In last week’s FWF, I shared with you that I am concerned about a long duration care situation based upon my family history.  Beth, on the other hand, has less of a concern about that given her personal experience.

We determined that my risk of consuming a boatload of capital / assets / money / inheritance / whatever you want to call it was significant enough for us to decide to manage that risk using insurance because it was the best tool for the purpose.

So, how did we get to that decision point?  We talked and crunched some numbers.

Being data-oriented – we an scenarios over and over (Monte Carlo simulation) until we could get our heads around the potential costs for care and discussed what we were willing to accept and not accept.  Ultimately, we attacked the problem by transferring a big chunk of the risk.

In last week’s discussion, I shared with you that a single premium of just over $500,000 purchased a joint Asset Care policy with 5% inflation and unlimited LTC benefits while on claim.  Some people might argue that the approach is overkill … that is YOUR opinion, this is OUR perspective and we are the consumer!

One of the things that separates Asset Care from all of the other planning solutions is that it can generate an unlimited duration of care for both insured spouses meaning that I cannot leave Beth high and dry if I have a long duration event. I discussed that in last week’s FWF.

Here is what we looked at when we were considering what to do (recognizing that my fear is a long-duration care event for me based on my family’s experience.)

Sunk cost = premium = $538,574

Here are 5 different durations of aggregate benefits paid assuming that I need care (and Beth remains perfectly healthy). This also assumes that the care event begins on day 1 of year 22 (age 82) and lasts the duration of the calendar year with the benefits increasing every year by the 5% inflation rate.

I hope something grabs your attention … one year of benefits paid is greater than the premium paid to secure the policy!  ONE YEAR!

Someone is likely to argue that the premium of $538,574 can be grown to a significant pool of resources to utilize for care over 20+ years.  But, how are you going to maintain liquidity AND get a 10% rate of return (in order to grow the pool of resources adequate to fund an 8 year LTC obligation 20 years hence)?

I ask this because liquidity is a paramount feature of the LTC policy.  Benefits for LTC are available in short order from the policy and tax-free.

Now, some people are likely going to say that they through diversification and the laddering of investments that they can make that happen, but what is the cost AND what are the risks?

For kicks (and to support my argument), I went to Google Gemini and asked what it would suggest for a strategy to realize a 10% annual return while keeping 20% of that money in a liquid state.  Here is what it said :

“To achieve an annualized 10% total return over 25 years while locking away 20% in liquid, low-risk assets, your remaining 80% growth engine must work exceptionally hard. Because liquid assets (like high-yield savings or money market funds) typically yield around 4%, your growth allocation needs to generate an average annualized return of at least 11.5% to pull the blended average up to 10%.

Historically, only aggressive equity allocations, such as a heavy tilt toward U.S. large-cap growth stocks, small-cap value, or select tech-focused sectors, have reliably crossed this 11.5% long-term threshold.”

Which makes me simply say that strategy (self-funding) is not the strategy for us since we are looking at a long duration, large cost risk (which is the objective of insurance – protecting against large catastrophic loss).

The point that I am making here is simply this … going forward to age 82, using our Asset Care policy to pay for 1 year’s worth of care will be a break-even.  Any longer duration saved us money! 

That is why we bought Asset Care.