LTC Planning in a Challenging Economy (Part 1)
As you are keenly aware, today we are living in a challenging economy, evidenced by numerous economic indicators pointing towards a recession. The latest I read being the inverted yield curve in the bond market, which for decades has preceded US recessions. All the while, long-term care planning remains as vital to your client’s retirement portfolio today, as when our economy is thriving. The obvious hurdle is getting clients to focus on planning for the future, and not sitting idle.
In an effort to help, this week I will share two options to explore with your clients in a proactive and “capital wise” way.
Part 1, is our Asset Care Return of Premium (ROP) solution.
Here is a recent case study:
NE residents, John and Nancy (ages 63/58); seeing the high costs of care due to John’s father currently in an assisted living facility due to a stroke he suffered 3 years ago, they understood the need to protect their hard earned savings from an extended care event. Although, due to the uncertain economic environment, they wanted relative liquidity of the premiums used to fund a plan. While they were both still funding their 401k’s at their places of employment, they had a CD at their local bank currently worth $200,000 of which a portion of this ($181,000) was used to fund their solution.
This created a joint plan and a 2nd-to-die death benefit of $250,000, which they were pleased to know if neither of them ever needed LTC services, or only a portion was used, the remainder would be passed along as a tax-free amount to their 3 children. However, if they did need care, they would both have up to $5,000/mo income to pay for care. On top of this, they added a 3% compounding inflation on the Continuation of Benefits rider (COB), to facilitate benefit growth over the years.
The plan also provided a total pool for both to use for care services of $500,000 growing with inflation, and the liquidity of their initial premiums, minus cost of inflation, if surrendered.
Quick summary of benefits: (highlighted quote attached)
- Premium: $180,508
- Death Benefit: $250,000 tax-free (higher if deaths in first 10 years of contract)
- Total Pool of funds for plan: $500,000 (this will grow each year due to inflation added, after 25 years will be $773,448)
- Monthly LTC Benefits: up to $5,000 from base policy (after 25 years of growth the COB portion would pay up to $10,469 for care)
- Liquidity: Minus cost of inflation premium (Total ROP $156,403)