3 Alternatives to Traditional Long Term Care

-My grandparents spent over a million dollars on medical expenses and long-term care in their retirement. This video is going to show you three innovative ways to have guaranteed long-term care protection. Any of these I wish they would’ve used. [music]

Hi, I’m Troy Sharpe. CEO of Oak Harvest Financial Group, CERTIFIED FINANCIAL PLANNER™ Professional (CFP®) , host of the Retirement Income Show, an author of the upcoming book, Core4. Long-term care is one of those things that is critical to a successful retirement income plan and investment plan, but not a lot of people address it until it’s too late.

I created Oak Harvest Financial Group, my wife and I, to be a firm that my grandparents could have walked into and felt comfortable and known they were sitting across the table from somebody who was looking out for their best interest. A firm that did more than just stocks or bonds, a firm that did integrated retirement planning and investment management. This message was reinforced to me again about five or six years ago when a gentleman called in from the Retirement Income Show that I’ve hosted for the past nine years. He said, “Troy, I’m 87 years old. I don’t think you can help me, but I’m going to come to see you anyways.” So they booked an appointment and he came in to see me. The first thing he did was he slid his long-term care policy statement over to me.

I looked at it and it said, “Dear, sir, we’re writing to inform you that your long-term care premiums are going up 100% this year.” He said, “Troy, that’s not the kicker.” He said, “This is the third year in a row I’ve received that notice.” He said, “If I get sick, they’re going to give me $36,000, $3,000 a month. To keep this policy in force, I have to pay them a check for $30,000.” He says, “What do I do? Is there anything you can help me with? Is there anything I can do?” I said, “Well, no, sir, the cost of long-term care at age 87, that’s about what it costs.” He had paid for this traditional long-term care insurance policy for the past 15 or 20 years.

Now when he’s getting up in age, it’s cost-prohibitive to keep. This is why long-term care planning is very important and we have to be considering guaranteed innovative alternative strategies to finance long-term care if it’s something that’s important to you. A few stats about long-term care first. This may sound counterintuitive, but the healthier you are, the more likely you are to need long-term care coverage. We’re living much longer lives.

The average male is expected to make it to about 85 today, the average female about age 88. With increasing medical advancements, technology, our life expectancies continue to extend. We’re seeing that people who are the healthiest are the ones that are most likely to need long-term care. I didn’t realize this until I went through it with my grandparents, but the real purpose of long-term care planning is to make sure that the surviving spouse has enough money left over to make sure that he or she is okay. Because my grandmother when my grandfather got sick, he had two aortic aneurysms. They had to perform an emergency surgery that was nine hours. He suffered hypoxia during the surgery, he was in a coma for five weeks. His arms atrophied, his legs atrophied, his throat muscles atrophied. We had to do nursing home for six months at $10,000 a month. We had to do home health care for $40,000 a month for six months. On top of that, all the medical bills and ancillary costs to go along with it. It was a nightmare.

Grandma, she was going to spend whatever it took to maintain hope that he was going to get better, that he was going to recover, and they’d have some semblance of normal retirement. She spent and spent and spent holding onto hope that he’d be okay. She did that without any regard to how much money would be left for her. Any type of long-term care planning wasn’t necessarily for grandpa, it was to offset the financial costs, the burden of the financial responsibility of paying for long-term care. She would have enough money so more of the assets could be preserved and she could have enough that lasted the rest of her life. The problem with traditional long-term care insurance is, one, if you don’t use it, you lose it. You pay an expense every single month, $100, $200 a month, whatever it is per spouse. If you don’t use it, you lose the coverage in most instances.

Now, the second thing is that long-term care premiums with traditional policies increase as you age. What happens is when you buy your long-term care policy, you go into a pool of people who bought your policy around that same time. As that pool of people ages and experiences more claims, those costs get passed through to you. If you’re one of the healthy ones in your group, in your pool and other people are needing long-term care coverage, those costs get passed through to you in the form of higher premiums. Now, the insurance company can’t just raise premiums willy-nilly on you. They actually have to apply to the state that you live in and the state will come in, look at the books and say, “Okay, you applied for 100% increase, but you can only increase rates 48% this year.”

Then you get that notice in the mail that your long-term care premium rates are going up. We’re going to go through three different ways of how to have permanent, fully guaranteed long-term care coverage, where you won’t have to continue to put money out of pocket, worry about increases going up. If you don’t use it, you won’t lose it. The first way is what we call asset-based long-term care. Now, when my grandparents were alive and they got sick, there was only one, maybe two companies out there that did this. Now we have dozens and dozens of companies that offer competing products. The marketplace has become a lot more competitive, which is good for you, the consumer, because it means you have more choices to choose from. The basic concept is you make a singular deposit. Some companies, this can be IRA money, other companies, it has to be non-IRA money.

It needs to be customized to your particular situation, but let’s say you make $100,000 deposit. First rule of asset-based long-term care is when you need long-term care coverage, that amount, that $100,000 balloons into a much larger amount. It could be $250,000, it could be $600,000. It depends on your age and gender. Some policies may give you $250,000 of coverage for that $100,000 deposit. Others may give you $500,000, $600,000, $700,000. It just depends on what the policy is specifically designed to do and your age and gender. That’s what we call asset-based long-term care. There’s 1520 of these on the marketplace. They all have their little nuances and their little twists.

I’m supportive that you have something customized for your particular situation. Now, with that asset-based long-term care, if you don’t use the long-term care coverage, the $250,000 or the $400,000 or whatever that benefit balance is, some of the policies, you just get your $100,000 back, but in other policies, you’ll get $250,000 or $400,000 or $500,000 as part of the overall death benefit. If you don’t use it, you don’t lose it. Then finally, those costs are guaranteed to never increase. Once you make your deposit, the benefits are fully guaranteed. It’s completely paid. You will never have to put more money in. If you need long-term care, you’ll have it in the future.

The second way to do it is to use permanent cash value life insurance. You have two choices when it comes to permanent cash value life insurance. You have whole life, and you have universal life. For many years, and still a lot of people today when they think of life insurance, they think, “Well, I have to die to get the benefit.” Well, that’s not the case anymore. With these types of policies, you do not have to die to get the benefit of your life insurance. If you need long-term care, if you need home healthcare, if you have the right type of permanent cash value life insurance policy you can access that death benefit during your life to help offset the financial costs and burden of a long-term care or home healthcare stay.

Something really key to understand when it comes to these policies, the whole life, or the universal life, or asset-based care is long-term care benefits payout in one of two ways. It’s either what we call a reimbursement style plan or an indemnity plan. Reimbursement plans mean you pay out of pocket first, and they’re going to reimburse you for medically approved expenses.

There’s usually going to be a set parameter within the policy that says, this is what we’ll reimburse you for. Usually, you have to go to a state-licensed facility. You have to receive care from a licensed skilled practitioner, and then they’ll reimburse you for those expenses. The one I like, the one I prefer is what we call an indemnity style plan. This is what I wish my grandparents would’ve had because I took two years, two and a half years of my life off basically to take care of my grandparents. I wasn’t able to work because I had to take care of my grandparents. I got into a little bit of a credit card debt.

All my savings had been depleted, but if they would’ve had an indemnity style plan, you don’t have to be a licensed skilled care provider to be reimbursed for the long term care expenses. Grandma could have used that policy and she could have given me $300 or $400 a week so I would have something to pay my bills. Reimbursement, or indemnity. Indemnity, once you qualify, then the insurance company will send you a check for whatever the policy limits are. You usually have some flexibility there. You can take up to the maximum, or you can take any amount less. With whole life and universal life or asset-based care, you want to make sure that you understand if it’s a reimbursement or if it’s indemnity-based. Universal life is almost a combination of term insurance and permanent insurance.

The cost structure is less than that of whole life, but it has more flexibility to it. Whole life is a pretty rigid product and it pays dividends. Universal life is a much more flexible product. The cost structure is a bit less you have a little bit of a different way that you can structure it. Either one, either the whole life or the universal life, they have a death benefit. They have a cash value. The money you put in is growing, is accumulating interest. You can access it if you need to for retirement income. If you pass away, the much larger death benefit on both of these goes to your family.

For long-term care and home health care, if you need that death benefit, you can access it during your life to help pay for expenses. You want to make sure that I prefer the indemnity style as opposed to the reimbursement style.

Now, the third way. The first way, asset based long-term care. The second way, permanent cash value life insurance, whole life or universal. The third way is a fixed indexed annuity with what we call a home healthcare doubler attached to the policy. With a fixed indexed annuity, it’s simply a contract issued from a life insurance company that protects your principal 100%. Some of these riders are included at no cost and other riders you have to pay somewhere between 0.9 to 1% per year for, but this is what it’ll do for you. It’ll give you a guaranteed growth rate for a benefit account. Most people, they use this benefit account for a guaranteed lifetime income.

Let’s say you put $300,000 in. Your money’s safe and it’s growing. If it’s a fixed indexed annuity, it’s indexed to the market, the best ones are going to give you 4%, 5%, 6% average rates of return as a target.

Now, what the insurance companies will do is they’ll attach a rider to the policy sometimes at a cost, sometimes there’s no annual cost. Every company is different, but this will give you a guaranteed growth rate. Maybe 4%, maybe 7%, every company is different. Let’s say you’re $300,000, 10 years later, the guaranteed income side is now worth $600,000 and you start receiving a guaranteed lifetime income of $30,000 a year.

That’s a lifetime income that will never run out, but if you need long-term care and some of these policies will pay for only in a facility and some at home but if you need long-term care, that $30,000 guaranteed lifetime income, it’ll double to $60,000 to help pay for your long-term care or home health care expenses. Most companies will double the income benefit for a maximum of five years, the long-term care benefit for five years.

Then if you still need care, or if you pass away, it reverts back to the normal guaranteed lifetime income amount and your spouse will receive that forever. That’s a way that you can use your money to not only provide you a guaranteed lifetime income, but also have some supplemental long-term care protection there through that doubler.

Three ways, asset based long-term care, permanent cash value, life insurance, and then considering a fixed annuity or fixed indexed annuity with a home health care doubler attached to it to give you guaranteed lifetime income and also long-term care expenses. If you enjoyed today’s video, I encourage you to share it with a friend, share it with a family member. Long-term care is one of the reasons that I believe millions of people could potentially run out of money. Even people who think they’re completely fine and they have $1 million, $2 million saved long-term care expenses are going up in this country and we’re living much longer lives.

We need to make sure that not only we’re taken care of, but our spouse and our family’s taken care of as well. Permanent coverage addressing this long-term care need definitely a valuable tool inside a retirement income plan, so make sure to share this.

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