays with Fisher, I spoke about “self-directing” money from a qualified account into Asset Care premiums. I also advocated establishing a “protection bucket” as a dedicated pool to provide your primary resources for paying for long-term care services.
I want to jump back into the “self-directed” funding discussion again. I believe that it is an important one particularly when you elect to NOT establish a “protection bucket” that includes a designated premium source for a policy.
“Self-directing” is really what happens with any recurring premium situation regardless of carrier, regardless of product. It is simply the ability to choose where to pull the premium dollars.
That money can come from cash, liquidating securities, qualified money, annuity proceeds, and a boatload of other sources. The point that I am making is that “self-directing” premiums offers the opportunity choose your funding source.
As you are likely aware, the greatest leverage that anyone has from a funding perspective is perceived to be an annually recurring premium for the length of the policy. I’m telling you this – that is not always the case.
Certainly, if there is a claim within the first few years of the policy being in force, that is the case. But, for a longer duration of time, that is likely not the case.
Let’s look at this scenario for a client who is female, age 67 when the Asset Care 2024 policy is put in place, and is in good health (table 4 or better). Our monthly LTC benefit is $9,927 which will last for 72 months and will exclude inflation. (Note: this is the same scenario that I shared in last week’s Fridays with Fisher.)
If you recall, in order to produce that benefit using qualified money, the client (let’s call her Betty) would need to rollover $200,000 into the Asset Care Annuity Funded Whole Life strategy. We also determined that in a self-directed strategy using a 10-pay, the annual premium would be $25,000 per year. What about other premium opportunities?
| Premium Source | Annual Premium | Premiums Paid at age 95* |
| Annual Premium to 95 | $15,191 | $425,348 |
| Annual 20 pay | $15,927 | $318,540 |
| Annual 10 pay | $25,000 | $250,000 |
| Annual 5 Pay | $48,355 | $241,775 |
| Single Premium – IRA | $200,000 | $200,000 |
| Single Premium – cash | $140,905 | $140,905 |
*assuming that no LTC claims are paid and insured is alive at age 95
You have a boatload of things to consider when you discuss which is the best funding structure. And, it all comes down to when and how a claim is paid.
The above chart demonstrates the assumption that no claims are paid for LTC and the insured lives beyond age 95. How do these numbers stack up if Betty has a long term care claim starting at age 82 after 15 years of paying premiums?
| Premium Source | Annual Premium | Premiums paid at age 82 |
| Annual 10 pay | $25,000 | $250,000 |
| Annual 5 Pay | $48,355 | $241,775 |
| Annual 20 pay | $15,927 | $238,905 |
| Annual Premium to 95 | $15,191 | $227,865 |
| Single Premium – IRA | $200,000 | $200,000 |
| Single Premium – cash | $140,905 | $140,905 |
As you can see from comparing the charts, when you claim directly impacts which funding strategy provides maximum leverage. The problem with this analysis is that it can only be done looking in the rearview mirror – after Betty dies.
So, what’s the magic number. The honest answer is that it all depends. And, that is the whole reason why we plan for the uncertain.
One important thing here is this simple example, we are focusing on premium, premium duration, and the onset of the claim. We are not even discussing the duration of the claim, type of care received, the cost of the care, or any other of the intangibles that a long-term care insurance policy provides as benefits.
So, the next time you compare a product on premiums alone, add into the equation when you anticipate the claim to begin. That may alter your funding recommendation.
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 