Last week while I was in New Jersey sharing the Asset Care 2024 story, I shared an opinion about inflation versus no inflation for an older age applicant.
I said, “typically, I do not recommend adding inflation for someone age 70 or older because at a 3% compound rate, it will take XX years to equal the benefit that I can buy without inflation.”
I was called out on that statement where an attendee said that he always included inflation regardless of the client’s age. We agreed that whether inflation is included or not for the older client is really case dependent.
So, in the interest of quick research, I fired up the OneAmerica Financial Care Solutions Calculator and here is what I found.
So, I ran an illustration for a male age 70 dropping in $200,000 and solving for a monthly LTC benefit that will last 6 years. This is the classic 2 year base plus 4 year continuation of benefits rider design.
Here is what I discovered …
No inflation – the benefit amount was a constant $10,654
3% inflation for both the base and COB for duration of policy – the benefit started at $8,720 and it surpassed the no inflation plan in year 8 by generating $10,724 of benefit.
2% inflation for both the base and COB for duration of policy – the benefit started at $9,373 and it surpassed the no inflation plan in year 8 by generating $10,767 of benefit.
Had we chosen the 20 year duration inflation option, the crossover point would have been in year 7 for each inflation scenario.
So, what is the best solution for an older client? It all depends.
Let’s consider the reality of a claim. Based upon experience at OneAmerica Financial, most claims are initiated between ages 75 & 90. And, you will note that the average claimant is 84 years old. This doesn’t mean that claims do not start at younger ages or start at all, it simply shows the range of the claims.
Applying this logic to the example above where the client is 70 years old, inflation might be a viable option if a claim aligns with the average. But, if it is early …
As I have stated before, the beauty of Asset Care 2024is the flexibility that it provides. It can be designed to meet your clients planning needs and funding requirements.
For more information Asset Care, OneAmerica Financial, or to secure an illustration, please contact my internal Kelley Hilliard at kelleyhilliard.isp@oneamerica.com or call her at (844) 623-4251.
Fridays with Fisher 