Long-Term Care Without Insurance
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Zach – Hey everyone. Welcome to this week’s blog on retirement today. My name is Zach Holcomb and alongside me, we have Michael Reese, certified financial planner. On everything we share from our blog to our radio and our TV programs, our goal is always to help you enjoy a prosperous retirement free from financial worries. We want you to enjoy the three Cs. Now that’s confidence that your money will last, control over your taxes, and comfort that you and your family will be protected in both good markets and bad. Now Mike, on today’s program we’re gonna be talking about a new option for paying for long-term care without insurance. Let’s share with our viewers a little bit about this.
Michael – Yeah Zach, this is a big topic, of course. Because anytime if I’m doing a public presentation, I often ask the audience and you’ve been there, you’ve seen me do this. Well, I ask the audience, hey, let’s make a list of some of your top financial concerns. Like what are we worried about when it comes to your retirement planning? What could de-rail your retirement? And invariably health is one of those top concerns and that’s natural. Because we can make decisions as best we can to protect our health, but I mean come on, a lot of it’s out of our control. I mean, we all get these weird diseases and things just happen over time. And we know we’re fighting a losing battle there, so health care. And then the cost of healthcare, it’s going up through the roof. There’s no surprise that this is a top question that people have. And so what we’re gonna talk about today is Zach and this is what you’re gonna learn is you either are watching or you’re listening in, you’re gonna learn about a new option out there in the marketplace where you can get a pretty good chunk of long-term care protection, but without having to deal with insurance. I mean, you don’t have to use long-term care insurance or go through the underwriting of life insurance or anything like that. It’s a pretty simple process. So we’re gonna talk about that today. I want you to learn that. At the end of the day, you’re gonna understand what that option is. You’re going to have in your back pocket the knowledge of being able to better protect yourself if it makes sense for you. And of course, and also at the end of the day, at the end of this discussion, if you want to talk to us about how to make this work for you, we’re going to share with you how to do that as well. So Zach, we’ve got a pretty good show lined up here today for everyone.
Zach – Absolutely, so first let’s talk a little bit about, I guess the history of long-term care and why it’s important to people that we serve.
Michael – Oh yeah. Here’s the thing that I’m, whenever I think about this, I think about my own family situation. So I think back to my grandparents. Right now, they retired back in probably the `70s, you know at this stage. But I remember when both sets of my grandparents retired, here’s what happened. My grandfathers, they retired around 62, 63, somewhere in their early 60s. They both died at the age of 67 from heart attacks. Now isn’t that interesting. Meanwhile, both of my grandmothers, they lived gosh, 15-20 years longer, but they both ended up in nursing homes. And I saw both of my grandmothers spend every dollar they had just for their health care later in life. This was not uncommon. I mean, we saw this happening, I’ll bet by the way as you’re listening, as you’re watching, I’ll bet you know people, either family members, maybe you have friends or neighbors, but I’ll bet you know people just like that who have basically lost all their money because they’ve been in a nursing home or assisted living or something like that. I mean, Zach, you’re a pretty young guy, but what about you? Do you know people where that’s happened to them?
Zach – Absolutely.
Michael – Yeah. I mean, this happens. It’s very common. And so the insurance industry came along and this is now back in the
80s and90s. And they said well gosh, maybe we have an opportunity to make some money here. What if we were to sell something called long-term care insurance? And back when this started, it was kind of the wild, wild West of these policies because you would have some policies would cover nursing home only. Some would cover home health care only, some would cover both. I mean, it’s a real mess. But then in the mid `90s, everything kind of consolidated. The government got involved and they said, “All right, we do see a need for long-term care protection for families, for American families. But we gotta give them a more standardized approach than this wild West of these different policies.” So what they did is they create something called a tax qualified long-term care insurance policy. And what that meant was they basically said, all right here’s the thing, as long as your… They said to the insurance companies, rather, as long as your insurance policies match these standard criteria, then every dollar that comes out would be tax-free to your policy owners. And they may even be able to deduct some of their premiums. So as you can imagine whenever the tax code gets involved if we see a positive tax outcome, pretty much all the insurance companies throw out all the old policies they said, “All right, for now on this is the only thing we’re gonna sell, are these standard policies that have all these tax benefits.” And that’s how long-term care went. And everything was going well until the insurance companies, about five, six years in start realizing they’re like, “Holy cow, people are actually using these policies at a much higher rate than we ever expected.” And so they started thinking, we’ve gotta first thing, what did they do? We’ve gotta make it, we’ve gotta tighten up our underwriting. We had to make it, we don’t wanna get all these unhealthy people. We want only healthy people. So it became harder and harder and harder to qualify. But then they found out that doesn’t really help either because even healthy people, sometimes as they get older, they all get, everyone gets sick. So this oh, that’s not working. Maybe we need to charge more. So they started charging. You started seeing increasing rates, they start charging more. And around the mid 2010s, these insurance companies, they basically threw in the towel, Zach. They said, “You know what? We’re giving up here. We can’t make money on this. We can’t charge enough money for this to work.” And so the insurance industry like what are we gonna do? Because people still have this challenge. And so I said, “Oh, I know what we’ll do.” And this is what a lot of companies are still doing today. And this actually works really well. What they do is they said, they came out and they said, “What if we linked long-term care benefits to a life insurance policy?” So what if we created some kind of life insurance contract where you could go out and buy $300,000 of coverage say, and we could give you a premium level that would be level like standard and level. It would never change. So your premiums wouldn’t go up, you’d have the same premium for your lifetime. And if you needed long-term care, this life insurance contract, what we’ll do is, instead of just paying it out, when you die, we’ll give you, we’ll let you start taking that death benefit for long-term care before you die. Now, that was, people liked that by the way, because if you’re healthy and you qualify, you’re thinking, well this isn’t bad at all. I can pay these monthly or annual premiums to an insurance company. If I need long-term care, I can use my death benefit to pay for it. If I never long-term care, well, that’s okay, because the death benefit then goes to my surviving spouse or to my children or grandchildren or a charity or something like that. So it’s not a use it or lose it approach. And that right there Zach brings us up to where we are today. So for someone looking for long-term care protection, today, what most insurance companies are doing is they’re saying let’s use life insurance as our solution. And you can use some of the death benefit to pay for long-term care if it comes up before you die. So there you go, that’s a little history and that’s where we are today.
Zach – Got you. Do you feel that that is the best route that retirees need to be taking or is there a better route or another option that they should be exploring?
Michael – Yeah, so here’s the thing. Number one, I do think it’s a really good option. And this is what people miss all the time Zach, what are the odds that someone’s gonna need long-term care? They’re like, if you hit age 65, you have a 70% chance, seven zero, 70% chance that you’re gonna need long-term care. Now, if you think about that a bit, 70%, that’s seven out of 10 people. And I know what you’re thinking. You’re thinking, I’m never, if I need long-term care, I’m just gonna go out in the woods, take my gun and I’m never going to a nursing home. But here’s the thing, I always like to joke that, yeah, but you probably have Alzheimer’s at that point, you don’t remember where you put your gun or where the woods are. Anyway, what everybody they hear long-term care and they think nursing home.
Zach – Right.
Michael – That’s not where most long-term care is provided these days. Most people they need long-term care Zach, it’s in the home. So if you need long-term care some day, you’re probably gonna get that in your home. Someone’s going to come to your home and provide care and help you stay where you want to stay, which is in your home. It’s kind of like my in-laws Harry and Sally, my wife’s parents. Their names really are Harry and Sally, you know when Harry met Sally. But Sally had Alzheimer’s and Harry took care of her for many years. And towards the end, he did have some people come in periodically to help out. But that’s a good example. We wanna stay at home. That’s where most healthcare is delivered when we’re talking about long-term care. 70% probability and by the way, I know in the show notes we’re gonna give you a link to, if I share my screen here real quickly. So for those of you who are actually watching this, versus listening in, I’m sharing my screen and on the screen, whoops, let’s pull this up. You can see right here from long-term care this is from our government. Longtermcare.gov and their statistics tell us right here someone turning 65 today, 70% chance of needing long-term care. Now, by the way Zach, who’s gonna need care for a longer period? Men or women do you think?
Zach – Women.
Michael – Oh yeah. They say women is closer to four years. Men closer to two. So it’s three years on average. But then this begs the question. Well, like great, what’s it gonna cost? What’s it gonna cost? So what I’ve done here, Genworth has a wonderful, wonderful site. And I’m gonna pull this up. Again, we’ll share my screen for those of you watching. Genworth has this great site called the cost of care. And what you can do is I’ve put in here as you can see up here Zach, Austin, Texas, `cause that’s of course where we live. And the question is, well, what does that cost today? And we say, oh, look at this, for someone to come into your house about 44, 4500 a month. If we do that annually, that’s about 50 some thousand dollars a year, right? So 50 some thousand dollars a year. If you wanna go to a nursing home, it’s like 70,000 a year. And it might cost a little more or less depending on where you go. But the issue is are you gonna need care today? Probably not. Most people need care later on, like what about 20 years from now maybe? So 20 years from now when you need care, look at this Zach, home health care. Do you see what those numbers are?
Zach – They jumped significantly in 20 years.
Michael – Like $8,000 a month, 100. What is that? A 100 grand a year to have someone come into your home. And if you need care for three, four years, that’s 300-$400,000, that’s a big hit. And oh my goodness. If you have to go to a nursing home, we’re talking 120-150,000 a year. And if you’re in a nursing home for three, four years, you’re talking five, $600,000 that it’s gonna cost. Now, where are you gonna get that money? 70% chance, you’re gonna need that. And it’s gonna be super expensive. And that’s assuming current rates, I mean it wouldn’t be surprising if they’re even more than that. So when you asked the question what do you think Mike, is this life insurance a good idea? One of the greatest things about life insurance is you can buy three, four or $500,000 of life insurance and you’re not gonna pay the insurance company three, four or $500,000. It’ll be something less, right? Even like a 65-year old man can get $500,000 of life insurance guaranteed for his lifetime for a level premium of let’s see what was the number? I think it was like $12,000 a year. Shoot, you live for 20 years, you pay the insurance company 240 grand. Somebody’s gonna get 500 grand. I don’t care how you do your math, that’s a positive rate of return. That’s pretty good. And so here, think about it. Let’s say you’re spending 1000 bucks a month and it’s guaranteed level for life, but you’ve got a $500,000 pot of money out there that you can use to pay for long-term care and whatever you don’t spend on long-term care, goes to surviving spouse, beneficiaries, all tax-free, is that a good deal? Zach, mathematically, that’s a killer deal. And for women, it’s even cheaper. So life insurance is definitely a great option, but we have two problems with life insurance. What do you think the first problem is?
Zach – We gotta qualify. Gotta get approved.
Michael – You gotta qualify. You gotta qualify. Yeah, that’s a problem for some people. You get in your 60s and suddenly you have healthcare issues and you’re like, man, I’d love to get this option, but you can’t. Any idea what the second problem is?
Zach – No, I would say everybody’s situation is different. So it may not be the best course of action for everybody, but I think you’re looking for something a little more specific.
Michael – Yeah, what the problem. The second problem with life insurance is this. If I buy say a $500,000 life insurance contract today, let’s say I can even qualify. Knock on wood, I should be able to qualify for that. But let’s imagine I buy that today. We know that the cost of long-term care going up over time, don’t we? What about our death benefit/long-term care benefit? Does that go up over time?
Zach – It stays the same when you bought the policy.
Michael – Yeah, it doesn’t increase. So what you have to do to counteract that, you have to buy a larger contract today or larger death benefit today, because you have to take into account that inflation is gonna happen over time. So it’s kind of how that works. Now what that does though is this kind of brings us to today’s topic. Which is all about there’s this new option out there where you can get long-term care protection, but you don’t have to qualify or get life insurance or long-term care insurance. So this has been kind of a long way around to get today’s topic, hasn’t it?
Zach – It has been. So what is this new option?
Michael – By the way, I’m blaming you for this Zach. You’re supposed to keep me on track.
Zach – We went in reverse order.
Michael – That’s right. So anyway, so what is this new option? So what insurance companies, there are only two of them that I’m aware of right now but what they done is they’ve said, “Hey we’ve got another option here that we think would work. That would make some sense.” They say let’s. And what they’re doing is they’re saying, “You give us a deposit into one of our fixed annuity contracts.” And what is a fixed annuity? It’s kind of like a CDN insurance company, but it’s a guaranteed contract where your principal’s guaranteed and they pay a little bit of interest. Now, the way it works is, let’s say you give them $100,000 in one of these contracts, they will immediately Zach, triple the deposit three times, triple the deposit for long-term care. If you need long-term care. And then over time, this account is gonna grow. And maybe a couple percent a year nothing huge, but as the account grows, so does your long-term care benefit. So if you think about it, you say, “Gosh, I put in $100,000 today. Well, over the next several years, that’s gonna give me 300,000 of long-term care immediately if I need it.” But over time, if I don’t need it for 20 years, this may grow by 50%. So 20 years from now, I might have $450,000 of long-term care benefit. So that’s kinda cool. And here’s the best part about it is, if you want, one of these companies will even let you do it as a joint account. So you could say, I’ll put the 100,000 in and that’ll cover not just one life, but two lives. Now that’s kind of cool because and the underwriting, there is some underwriting, but it’s super simple. You have to answer questions that basically you’re telling the insurance company. You’re saying I’m not in a nursing home right now or I don’t need care right now. That’s basically what these questions are asking. It’s like, do you need help with two out of six of your activities of daily living? Do you have Alzheimer’s? In other words, it’s a super simple, quick questionnaire. And as long as you pass it, which you will, unless you’re needing care already, then they will triple your benefit and it’ll grow over time. This is a great option for people who don’t need, who don’t need or who don’t qualify rather for life insurance or maybe they’re looking for something to cover two lives that might be a little more cost effective. Now, couple things that I get questions on all the time. All right Mike, I put my 100 grand in there. And you can put in more, you can put in less, but I’ll use 100,000 as a round number. I put my 100 grand in there. Well Mike, what if I die? And I never need long-term care? What happens to my money? Well, what do you think the answer to that is Zach?
Zach – All needs to go to the surviving spouse.
Michael – Or any other beneficiary. So if it’s a joint account where you’re covering two lives, one person dies, it doesn’t really affect anything. But after you’re both gone, whoever the people are on the contract, whenever they’re gone and whenever they die, whatever’s left in that contract that hasn’t been used for long-term care, just like life insurance goes to the remaining beneficiaries. So it’s not like you’re use it or lose it. It’s not like, hey, I’m giving this money to an insurance company and oh no, if I don’t use long-term care, it’s gonna be gone. It’s not like that. It’s use it for long-term care. But if you never need long-term care, then it pays out to your beneficiaries. This is an incredible option for a lot of families. I mean you might, I think the minimums are usually about 50,000 or something like that. So you don’t have to put in a ton of money at first, but I think for most of what we’re seeing, 100,000 seems to be about the amount that people are looking to do. Here’s another cool thing. You can even use IRA money to do this. A lot of people, most of their money is tied up in their 401ks and IRAs. Zach, you can use IRA money to do this. Now there are some little twists that you have to take into account, but you can do it. So really cool option here, where very little underwriting like almost none, you get triple the benefit. And by the way, if you fail the underwriting, you would still get two times of benefit, but pretty much everybody’s gonna pass. So triple the benefit, it’s a growing benefit over time to help fight inflation. And it’s just easy peasy. Super easy to do. So this is, Zach, I can see this being a huge growth area over the next several years. Because again, the longer we live, the higher the odds that we’re gonna need long-term care. The higher it’s gonna cost, the more cost every single year. So the price is going up, the odds are, we’re gonna need, they’re going up. We need to figure out how we gonna pay for this stuff. And the good news is, the sooner you do something, whether it’s life insurance or this new option. And you know, one company calls it AnnuiCare. Another company calls it ForCare. But anyway, the sooner you use this fixed annuity option with long-term care benefits, whether it’s at a life insurance, the sooner you do it, the more powerful it works for you. One of those deals where you gotta do when you’re healthy. So it’s there when you’re not and that’s just kinda how it works. So Zach, it’s a great option for people. And it’s something that if you don’t have your long-term care figured out, you should be at least asking about it.
Zach – Right, a lot of great information, Mike. And if our viewers or listeners want some help in planning for this, what’s the best approach for them?
Michael – Yeah, best thing you could do… By the way for all of you who are clients, we’re going to be covering this with all of you at our May/June review meeting schedule. It’s kinda new, so we’re gonna be reviewing that with you. Already coming up in the near future, our next review meeting. For those of you who are not clients, shoot by all means, give us a shout. You can call us at the office 512-265-5000. You can email Zach, Z-A-C-H. So firstname.lastname@example.org. That’s C as in Charlie, E, N, then the word advisors.com. Or the best thing to do quite frankly, if I were you, I would go on my computer, I would type in talktomike.com. Right? Did I get that right, Zach?
Zach – You got it.
Michael – Talktomike.com. So talk, the word talk, like we’re talking now. To, T-O, Mike, M-I-K-E. Talktomike.com. If you do that, that goes to a Calendly an online scheduling link, goes straight to Zach’s calendar. You set up a 15-minute call with him. He gets your information, he passes it on to me. And then when you and I are talking, we have the opportunity, I have all the information at my fingertips. We can really make the most of our conversation. But here’s the thing, what did I tell you? We’re gonna share this new idea with you, this new option. And it’s a great option. Number two, I told you I want you to have in your back pocket the understanding of how it works and how it can help you. I think I’ve done that. And then number three, I told you by the time we’re over, if you want a little help, here’s how you get ahold of us to help you. We just shared that. So Zach, I think that pretty much wraps up our discussion today, don’t you think?
Zach – Absolutely. Remember, just go to talktomike.com if this is something that’s important to you and you wanna plan for it, talktomike.com. We can help you plan accordingly for this. Mike, any final thoughts from yourself?
Michael – Hey, simply this, what you said at the beginning. We want you to have a prosperous financial life and that involves the three Cs. Confidence that your money is gonna last. Control over your tax planning. The comfort of knowing that you’re gonna be in great shape in good markets and bad. And guess what? Today, we’re really also talking about the comfort of knowing you’re gonna be okay if your health doesn’t go the way you want it. Remember, we can live a long life, a short life, a healthy life, a sick life. Let’s make sure all of those options, you know we dotted those T’s and cross, wait a minute dotted the I’s and crossed the T’s. I almost said that backwards, didn’t I? We are big believers that your best is yet to come. We believe that you deserve to enjoy the retirement of your dreams. Let’s make smart financial choices together so that you can truly take advantage of the retirement that you so richly deserve. Zach, that’s our message this week. With that, I think I’ll go ahead and wrap up. Take care, everybody.
Zach – Thank you.