Preparing for Long Term Care – Episode 114

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, got my co-host and bestselling financial author, Kim Butler, with us. And we’re going to be talking about asset-based long-term care. This is an interesting topic in that a lot of people lose most or all of their assets by not properly preparing for a long-term care situation. Our lifespans continue to be longer, but our medical expenses continue to be higher.

[00:55] And I probably only see that continuing to increase. So welcome, Kim, how are you? Very fine, thank you. Yeah, this is an interesting subject and one that I did not know a lot about for quite a while. But around a year ago or so, a lot of the life insurance companies started adding long-term care riders to their whole life policies. So under the umbrella of asset-based long-term care, and let’s just define what that umbrella is, it means that rather than buying long-term care insurance where you pay a premium and if you need long-term care, you get money to pay those daily bills or monthly bills that’s typically talked about on a daily basis, but it’s probably going to be a monthly bill. Rather than doing that, you use some type of asset to create a long-term care benefit

[01:51] that’s there if you need it on the long-term care side, but goes to either you or your family if you don’t need it on the long-term care side. In other words, if you die peacefully in your sleep without medical issues. And we like that so much more because as we look at the seven principles of prosperity, it fits into those principles more effectively. And so we can just work through them. So the first thing to look at is an asset-based long-term care formed with an annuity. Now, we’ve done some podcasts on our dissatisfaction with annuities, but I’ll admit that if somebody had an X amount of dollars, you know, the example I can think of is a couple hundred thousand, and they really didn’t know what else to do with it.

[02:40] And they were really concerned around the long-term care environment that a long-term care combined with an annuity, an asset-based long-term care annuity that provided long-term care coverage could be a very good solution for them. And then, of course, we’ll also talk about the long-term care rider that’s available on whole life insurance policies. Now, it’s important to remember that this is only available on new policies. This is not something that we can add to old policies. And I will admit, my husband and I even took out brand new whole life policies. They were small, but we got the long-term care rider on them, both of us over the age of 50 when we did this. And that enabled us to have the long-term care rider on these newer policies.

[03:26] I wish we could add it to the old ones, but we can’t. So that’s fine. So just running through the seven principles of prosperity on the annuity-based or the asset-based long-term care that’s associated with an annuity. Obviously, the first one is to think. So you want to be just making a conscious decision about this. In other words, don’t bury your head in the sand. Get the information, make a decision. If the decision is no, great. Then onward we go. And if it’s yes, then you can go on further. So then you want to see the big picture. So you want to be looking at your situation very holistically. Now, maybe you’re using our proprietary prosperity profile to do this, or maybe you have some other format that you have

[04:14] that helps you see the big picture of your overall situation. But when you do that, you realize that the area for long-term care is a concern. And that’s an issue right there because a lot of people, it’s not a concern. So then you go on. So we want to think from a prosperous mindset. We want to see the big picture. And then, of course, we want to come in and measure. And that’s where you pull illustrations and analysis and decide how much money it would cost to get you the long-term coverage that you’re interested in, long-term care coverage that you’re interested in. So think, see, measure. And then we have flow. So cash flow. How are you going to pay for this? Typical asset-based long-term care is paid for with a lump sum.

[04:58] A hundred, two hundred, three hundred thousand, something like that. And then, of course, we have control, the fifth principle, where we want to absolutely be in control of the environment. And sometimes we realize that we can’t meet all seven of the principles of prosperity. And this is one of those cases where we cannot because if you do an asset-based annuity long-term care product, you’re not going to be in control. With the small exception that at least when you die, there will be an asset there that goes to your family, whereas regular long-term care insurance, of course, there will be nothing. Then, of course, we have the final two principles, which is move and multiply. And moving money is generally talked about moving things through.

[05:47] In other words, moving dollars through products. And again, this is not a situation where you can do that. If you do an asset-based long-term care annuity, you’re going to move money to a product and it’s going to sit there. But it will do lots of jobs, which is the multiply. That’s the seventh principle. So we like that. That’s helpful. Have I made that clear before I go on to the long-term care writer on whole life? I think very clear. I think the most important parts, just to reiterate them, is the fact that you now have a protection, a layer of protection that is there when and if, and with our current lifespans, it’s more of a when than an if, to protect the other assets that you’ve worked so hard to build.

[06:40] Because, you know, we see so many people who end up spending their entire asset base towards the end of their life, whether that be at $55 or $95, those expenses are so high. By preparing ahead of time, yes, we haven’t hit quite all the seven principles of prosperity perfectly, but that money could be flowing back on a monthly basis for those long-term care expenses when you need them. Very well said. So now let’s take the seven principles and look at a long-term care writer that you would add to a new whole-life policy. And for a lot of our Palm Beach readers, this was not available when we started working with you. And yet most of you took very small life insurance policies out. So this is a great chance to take a look at this environment.

[07:30] And I will prepare you that a long-term care writer adds about seven or eight pages to the illustration. And believe it or not, about 20 pages to the application. But if you are interested in this, let us know, because we can run you an illustration with a long-term care writer. So let’s work through our seven principles again. Thinking from a prosperous mindset, we again want to either make a decision, no, we’re not interested in this, or yes, we should check it out. And then we want to see from the big perspective. So we’re going to look at our environment from a cash standpoint. Can we benefit from having more emergency opportunity money? And then that cash standpoint will also do the job of the long-term care writer.

[08:17] And so we are always analyzing that aspect of it from the C, which is S-E-E in this case, the second principle of prosperity. Third one then, of course, is measure. So we’re going to get an actual illustration. We’re going to read, there’s a couple paragraphs on page seven or eight, I forget exactly where it is, on the whole life illustration that describe the long-term care writer very thoroughly. Actually in English, they’re understandable. So you want to look at that and measure the cost, which will be a regular life insurance premium. So something that you’d pay monthly or annually, not a lump sum like I was speaking about earlier around the asset-based annuity long-term care. The whole life insurance with a long-term care writer

[09:03] is going to have just your regular annual or monthly premium. And so that’s how you’re going to measure it. And then, of course, cash flow is right there with us as well. That’s the fourth principle is flow. And again, this is a monthly or annual premium that you’re paying, not a lump sum. So in many cases, that’s a benefit. And then the fifth principle is control. And in this case, unlike the annuity asset care-based environment, in a whole life insurance policy with a long-term care writer, you do have control, just like you’ve learned about around your regular whole life policy. You have the ability to borrow against it. You have the ability to withdraw from it if you want. You have the ability to collateralize it at a bank.

[09:45] It’s your money. It’s your policy. You can do with it what you want. It just happens to have a long-term care writer on it, which, by the way, is very small in terms of its expense. I do have a question on that. Is there a number you could give us as far as we know that the whole life policies that we’re currently writing in the interest environment that they are, after the cost of insurance, are paying somewhere between 4% and 5%. Is there a percentage that you could say on average you’re reduced by to have the benefit of the long-term care? That’s a great question. And I wouldn’t want to give a number because I do think it varies quite widely based on age. However, what I can tell you is it’s surprisingly small.

[10:29] The writer cost is very, very minimal. In fact, if you have waiver premium and you’re used to that writer cost, which is also fairly small, this is even less. So, you know, if I were forced to guess, I would say literally like one quarter of 1%. It’s very, very minor in terms of its impact on cost. So you’re actually saying that we can have our life insurance, we can have our long-term care writer, which is not quite as thorough as long-term care insurance, but it’s good, and still receive positive cash flow or positive interest rates in excess of the current banking environment. Yes, that is exactly correct. That’s pretty effective. Yeah, pretty effective. So finishing up on the principles,

[11:23] we talked about flow, which is number four, control, which is number five, move is number six. And in this instance, you get to be able to, just like with all whole life cash value, borrow against it, invest with it if you want, use it for emergency money, opportunity money, whatever. So you absolutely get to move your money through the policy, even though it has a long-term care writer on it. And then, gosh, talk about the seventh, which is multiply, you get to spend a dollar and you get your whole life, you get the ability to have the various writers on it, one of which would be the long-term care writer, you could have a premium writer, you could have paid up additions writer, et cetera. One dollar doing many, many jobs in this environment.

[12:04] In addition to, as we’ve already talked about, emergency opportunity money, the formation of the death benefit, the increasing of the death benefit, the maintenance of dividends and the increasing nature of the cash value guaranteed, as well as the nature of additional dividends if they are paid, which contribute to the higher and higher guaranteed cash value, et cetera. So a real multiplier effect on just basic whole life insurance, but you add a long-term care writer to that and a paid up addition writer to that. And you’ve got a very, very effective multiplication going on of one dollar doing lots and lots of jobs. You had mentioned that, of course, we’re talking about whole life insurance,

[12:42] which has been around for a couple hundred or several hundred years, but yet the long-term care writer is relatively new. Yes, it is. It is really, I want to say a year, maybe year and a half old. And, you know, there are probably some companies that had it a little earlier than that. Some companies still don’t have it, but this is just something that the insurance industry has decided to add and we’re grateful for it. So definitely time to pull out those policies, send them into a prosperity economics advisor, let them look at them and see if maybe it’s time to add another policy in there with some of the new and available writers. Yes, and I do want to restate that we cannot add it to an old policy.

[13:24] It must be put on a brand new additional policy. And this isn’t something you’re going to want to put on a child, even an adult child. This would be something on your own life that you would do for yourself and obviously for your spouse as well if they’re a part of the picture. Super. Well, this is No BS Money Guy Todd Strobel for the Prosperity Podcast. And once again, I want to say thank you to all of our listeners. Again, we get into material sometimes that may or may not be relevant to your situation. If you have a question, we really invite you to reach out to Partners for Prosperity because we’re here to give you the exact answer for your situation as well as to provide you with this basic information on these podcasts.

[14:13] We appreciate you. Appreciate Kim Butler for all her wonderful contributions and we’ll see you all again soon. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review. It’s on Shopify that we manage our business. Start your free evaluation at shopify.com.