Ep. 224 – Long-Term Care Planning Options
In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Jessica Iverson about long-term care options to consider as part of the retirement plan. Jessica is a long-term care expert in long-term care planning and wealth management.
Listen in to learn how long-term insurance has evolved from standalone to asset-based long-term care insurance policies and the benefits of these changes. You will also learn about the right age to start planning for long-term care and the average cost of different long-term options.
In this episode, find out:
- How long-term insurance has evolved from standalone to asset-based long-term care insurance policies.
- The right age to start planning for long-term care plus the benefits of an asset-based life insurance policy.
- The average cost of long-term care for assisted living, private room nursing home, and home healthcare.
- The different types of asset-based long-term care and how they work.
- The difference between asset-based life insurance and life insurance policy within chronic illness riders.
- The underwriting process for both long-term care focused products and life insurance policies.
- Understanding how qualified assets are structured to fund the idea of long-term care.
- “Asset-based long-term care is long-term care focused insurance that’s built on an asset which can either be a life insurance policy or an annuity.”– Jessica Iverson
- “It is really the morbidity that the long-term care focused products are looking for in clients.”– Jessica Iverson
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Here’s the full transcript:
|Radon Stancil:||Welcome everyone to the Secure Your Retirement podcast. Murs and I are excited today. Every now and then we bring in somebody and we are going to get their help on helping us to make sure that we explain things correctly, and today we have Jessica Iverson with us. She works with one of the partners that we work with that helps us make sure that we’re staying on top of everything when it comes to wealth management, insurance, different products, and Jessica is kind of like the head guru for the topic of today, which is long-term care. That’s a very big topic with our clients and those who listen to the show. So let me just say this first, Jessica, thank you so much for coming on and buying time out of your day to help us and our audience.|
|Jessica Iverson:||Thank you guys for having me. Very excited to be here.|
|Radon Stancil:||Good. And let me just give a little bit of a setup here. So our podcast is all about working with folks that are typically 55 years of age and older. And as people get into that phase, I’m 50 and it’s already coming into my brain of like, okay, do I need to start… What do I need to start thinking about and planning for when it comes to long-term care planning? My dad, by the way, had me when he was 52 and then had two more after me. So my dad lived to 95 and pretty much kind of just was that guy that was real tough, worked until he was about 90 doing stuff, staying active and long-term care was not a real big deal there.|
|But we’ve had other family members that were so it just kind of comes… And I’m no way, by the way, as strong as my dad. So I know I’m going to be a weak one. I’ll probably be like, have all these problems. Can you give us a sense… I know I’ve been doing this now for almost 23 years, long-term care insurance has changed. Can you give us the worldview of long-term care planning and insurance today?|
|Jessica Iverson:||Yeah, happy to. Long-term care insurance has absolutely evolved. There have been standalone policies where there’s no sort of life insurance or any sort of annuity built on with it. Those were introduced back probably 40, 50 years ago. A lot of clients gravitated towards those policies. They saw those policies as an investment in their healthcare. As they age, it’s something that they can use to help them as they age. Now, as the industry has evolved, the products have evolved with it. So we are now looking at policies where it’s not just standalone long-term care, it is going to be built on an asset. We call it asset-based long-term care. It’s long-term care focused insurance. It’s built on an asset which can either be a life insurance policy or an annuity. So if you never needed long-term care, if you’re lucky enough to never need long-term care, your beneficiaries are still going to receive something, whereas you would not with one of those standalone policies. So as the industry has evolved, the products have grown with it. So it’s exciting to see.|
|Murs Tariq:||Yeah, Jessica, that’s a good synopsis. And then we’re sitting in meetings with clients all the time, and some are younger, some are a little bit older. So take the person that’s in their mid-fifties, they’ve done a good job for planning for retirement in particular. But the question becomes, am I too young to start planning for long-term care? How do I start looking at what I may need for long-term care? You’ll run into quite a few that had a great company plan and they bought that company plan and they’ve got that. Or you’ll run into a few that bought it back in their thirties and we kind of call it the Cadillac of traditional long-term care insurance, but now those people are paying 10 to $15,000 a year to maintain those premiums. And so the client says, “Well, I don’t want to pay that.” So what would you say is appropriate age and time to start thinking about long-term care planning?|
|Jessica Iverson:||That’s a great question. I think that not a lot of younger people really do see that or see the need for it quite yet. It’s never too early to start planning, whether it be purchasing an IUL or an index universal life policy with some sort of LTC or chronic illness rider or as you get older, you can reposition an asset and look at maybe an asset asset-based annuity. I personally prefer asset-based life insurance policies, so something very similar to the Lincoln MoneyGuard. You’re going to have that life insurance on there that’s going to have some sort of death benefit for your beneficiary, but you’re also able to pay over a longer period of time, 10 pay, 15 pay, pay to age 65. So you can spread those premiums out over a longer period of time rather than being hit with something in a single premium or a shorter period of time.|
|But you’re also able to add an inflation rider so that inflation rider is going to guarantee that your LTC benefit is going to grow. As we all know, the cost of long-term care is not decreasing. So if you have that inflation rider, your inflation or your LTC benefit will grow every single year at 3% or 5%, however we want to structure it, but it will keep up with the cost of an actual long-term care facility or a long-term care need.|
|Radon Stancil:||All right, I want to come back here in just a moment and we’re going to talk about it, because I’d like to build out a little bit of a hypothetical example around this idea of asset-based life insurance. Because I agree with you, if we can get that, that to me kind of makes sense because now even if I don’t need it, like you said, my beneficiaries are going to get something. So I don’t feel like I’m throwing money into a place that nobody’s ever going to get.|
|Murs Tariq:||Use it or lose it scenario.|
|Radon Stancil:||But can we just talk a little bit about it, because we understand the need, cost. So I know that there’s a difference between the scenario of needing what we would call assisted living, whether that be at home or in a facility, and then that can grow to what we would call skilled or nursing care. So could you give us an idea of the scope of where we’re at right now in the world of what that costs. Like you said, if a person doesn’t have a family member that they’ve had to experience it with, they may have no idea what it would cost to do that. So could you give us the landscape there?|
|Jessica Iverson:||Yeah, absolutely. So the average cost around the United States for an assisted living facility is probably between 4,000 to 5,000 or probably four to $6,000 a month. In a private room nursing home, obviously that is going to be like your Cadillac of care. We’re looking currently in 2023 between 9,000 to $12,000 a month. And like I said, it’s ever-increasing, it’s just continually increasing. I would say that most people, understandably want to stay in their home as long as possible as well. These policies do cover home healthcare, so you can have someone come in and provide care or you can have that informal caregiver providing care. That is going to be your cheaper option. So we’re probably looking between three to $5,000 a month for a home healthcare policy.|
|Murs Tariq:||So let me do a quick little plug for how we help people start thinking about whether or not they need insurance or not. Ultimately, the question becomes, do I have enough or do I feel comfortable with the idea of self-insuring? Or do I need to transfer some of that risk? And then we can go into, well, what is transferring that risk? What does it look like? And maybe talk specific about how they work. But people that are listening, you hear us talk about this retirement focused financial plan. Part of that, one of those elements is all around long-term care and it helps us look at the question, we really look at the scenario in a very numeric type of data, data looking type of exercise. And so what we do is we say, hey, here’s what we have. Let’s make some assumptions today. We know the cost of care and maybe that person is 60.|
|We’re going to assume that that cost of care is going to continuously go up and say, let’s go into long-term care scenario when we’re at age 80. So now the numbers you mentioned were three to 12,000 a month. Those are being inflated to five to 15,000 a month at the age of 80. And we show the person without any insurance, here’s what the outlay looks like, here’s how much you’re going to be spending in a period of three to five years. And we say, are you comfortable with this? Is there money left over for not… Because maybe you can handle the coverage of the care, but then is there anything left for the surviving spouse or the inheritance? And so that’s how we start to look at it and say, are we comfortable with this or do we want to start transferring some of that risk and protecting ourselves?|
|But I just wanted to walk that through here real quick. So I think we can go into, well, how does asset-based long-term care work? We’re not looking at a typical premium pay type of policy where you’re paying $1,000 a month or $15,000 a year or something like that for the hope that we get to use this benefit. Now we’re talking about asset based and what are the different types that are out there. You mentioned annuity, you mentioned life insurance. So help us and the listeners understand the different type of options, then maybe we can get into, well, how do you decide which one is right for me?|
|Jessica Iverson:||Yeah, absolutely. So I did mention a little bit ago we do have standalone long-term care. So honestly there’s not a lot of carriers in that space anymore. We’ve seen a lot of rate increases where carriers, they’ve gotten out of selling that type of product and they’re doing what they can to pay the benefits that are actually still in enforced. So we don’t see a lot of those options anymore, but we do have them available. I was just saying that they are a little bit more difficult to qualify because they are most likely to actually be used. So we do have those standalone options. The carriers that we’re working with, we know that they’re committed to the long-term care space, but again, they are going to be a little bit more strict with their health, their underwriting, just to make sure that the risk is worth the reward, Basically.|
|We also have those asset-based options. So similar to your Lincoln MoneyGuard, the asset-based life insurance, the way that that works is you’re purchasing long-term care insurance that’s built on the asset, which is the life insurance policy. Whenever a claim starts, you are going to spend down your life insurance first, and then we’ve also added an additional pool of LTC benefits. We can customize these products, make them a specific amount of years to pay out a benefit, we can add that inflation or not, however we want to structure it. But the death benefit will pay out your long-term care first. And once that has been depleted, we will be dipping into an additional pool of long-term care benefits that’s still available to the insured.|
|We also have the asset-based annuity options, so it’s very similar to the life insurance. It’s a little bit more flexible when it comes to the type of premium that it does accept. It can accept qualified funds. We can look at transferring from one annuity to one of these other annuities, if we just want to reposition assets rather than coming up with new premium. Like I said, it’s very similar. Your base annuity will be spent down first, and then you’ll have an additional pool of LTC benefits available to you. So those are the LTC focus policies. There are still options for a life insurance policy with an LTC or chronic illness rider. We can also look at an income annuity with some sort of income doubler if you’re just failing health and you wouldn’t qualify for any of the other options.|
|Radon Stancil:||So can you just on that one point there, a point that I want to get clarity on is, how would you describe the difference between a standalone, and we’ve said it here a couple times, I think it’s a popular one, it’s through Lincoln Financial, it’s called MoneyGuard. That is a life insurance policy with what I would call true long-term care benefit. And then compare that to say maybe another one that is a life insurance policy that has the LTC or chronic illness rider. How would you describe the difference between those two?|
|Jessica Iverson:||Yeah, Absolutely. So the Lincoln MoneyGuard or the asset-based life insurance policy, your main purpose for purchasing that policy is the long-term care. Like I said, we’re able to customize it. We can adjust the benefit period, whether we want the policy to pay out for four years, we can go all the way up to six years or eight years, however we want to structure it. We are able to add that inflation rider. So we can do 3% compounding, 5% compounding for that guaranteed benefit growth. We are going to have a smaller death benefit. So kind of looking into an apples to apples type of policy, if we have a $100,000 death benefit on the Lincoln MoneyGuard policy, comparing that to a life insurance policy with an LTC or chronic illness rider, we would probably have around a $300,000 death benefit.|
|So with the life insurance policies, life insurance or death benefit is going to be your main purpose of purchasing that policy. You have a higher death benefit, but it’s not as flexible when it comes to the long-term care. We can’t customize our benefit period. We cannot add inflation for that guaranteed growth. Usually with a life insurance type of policy, I honestly recommend those for younger clients, probably twenties, thirties, where long-term care isn’t the forefront of their planning purposes, maybe life insurance is at that point. So those are really the main differences. We can’t really customize a chronic illness rider, an LTC rider on a life insurance policy, but you are going to have that higher death benefit.|
|Murs Tariq:||So if I was to sum it back to you in a quick sentence, if you go with the standalone long-term care asset base, kind of like the Lincoln MoneyGuard, you’re really buying that because you want long-term care and you want to maximize long-term care benefits. And then you can go the other route, which is the more life insurance oriented and you’re buying that really the lead and the dominant is for life insurance and death benefit, but we’re going to sprinkle in some use for long-term care. It’s not going to be as rich as the standalone MoneyGuard type of policy, but it’s in there in case we need it. Does that sound about right?|
|Jessica Iverson:||That’s exactly right, yep.|
|Murs Tariq:||And you mentioned qualifying, I assume when you say qualifying, we’re talking about underwriting. So can you explain to the listeners, and I know underwriting is very, very complicated, but what does the underwriting process look like if they’re trying to decide which direction to go in, which one could be a little bit favorable if someone does have some type of health issues and things like that?|
|Jessica Iverson:||Sure, yeah. So with the long-term care focused products, so the asset based or the standalone, really what they are focusing on when they’re looking at underwriting is more of the morbidity. So what is the probability that the client is going to get sick? With a life insurance policy, with a LTC or chronic illness rider, they are looking more at the mortality, which is, what is the probability that the client is going to pass away? So with the long-term care focus policies, they’re really going to look at the mobility of the client. Are they able to perform the 206, the Activities of Daily Living, which are eating, dressing, bathing, continents, toileting, and transferring?|
|So they are going to be looking at the client’s daily life, not necessarily cardiac issues or anything like that. They’re going to look at how well the client gets around. An automatic knockout, I guess would be something like if they’re using a cane or a walker or if they’re currently in any sort of physical therapy, those are going to be something that the carrier is not going to take the risk. They’re not going to take the risk and approve that client. So it is really the morbidity that the long-term care focused products are looking at for these clients.|
|Radon Stancil:||And so let’s just go down this path. So now, okay, so if I’m hearing that, what I kind of get is I need to be in relatively good health in order to get a long-term care plan, life insurance or life insurance or the others. Not perfect health by any means, but I can’t have certain significant things that are going to take me out. So that’s worth a question. But what if I do have a couple of things? Or where would I go if I say, “Well, I know I’ve already got a couple of things. Maybe I’m not got a cane or a walker or anything like that, but I know I’ve got some mobility issues.” Do I have any options there?|
|Jessica Iverson:||Yeah, absolutely. So we can definitely look at… Most of our carriers actually provide underwriting guides, so we’re happy to take a look at that. We can also look at, if you don’t want to go through that process and you want to… You know that you’re going to have some issues, we can look at the annuities. The annuities are a little bit more favorable. So we have our asset-based annuities. Now they still do some underwriting, but if that’s out of the question as well, I would suggest looking at an annuity with an income doubler. So those policies are not going to do any sort of underwriting. As long as you’re not currently receiving care, you can still get that doubler rider included on your annuity, which will double your income in the case of an LTC event.|
|Murs Tariq:||Got you. And you mentioned something earlier in the conversation that I want to come back to, because I think it’s really important. A lot of our clients, a lot of retirees in particular have saved a lot of money into, you mentioned, qualified assets. So that’s 401(k)s IRAs, retirement based type of accounts. And so I’ve got a million dollars in a 401(k), how can I even fund this idea of long-term care? How does it work? Do I have to pay all the taxes to make the withdrawals and then go fund it? That doesn’t sound like fun.|
|Jessica Iverson:||So the way that these products work, some of our annuities do accept qualified funds. Now, we can structure them a couple different ways. If you are looking at doing just the income annuity with a doubler, obviously your income is going to be taxed, so you wouldn’t have to worry about taxes all upfront. With an asset-based annuity, the way that that product works is the money will go into this separate annuity, and that annuity is going to produce withdrawals each year over five or 10 years, depending on the structure that we choose. So they are going to produce withdrawals, which the clients will be taxed on each year for those five or 10 years. So it is spread over a period of time, but they will receive that 1099, so they will get taxed on the income or on those withdrawals that are going into funding the non-qualified portion of the policy. This ensures that your LTC benefits whenever you need them are going to be tax free.|
|Radon Stancil:||Excellent. Well, I think if you’re listening to this, you know why we have Jessica as a partner. Because I mean, it’s not just this one and done kind of thing. And honestly, if you’re listening to this and you’re thinking, well, I don’t know which one I would need or whatever, well, that’s just a part of what we need to do is get all the information, understand it, and then we reach out to our partner like Jessica and say, “Hey, here’s the situation. What are our options?” And then Jessica helps us nicely to figure all that out. So thank you very much, Jessica, for again, buying out time of your busy schedule to come on and talk to us. It’s been very, very enlightening, and obviously we know that there’s a lot out there and you keep on top of it. So thank you very much.|
|Jessica Iverson:||Thank you so much for having me. I think there’s something out there for everybody. I think that it’s just a conversation that should be had. I know a lot of people are going through this, or they’ve seen loved ones go through this and it’s a need that, it’s not a comfortable conversation, but it’s definitely something that can really help in the long run. But I am so thankful for you guys, thankful for our partnership, and very thankful that you had me on here today.|