Ep. 280 – Long Term Care Insurance Options in Retirement

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In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss long-term care planning and the complexities involved in making decisions regarding long-term care insurance. They outline why it’s crucial to think about your future care options and why understanding the different types of policies available today is more important than ever. This episode sets the stage for the next two episodes, which will dive deeper into each of these options.

Listen in to learn about the changes in long-term care insurance over the past 20 years and why traditional policies are becoming less common. Discover alternative long-term care solutions, such as hybrid policies that combine life insurance or annuities with long-term care benefits, and understand the pros and cons of each approach. This episode provides a high-level overview to prepare you for more detailed discussions in future episodes.

In this episode, find out:

·      The issues with traditional long-term care insurance policies.

·      How hybrid policies involving life insurance and annuities can help with long-term care.

·      The pros and cons of long-term care insurance options.

·      The role of underwriting in long-term care policies.

·      How to evaluate whether to self-insure or buy long-term care insurance.

Tweetable Quotes:

·      “Long-term care planning isn’t fun to talk about, but it’s essential if you want to secure your future.” — Radon Stancil

·      “There are alternatives to traditional long-term care insurance, and it’s all about finding the best fit for your needs.” — Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:	Welcome to the latest episode of Secure Your Retirement podcast. Murs and I are very happy that you are listening to us today, and we have a topic today that is one of those topics that’s not fun to talk about necessarily but it is necessary to talk about, and that is long-term care planning options. What are they? How do you deal with long-term care? Long-term care is something that we know that we need to look into and yet it’s difficult. It’s a difficult answer. One of the things that we do in our financial planning side of things is we will go through with a client and say, first of all, do I need long-term care insurance from a financial side or could I self-insure? And then it comes down even if a person financially can self-insure, should I? Do I want to? Do I want to share some costs with the insurance companies?
	And I will tell you, over the years, I started doing this nearly 24 years ago and I really started focused on long-term care and the environment has changed a ton. And what was really good back then and 24 years ago, not very good at all today. And we’re going to talk a little bit about that. I do want to let you know that this is the context of this particular podcast as we know we can’t cover it all today. So today we want to talk to you about the outline really of what we’re going to talk to you about in the next two episodes and why we believe we should dedicate two episodes to this idea of long-term care insurance.
	So I think first of all, it would be good, Murs, if we could here in this first section, maybe if you could lay out what’s been going on for the last 20 plus years and what have people been in and what’s been the problem?
Murs Tariq:	Yeah. So long-term care insurance has had quite the ride over the last 20, 20 plus years. And for a lot of you, you have either looked at or you maybe even owned what we would call a traditional long-term care policy at some point in your life. And you look at it and you say, “I don’t think I need this,” or you went ahead and bought it. And what that policy is is something that is you’re paying premiums into and you expect that at some point, you may need help with long-term care and cost of it, and at some point the policy that you’ve been paying premiums into for 5, 10, 15, 30 years is going to pay you back and cover the cost of care.
	What has happened over the years with that is that the cost of care has been no one knew what it was going to be. No one expected the cost of medical to be where it’s at today. No one expected people to be living into their hundreds. And so the cost of care was just from an insurance company perspective, let’s just say not done the way it should have been done and now they’re trying to fix it. Well, how are they fixing it? We are seeing quite a bit with clients that still have these policies is that you’re seeing one of two things happening. One is your premium that you’re paying, so let’s say you’re paying, I don’t know, 500 bucks a year as an example when you started, is now 1,000 bucks a year, $2,000 a year, $5,000 a year for the same benefit that you originally signed on for. So your cost to maintain this policy has gone up.
	The other is that you’re given an option of, well, you can pay that increase or we can reduce the benefit to, in all essence, reduce the insurance cost. And what has happened over the years here is that people are starting to evaluate. “I know I’ve put a lot of money into this policy, but I just can’t afford it anymore. It’s getting so expensive and I’m worried I’m never going to use these dollars that I’ve been, in all essence, I feel like I’m throwing away money at this policy.”
	So the traditional long-term care insurance side of the world has had some significant problems around just understanding how the world has matured and gone into aging and the medical side and the cost side around it. So a lot of people are either exiting these policies or trying to get benefits reduced. What I can tell you today is that you can’t really buy these anymore. This is a type of insurance policy that is really there to serve the people that still have the policy, but you can’t get a new one today, or if you could, it’s just not cost-effective at all. They’re rather expensive and it’s one of those, if you don’t use it, you lose it type of scenarios.
	So what’s nice about the world of insurance and investments is that these worlds evolve based off of reality and there’s a couple others that have become way more popular, way more cost-effective. And it’s not just, it’s not that phrase of if I don’t use it, I lose it. There’s alternatives and what we would call hybrids that have made it way more attractive to plan for something, plan for the inevitable.
Radon Stancil:	Yeah. So it really takes us to this topic of what we call a hybrid insurance policy. If you think about it, if I think about a hybrid of something, I’m going to take a couple of different approaches within the insurance world and I’m going to put them together, which would create this hybrid scenario that would help me think about planning for long-term care. And so what we want to do is again give you the high level and then in our next two episodes, we’re going to give you the very deep detail. But today is really to try to whet your appetite so you understand what we’re about to discuss.
	So what we’re going to do now is we’re going to give you a high level overview of two types of hybrid insurance products that help with long-term care. One is going to be an annuity hybrid that gives you benefits of an annuity along with long-term care. And the other is going to be a life insurance that gives you benefits of life insurance and we hybrid it with long-term care. But remember, today is not about the nitty-gritty, going all the detail. It’s to give you the high level so that next episode, we’ll be able to go into a lot of detail on each of these topics. So let’s hit the first one here, Murs, around annuities.
Murs Tariq:	Yeah. So annuities with long-term care benefits, there’s really two types of categories here. You’ve got the annuity with the multiplier for long-term care, and then you’ve got what we would call true long-term care annuities. So the first one I’m going to give you a quick explanation on is annuities with multipliers, and what does that mean?
	Often, an annuity is a product sold by an insurance company. And in an annuity, there are a couple of reasons why as to someone may buy them. And let’s just say the reason that I wanted one was for guaranteed lifetime income. So you can add that on, tack that onto an annuity policy, and it’s in the form of typically what’s called a rider. And that rider may have a fee to it. It may have a guarantee around how it’s going to grow, but sometimes what comes with that rider is what we call a multiplier for long-term care.
	I want to be clear here that this is not long-term care insurance. It is a benefit that comes with the rider. In fact, a lot of these insurance companies are not even allowed to call it long-term care. They call it something like a home healthcare doubler. And basically the explanation is that it’s there to help cover with additional cost of care, but it is not long-term care insurance. And there’s a multiplier.
	So let’s just say that your income, the annuity that the income is going to generate is going to spin off a certain amount of income and just have a number in your head. Let’s say it’s going to give you $10,000 a year. And you’re completely fine and fit and healthy, but then years down the road you’re receiving 10,000 a year and for whatever reason we’ve run into a scenario where we cannot perform two out of the six activities of daily living. That’s very important in the long-term care world.
	So if you cannot perform two out of the six activities of daily living, this rider that has this long-term care benefit to it, not long-term care insurance, is going to say, “We’re going to give you a multiplier on your $10,000 of income, one and a half times, two times. We’re going to double or give you a multiplier for a period of time. And it’s just there to help with long-term care costs that may come about.” So that’s the high level on how it works, is that we can use our annuity that the primary purpose of it was for income planning, but it’s nice that if something was to happen, I may get an additional oomph of income to cover some costs that come with care.
	The second type of annuity is going to be a true long-term care annuity. And here’s the key difference between this one and the one I just explained is now we’re talking about on underwriting. So the first one had no underwriting to it whatsoever. You’re purchasing a rider. The rider doesn’t care what your health is. There’s no underwriting. The true long-term care annuity, now it is long-term care and they can use that word and there is now underwriting.
	Underwriting means that someone has evaluated your health scenario, your physical scenario, and made a decision as far as what your risk is. Once they have that decision, then they can associate a multiplier to you of say you put in X amount of dollars and you’ve got a cash value for that X amount of dollars. And that X amount of dollars is also going to grow based on how the annuity is going to grow. But because there’s been underwriting, they can associate a multiplier and let’s just say you get two or three times the benefit you put in. So you put in a $100,000 and they deem your multiplier is two times. Well, now you’ve got 200,000 in a bucket of money for what we can say long-term care usage and long-term care insurance in all essence.
	And now the beauty behind this is now because it is true long-term care, it also gets the benefits of long-term care, which is tax advantages. So sometimes we are most times in a position where if we are using those funds for cash flow to covered cost of activities of daily living, those are typically going to be tax-free withdrawals, which can be a tremendous planning opportunity for long-term care.
	So again, the key difference between annuities with long-term care benefits and true long-term care annuities is pretty much one requires underwriting. The other does not. One has a significant tax advantage to it. The other does not. And that’s where I’m going to leave it at that because the next episode’s going to have a ton of detail in it.
Radon Stancil:	Okay. Our other hybrid is a life insurance hybrid with long-term care benefits. Now, this is going to be insurance. So you’re going to have underwriting. From two sides of the picture, you’ve got life insurance, you’ve got long-term care. But because of this hybrid, I have some other benefits or other opportunities as to how I can look at it. Again, these hybrids let me have a couple of two worlds, maybe three worlds even. So with the life insurance policy, I can structure it so that either I’ve got a cash value, a death benefit, and a long-term care benefit. What that means is I could put an amount of money into a life insurance policy, let’s call it $100,000. And for that 100,000, I’m going to have a death benefit and I’m also going to have a long-term care benefit.
	I can also access my cash. My cash is going to earn, let’s call it bank rates. So not going to be huge earnings on my cash value, but I can have access to my cash. If I don’t need the long-term care and I pass away, I’m going to have a death benefit that’s going to be a multiplied amount based on however much life insurance I had. Or if I needed long-term care, it would give me the benefit there as well.
	Now, another way to structure them is I say, “I don’t want to put a lump sum amount of money in there. I’m just going to pay a premium.” When I pay this premium, sometimes people don’t like premiums because they say, “What if I pay this premium for years and years and years and then I never needed the long-term care? Now my premium just went away.” Well, now in this case they don’t, meaning I could pay these premiums for a long, long time, never need the long-term care insurance, but now my beneficiaries are going to get a tax-free death benefit.
	This particular plan works really well if I’m in that, let’s call it 50 to maybe 70 range and have pretty good health. So this is the plan that I just took out. I’m 51. I have a plan that exact way I just described that I have a premium. I’m going to pay this premium. If I don’t need it, my beneficiary is going to get a death benefit that are going to be all given to them tax-free. If I need long-term care for some reason, I’m now going to be able to use the value of that long-term care for my long-term care needs. And I don’t have to pay taxes on that either. So I’m not worried that I’m going to pay premiums for the next 20, 30, 40 years, however long it takes, and that I’m not going to be able to have some still benefit from that.
	So ultimately, again, this has got pros and cons. Everything has it. So again, I’m going to say that exactly what Murs said. We’re going to have an entire episode on these life insurance policies with we’re going to use hypothetical scenario so you can see some real numbers. So that’s going to be the second episode after this one, and to walk you through that.
Murs Tariq:	Yeah, so the question naturally becomes, “Hey, you’ve explained some pretty cool stuff here, tax-free benefits for long-term care, not having to worry about use it and don’t lose it, and paying premiums, avoiding rising premiums, all these things. Well, which one is right for me?” And there’s a world to navigate there.
	And so we have a process around that as we help people navigate long-term care insurance and planning. And the first question is, Radon said it earlier, is we say, “Hey, are we in a position to self-insure or do we need to transfer some of that risk?” So we show somebody, well, what’s it going to look like to self-insure? And ask the question, are you comfortable with this risk? Because long-term care cost, today it could easily be depending on your stay, 2, 3, 4 or 5, $800,000. And so when we show that analysis, we ask the question, “Are you comfortable with this amount of risk on your portfolio?”
	Some people say, “Yep, I’m completely fine with that. I don’t want to get insurance involved.” Most will say, though, “I’d like to transfer some of that risk over so it’s not detrimental to my plan or my beneficiaries.” And so once we have that, then we start to go through the pros and cons of the different types of policies out there. And it all ranges. Things that we’re looking at is, well, what is your age and what’s your health status? Are you going to do well in underwriting, or do we need to go something that is not going to be underwriting-heavy or no underwriting at all? Long-term financial goals, what are your goals for leaving assets behind? Do you care if you spend it all down through a long-term care scenario? You do want to make sure you preserve some of that and what your flexibility is?
	So we have a whole process to evaluate and that helps us pinpoint exactly which direction to go in. And so as you hear about this and as you listen to the next two episodes, we’re happy to start striking up those conversations with you as well.
Radon Stancil:	All right. So as we conclude, the next episode after this episode is going to be annuity-based long-term care solutions. We’re going to go through that. And then the episode after that is going to be life insurance, hybrids for long-term care. So we’re going to take you through those two episodes. We’re going to try to get some really good illustrations so you can see how it would work in a hypothetical scenario just so you can, “I get the concept. I understand how it works.” We will have nice visuals for you. So we’ll explain how to be able to see all of those visuals.
	But if you have any questions before then, you can always go to our website, pomwealth.net. Go to the top right-hand corner, click on schedule call. Murs and I would love to be able to have a conversation with you and see if we can’t help you as you navigate some of these issues around long-term care or retirement planning. But we hope you have a great week. We’ll talk to you again next Monday.