Life Insurance

Which Asset Would You Choose?

By September 23, 2021 No Comments

If your client needed money today to pay for unexpected long-term care expenses, which asset(s) would you use? And with the average private nursing home room costing $7,698 per month and over $92,000 per year,² how long could that asset last?

Their “rainy day” account, or cash equivalents, may be the first place you look. Although these assets may cover some – or even all – of the long-term care expenses they may incur, how would using these assets impact their other finances?

Repositioning Assets to Pay for Care

If your clients are like most people, over their lifetime, they have accumulated a variety of assets. These assets have a unique purpose in developing their financial and long-term strategy, and typically fit into one of five categories:

Asset Category
General Purpose
Qualified funds
Long-term growth for retirement income
May be taxable on withdrawal. Early withdrawal penalties may apply prior to age 59 1/2
401(k), 403(b), IRA Roth, IRA, Employer profit-sharing plans
Non-qualified funds
Long-term growth for retirement income
Taxation varies by product or investment. May be taxed as it grows or include taxable capital gains
Annuities, Stocks, Bonds, Mutual funds, Real Estate Investment Trusts (REITs)
Life insurance
Provides a death benefit to beneficiaries
May accumulate cash value to provide supplemental income or cover expenses
Whole life, Universal life, Variable universal life
Tangible assets
Physical assets a person owns
May taxable upon sale. Liquidity based on market conditions.
Real estate, Boat, Jewelry, Furniture, Car
Cash equivalents
Fixed, low-interest accounts used for savings or a "rainy day"
Taxed as the asset growsGenerally accessible with minimal restrictions
Savings accountMoney marketTreasury billCertificate of deposit (CD)

Potential Solution

Meet Katherine and Michael. They chose to reposition $100,000 of their cash equivalents to purchase a single premium SecureCare policy for Katherine. This will help protect more of their portfolio from potentially unfavorable liquidation in the event Katherine needs long-term care.

Katherine decides she wants her policy to provide long-term care benefits for six years. In addition, she includes the 3 percent compound interest Long-Term Care Inflation Protection Agreement, ensuring the policy’s benefits will increase over time.

Katherine’s SecureCare Policy Benefits

*Product not available in CA but similar solutions are.

If Katherine wants her money back, after five years, she will recieve:

$100,000 Premium Refund

If Katherine wants her
money back:
She can request a complete premium refund beggining in the sixth policy year.

When Katherine dies,
her beneficiaries
will receive:

$100,000 Death Benefit

If she dies prior to needing care:
Her beneficiaries will receive a guaranteed death benefit of $100,000.

Even if she accelerates her entire death benefit to pay for long-term care expenses:
Katherine’s beneficiaries will still receive the guaranteed minimum death benefit of $10,000 or 10 percent of the policy’s face amount, which is less.

If Katherine needs long-term care at age 80 she may receive:

$534,185 Total LTC Benefit
$6,882 Monthly
Maximum Benefit

If she needs long-term care at age 80:
After meeting the policy’s benefit requirements, Katherine will receive the maximum monthly long-term care benefit of $6,882. The monthly benefit increases every year by the 3 percent compound inflation option she chose, equaling $534,185 in total benefits.

Any Questions?

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