Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation, or needs, and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
[00:00:17] Speaker B: Welcome to all Things Financial, the show that helps upgrade your financial literacy. Trey Peterson and Yellowsay Coutts, our retirement planning specialists here to provide a unique and conservative approach to managing your money. Now, here are your hosts, Trey Peterson and Yellow Se Koots.
[00:00:37] Speaker A: Hello. Hello, everyone. Welcome to episode 15 of the All Things Financial podcast.
We're having a lot of fun with this. Yellow say, I enjoy doing this. There's a lot of great information out there, and I think people really are looking for a ton of good information.
[00:00:52] Speaker C: And, wow, way to change your tune, right? When we got started.
[00:00:59] Speaker A: Well, you know, we have to, we have to make it exciting. Alice?
[00:01:04] Speaker C: Well, one of the ways that I think we decided to make it exciting today, it's, it's maybe not the most exciting topic, but I think for those of you who are watching us on YouTube, you see that I'm holding this Red Bull here in my hand, which is going to make all the difference this morning. Ryan, do you have a Red bull?
[00:01:19] Speaker A: Not a Red Bull, but a Celsius. Same effect. Same effect.
We needed a little extra supplement because the topic today is not as exciting. Like Yelsey said, we're going to be discussing long term care. Jeff.
[00:01:35] Speaker C: Yeah, I've talked about having a podcast episode, or that's what we talk about exclusively. And I think I just never really planned on doing it, but I was going to continue saying we would. And today's that day.
[00:01:47] Speaker A: Today's the day. Well, it's good that we're doing it because like everything else we've discussed, there's a lot of information easily gets confused. Right. It's information that can oftentimes start to overlap. People will hear different rules of different programs or policies, and they start to combine different rules on things that don't exist. Right. So it's very common that people start to get things backwards or mixed up in here and quite frankly, creates a lot of anxiety and even fear for a lot of people knowing about the worst case scenarios that they hear. Right.
[00:02:28] Speaker C: Yeah. And this is an interesting fact that we're going to do more of an introduction in just a second, but I thought I'd mention this. The CDC, they talk about the most common conditions that affect long term care residents in an order of prevalence. Depression is number three. So I'm a little concerned that our podcast and what we have to say to the listeners will contribute to that statistic because it is not all bright and uplifting. So just want to throw that disclaimer out there.
[00:02:59] Speaker B: And now for some financial wisdom. It's time for the quote of the week.
[00:03:08] Speaker A: Well, we'll try and keep it bright and uplifting with a lot of good information, but we're going to start with a quote of the day like we always have.
And actually, we, we had a hard time choosing what our quote of the day should be. So should we do more than one?
[00:03:22] Speaker C: Yeah, I mean, there's just so much wisdom out there. Ryan, give us two quotes of the week.
[00:03:26] Speaker A: Well, the quote of the day number one, is by american comedian and actor Groucho Marx. And he is quoted by saying, there's one thing I always wanted to do before I quit, and that is retire.
Well said, groucho Marx. We always wanted to retire before we quit.
A little bit more relevant in today's day and age. Jerry Seinfeld actually was quoted by saying, my parents didn't actually want to move to Florida, but they turned 60 and that's the law.
So I don't know if that resonates with any of you out there that you've turned 60 and it's just the law that you have to move to Florida or perhaps Arizona.
[00:04:12] Speaker C: Well, and I think there's so many talking points that we just kind of assume, hey, that's what everybody does. We see that a lot with Social Security. Hey, I thought everybody turns on their benefit at the age of 62. And even in the conversation that we're going to have today, where we're going to dispel some misconceptions that people have on the long term care insurance, traditional long term care insurance, a lot of times you hear that traditional long term care insurance, it's fallen by the wayside. It's been replaced by hybrid policies. And in some sense, there's a lot of truth to that in terms of what people are gravitating towards. But we're going to talk about why some of those reasons maybe aren't very good reasons and they aren't very thoughtful reasons. And when we jump into that here in just a few minutes.
[00:04:54] Speaker A: Yeah, I think one of the points to also know, and we'll cover a little bit of this, but it's certainly not the primary component of today's conversation, but we generally think of long term care is really only for older adults. Right. But it's actually, not just elderly, those, you'll have individuals that become sick or disabled, people that get onto Social Security disability, even children with special needs, all are part of the long term care conversation. But typically, we're thinking and talking about people in retirement and as they're planning kind of their later stages in life.
[00:05:32] Speaker C: Yeah. And when you look at the entire population, all of us, whether we're children with special needs or adults who have some type of chronic illness or something that happens to them later in life, it doesn't matter. 70% of us, seven out of ten, are going to need some form of long term care.
And one thing that speaks to that is theres over 65,000 regulated long term care facilities in the United States.
[00:06:02] Speaker A: Wow.
[00:06:02] Speaker C: 65,000.
[00:06:03] Speaker A: Wow.
[00:06:04] Speaker C: By the way, and not to overload everybody with facts, but you couldnt even have a long term care insurance policy until the seventies. Thats when they became a thing.
Of course, there's a lot of issues, as you would imagine, anytime something new is introduced, where we begin rolling out a new plan or a new type of policy, there's all kinds of problems and all kinds of things that have changed over the years, and we'll discuss some of those changes. But initially it was just for nursing home costs. And today policies have evolved to include all different types of care that we'll discuss here in a few minutes.
[00:06:37] Speaker A: Well, I guess question number one, Yellow says that if they didn't invent, invent, bring about whatever the case is, long term care policies. Until the seventies, what did people do before?
[00:06:48] Speaker C: Man, I think people did what my parents are going to do, which is rely on me.
[00:06:58] Speaker A: My long term care policy is yellow.
[00:07:00] Speaker C: Say, well, my folks are from Ukraine. I've mentioned this, and I don't know that I can have, that I can safely have a conversation on long term care. It's just, and I think a lot of people can sympathize with that, empathize with that, because I think it's, you know, people want to stay in their home. They don't want to get shipped off to a nursing home. And, and I know it's not always that. A lot of times when we talk about long term care, the idea that we're planting in the listener's mind is it's just a nursing home. But there are different forms and variations of long term care. You have assisted living facilities. You have potentially home health aides or, or adult daycare centers. There's all different types of things depending on your needs. It's not always a nursing home or a memory care facility that's three or 4 hours away from where your family is and nobody ever comes to see you. Although we see that as well, unfortunately, especially as people apply for Medicaid, which we'll discuss in a moment too, and how sometimes your options are limited if you're relying on the government to help pay for your care.
[00:08:02] Speaker A: So let's start with when it comes to needing care, whats the typical definition for looking at it and saying hey, what do they qualify as? Theres something about hey, daily living activities, youre limited on how many you can do. Tell me a little bit about that.
[00:08:23] Speaker C: Its called a triggering event and this has changed over time. Today almost every long term care policy will be based on ADL's and Im talking hybrid policies or, or even traditional long term care. And even like annuities that have long term care features and riders and benefits that are available. A lot of them are based on the inability to complete two of six ADL's. ADL's daily activities that include bathing, continence, dressing, eating, toileting and transferring activities of daily living. So as long as you can't perform two out of six for a period of 90 days without any type of assistance, without human assistance from somebody else, then typically that is considered a triggering event that gives you access to the benefits that your long term care insurance policy or other form of long term care that you might have. It gives you access to that to be able to use those benefits. Now one thing I'll say is what people don't understand, that just because you've completed two of six or you weren't able to complete the two of six, you met the ADLH triggering event qualification. It doesn't mean you have access to that cure right away because many policies also have an elimination period. And that elimination period is designed to prevent you from having access to that care for a period of sometimes 30 days all the way until 90 days. And the reason why I mentioned that hybrid policies which seem to be taking the industry by storm, everybody's talking about the new fancy hybrid policies, those generally have longer elimination periods, whereas traditional long term care policies, what we've seen, typically those are the ones that have maybe a 30 day elimination period, whereas the hybrid policies can sometimes be as much as 90 days. It's not a rule across the board, but it's just something that we tend to see as we review a lot of long term care policies for folks.
[00:10:14] Speaker A: Yeah, I know oftentimes in conversations we have with our clients, etcetera, there's some considerations to be looked at and to be thoughtful about when it comes to whether it's a Medicaid spend down or choosing a policy or even being self insured, things to consider. And everybody has a same or similar thought process, meaning that nobody wants to be a burden, whether it's a burden on their kids, a burden on their spouse, a burden on family, etcetera. And that goes on, really, either end of the spectrum, meaning we'll have people that look at the statistics we've referenced this many times, that women typically outlive their husbands, and if they end up with some type of spend down, where they have to spend down their assets to get proper care, you don't want to spend all of your assets taking care of your husband and then outlive him in the, be in a tough position afterwards. Right. And on the opposite end of that spectrum, we see people that have plenty of assets and have plenty of funds where they can self insure or pay for the best policy, but they still don't want to be a burden on their family in the sense that they just don't want their family to have to deal with it and go through it. Right. So, I mean, on either end of that spectrum, everybody has the same consideration and the same caring thought process saying, I just don't want to create an issue. I don't want to be a burden, and I don't want my kids or my family to have to go through it.
[00:11:48] Speaker C: Yeah, well, it's like the guy that you met with last week, and he said, hey, I have the resources. I have the means. I can certainly self insure, but I want it to be that whoever's helping to take care of me, whether it's my niece, my nephew, my daughter, somebody else, I want them to be able to just call the 1800 number, and then they can be assured that dad will be taken care of. And I don't want to place any burdens on anybody. I don't want anyone to have to go out of their way to help me. And it's not like his, his children or whoever's going to be responsible for his care. It's not like, you know, they, they've, they've voiced their concern over having to care for dad. They haven't. But most people don't want to be a burden in any way. And that's where long term care insurance, and I say long term care insurance, it's an all encompassing term, depending on what you have, whatever plan you have in place. That's why it's essential it's essential for maybe your peace of mind and especially for how you want to conduct things when you can't care for yourself.
[00:12:40] Speaker A: Right. Well, and deciding whether or not to get long term care is another topic. Right. Because how do people decide that, yes, I want to do this. I mean, most of our listeners, most of the people that we work with, of course, are baby boomer generations. So are either about to retire soon or have retired sometime in the recent history, last five years or more, et cetera. And they may have parents that they have experience with a long term care policy, et cetera. And I know you'd mentioned traditional versus a hybrid policy, which we'll get more into, but, you know, it's not because, you know, you just saw a commercial and thought, well, there's a commercial for long term care. That's a really interesting thing. I should look more into that. Right. Usually it's either coming out of the phobia of being a burden or it's coming out of the phobia of government taking all of your assets or out of the experience of caring for your own parent or an aunt or an uncle, something like that. Usually that's the start of the conversation.
[00:13:39] Speaker C: Yeah. I don't know if anyone purchased long term care insurance because they saw a great commercial. I think most of the people that we meet with, the ones who have long term care insurance, they have it because they've lived through it.
[00:13:51] Speaker A: Right.
[00:13:52] Speaker C: They've lived through a helping mom and dad. They've had to navigate. Some of these older policies simply weren't great. We'll talk about premium increases. We'll talk about some of the limitations on the care that they were able to provide. And they lived through some of these experiences. And in an effort to avoid those experiences for themselves, theyve chosen to plan for long term care with long term care insurance. On the other side of that, though, theres people who have absolutely chosen not to get long term care insurance because of how difficult its been to deal with the insurance company not being able to have access to the benefits that you were supposed to have, that youve paid for all these years, and having limitations to those benefits and having to fight with insurance companies. And that soured some peoples taste to long term care. But the one thing that I will caution you against, and this is something that we hear all the time, we know that 70% of people need care. And the response that some people have is, well, my son and daughter in law, that's who's going to take care of me.
And my response to them is they don't even come see you now, they are not going to take care of you. That's not a viable solution. Now, of course, you might have the best son or daughter in law in the world, and maybe they absolutely will help to take care of you, but probably that's not something that you want to lay at their feet and have that be one of their responsibilities that they probably are very much looking forward to.
[00:15:12] Speaker A: Yeah, you know, it's, it's funny that you actually mentioned that. Y'all say, I was just down visiting my parents over Memorial Day weekend, and they're a couple states over, about a 400 miles drive, and they're on a family farm and our aging, etcetera. And of course, the topic of the family farm and, well, do I ever see myself having that as a cabin? My dad's asking me these questions, et cetera. And then he gave me, I think he was just trying to be funny, but it was definitely felt as a little bit of a guilt trip because he said, well, you spend more time in Florida on vacation than you do at the farm. Anyway, Ryan, I kind of thought, well, stings a little bit, but you're not wrong. The total time, that may be true. We only spend a week in Florida, but we get down to the farm two or three times a year. It's just a matter of planning that out. So it does make a big difference when you're looking at those considerations. And if you're just blindly relying on one versus the other without kind of taking into consideration all the different factors, just like anything else that we've said numerous times over this podcast is you really have to weigh all of the options. Look at other people's experiences. Yes, that's important, but you have to weigh the options for your specific situation.
When it comes to long term care, it's not just about getting shipped off to a nursing home. Just like you said, there are a number of different types of things. Uh, my great uncle, he's in an assisted living care. He and his wife are 97 and 95 years old. They've been there for a few years now, and they, they love it. It's great for them. Do they miss, you know, their home that they were in for 50 years? Do they miss the small town? Of course they do. But they're closer to family now. They actually see family more now than what they did before when they were living on their own because they, you know, moved closer to where the kids were. So there's a lot more family there. So these situations sometimes they seem a little dire or bleak, but they can actually still be very positive in a lot of respects.
[00:17:07] Speaker C: One thing I want to add is this podcast, this episode is absolutely not a pitch for long term care.
One thing I want to say is it's a pitch for planning. Whatever your plan is, there's nothing wrong with self insuring. Plenty of people do it. The reason why sometimes people who have the means to self insure consider getting a long term care plan is because we've seen even large estates that have been decimated by the cost of long term care related expenses. They're very expensive. I think in a previous podcast we shared that. I think Minnesota was kind of middle of the road, but there's some states that the cost of a nursing home, nursing home care on a monthly basis was in excess of like $25,000 a month. Obviously, we dont have that here on average in Minnesota, but its quite costly, and thats why people explore those different types of options. But were not saying one is right or wrong, and were certainly not making a pitch that everybody should go out and buy long term care insurance. But we do want to explore some of the differences between some of the policies. And the one thing ill say, too, is there isnt a perfect solution to this.
There isnt. Theres pros and cons and well talk about those, but there absolutely isnt a perfect solution. And even though that long term care insurance has come a long way, there are some problems that continue to persist. And we saw that during the pandemic. And Ryan, I think you were mentioning some of the statistics, unfortunately, on elder abuse within long term care facilities and long term care centers where they care for seniors and people who can't care for themselves. What were some of the stats that you mentioned from? I think it was the American Journal of Geriatric Psychiatry or something.
[00:18:45] Speaker A: Yeah. The interesting thing about this is when you look at this portion of the topic, and we'll only spend a moment here, but rates of elder abuse have actually increased. During COVID specifically, they increased by 84%, which was a tough time. Was it staffing levels? It could be a lot of different things, but the abuse rate actually went up quite a bit. And globally, about one in six people have experienced some type of elder abuse in community settings. So one of six. I will say this is a global stat. It's nothing, just the US, et cetera.
But there's actually another stat that I think is equally as important, and two thirds of long term care staff. So the employees working at these centers and facilities around the world have actually experienced abuse themselves, meaning that they're receiving the abuse. Right. And so I think that's, there's a couple things that you can say out of that, and one of the things that's, I think, important to know is that if you've got mom and dad or grandma and grandpa in their own home currently, but if health issues persist, sometimes that becomes a real challenge, and people have a hard time dealing with that. And if somebody starts to get, for lack of a better term, I'll just use a generic word and say a little bit ornery, it may be better that they're in some type of care facility if they're, you know, in a situation where they might be treating somebody poorly, etcetera. Because you'd hate for that person that's getting treated poorly to be a spouse. Right. So there are a lot of different reasons to look at this, but I think the stats do show that it does exist.
But, I mean, when you come, when it comes to planning it out, like you said, y'all say there's not one good solution financially.
Do most people self insure? Do most people have a policy? Who pays for long term care, typically speaking?
[00:20:48] Speaker C: Well, I think overwhelmingly, most people don't have a long term care insurance policy. I don't have the exact stat, yeah, most people don't have any type of plan in place. And one thing that is evidence of that is currently Medicaid. It's the single biggest payer of long term care services and support in the United States. And the last stat that I had on this was in 2021. They spent over $207 billion, which ended up being like over 45% of all long term care related expenses, and it's paid for by Medicaid. Now, a lot of people are familiar with the Medicaid spend down, and that's a very difficult process. We've had clients that have had to go through that, and I don't personally sell long term care insurance policies. We have somebody that we've partnered with that can help you if you have any questions on that, to explore all the various options that are available for you. But one of the things that we've talked about is in helping one of our clients navigate the spend down for one of their parents is just the difficulty in some of the situations where people have given away their own ability to pay for their care. What I mean by that is if you ever apply for Medicaid to help pay for your care. And as I just mentioned, Medicaid is who's paying for most people's care, most people who need care, Medicaid is who's paying that bill for them. Now where that becomes a challenge is if you've given away the ability to pay for your care and you apply for Medicaid. And what we mean by that is there's a five year look back. So Medicare, Medicaid is going to look to see, hey, in the last five years, have you made any substantial gifts? And we've seen people that have made gifts as a wedding gift to maybe a grandson or a granddaughter who's getting married, and they give away 1015, $20,000, or maybe they start transferring assets that they have into a child's name, maybe a property or vehicle or other assets that you might imagine.
And Medicaid, if you apply for them to help pay for your care, they're going to look at all those items and they're going to say if you gave away any of your means, your own ability to pay for your care, with within five years, we're going to delay paying for your coverage.
So the way that they would look at that, they would say, hey, well, the cost of care, let's say it's $10,000 a month and you gave away $100,000 within a five year period, you essentially gave away ten months of care. So even though you're in an assisted living facility, even though you have a home health aide coming in to help you, or maybe you're in a nursing home, you gave away ten months of care. So we're not going to begin paying for anything until ten months have gone by. After the ten month, 10th month, then we will begin paying for your care. And that's how essentially they claw back some of the money that you gave away. They do it by withholding care, withholding the payment for your care.
[00:23:41] Speaker A: Well, there's a lot of people out there that would say, well, no matter what happens, the government will never leave me out, you know, with nothing.
[00:23:49] Speaker C: That is absolutely not true in this circumstance. They will not pay for you. They will delay that care until they've recouped or essentially the time has gone by where they have that the period goes by for the gave away.
[00:24:03] Speaker A: Yeah. Interesting. Well, just a quick note that as we're going through these topics and a few when you look globally, who spends the most on long term care, etcetera, I thought this was really interesting. But Denmark, Norway and the Netherlands and Sweden, those four countries actually spend the most on long term care. So I thought that was just an interesting kind of fun fact as we go through all of this. But, yeah, I'll say you talked a little bit about hybrid policies, traditional policies.
Maybe. Let's dive in there.
[00:24:38] Speaker C: Yeah, and that doesn't surprise me, by the way, those countries, obviously, they have larger social safety nets and maybe some of the tax rates that could be a little controversial, depending on the conversation you're having here in the United States. But, yeah, it doesn't surprise me at all. But, of course, the difference between traditional long term care and some of the newer policies, if you will, the hybrid policies.
So there's a lot that we can talk about. Obviously, we just mentioned the Medicaid spend down. There are five protected assets, by the way, that Medicaid will allow you to keep. One of those is a home, primary residence, a vehicle. You can have a certain dollar amount that you can have if you're married. That dollar amount, I think it's like around 130,000. Don't quote me on that, but it's somewhere in that range. I think it is indexed, so it changes every year just a little bit. But if you're single, it's like, I think it's like three to $5,000 that you're allowed to maintain. So just think, you could have a home, a vehicle, and a specific dollar amount that you're allowed to keep. Still apply for the Medicaid. Medicaid assistance when it comes to long term care. But because Medicaid covers so much of the bill, there's something called the Minnesota partnership Agreement. And various states have their own partnership agreements, but each state actually, they're able to administer its own program within the federal guidelines, within the broader federal guidelines that are available. And the reason why I bring this up is in order to help alleviate the cost that is basically is being forced upon the government because of the rising costs of long term care in general, but also the need for it. The Minnesota partnership agreement, what it allows you to do, and this is specifically when it comes to traditional long term care. And actually one of the reasons why maybe traditional long term care should be a consideration, it shouldn't be thrown to the wayside, as I mentioned. But one of the benefits with traditional long term care is asset protection, asset protection by way of the Minnesota partnership agreement. So if you have a traditional long term care insurance policy, and I forget what year that this was enacted, but they allow you to add an inflation rider on the policy. And every state has a different requirement, it typically ranges between one and 3%, where you're saying, hey, the care that my policy provides for. It'll increase based on this inflation rate of one to 3%. And by doing that, you may be eligible for what's called the Minnesota partnership agreement. And what that means is when your policy eventually pays out, let's say your policy pays out, I don't know, $100,000.
What it allows you to do is it allows you to add $100,000 to your protected assets so that eventually, if you do apply for Medicaid to help pay for your care, not only do you get to protect to one house, one car, about $130,000, it would allow you to protect one house, one car, and $230,000. It would add dollar for dollar, whatever that policy has paid out on your behalf, you can add that to your protected assets. And not only do you add it to your protected assets while you're alive, if eventually, if you end up running up a tab and Medicaid has paid a certain amount for you, they eventually, they take it out of your estate. Whereas if you have the Minnesota partnership agreement plan in place, the asset protection that that offers, it'll protect your estate. Also, that additional $100,000 will be protected from that as well. So, of course, not making a pitch on long term care. This is just one of the features that traditional long term care provides. For now, Ryan, if we want to get into, obviously, the differences between hybrid and traditional policies, what would be the pitch? And I'm making a pitch for hybrid policies, but if you had to give me the pitch, what would you say? How would you convince somebody? If you're trying to convince the listeners to everybody go out there and go buy a hybrid policy, what would you tell them?
[00:28:26] Speaker A: Let me get my best, my best sales voice on, and my hair is not slicked back too much. It's a little more spiked if you're just listening.
[00:28:34] Speaker C: But did you just come off the used car lot?
[00:28:37] Speaker A: You know, not far, not. No. I'm just teasing, of course.
Well, so traditional long term care insurance really is a use it or lose it proposition. If you never needed care, 20 or 30 years of premiums are just. Just wasted, right?
[00:28:54] Speaker C: Well, I think that's what people hate about traditional long term care. This idea that I'm going to be paying for 20 or 30 years, and God forbid I pass away and I.
[00:29:03] Speaker A: Never use my policy, all that money just gone. Just gone. I could have had that in an account being invested, I could have had it grown, etcetera, but it's just gone. But here's the deal with a hybrid policy, right my sales voice here, sometimes a combo or an asset based, they're oftentimes called you can have it all. Okay. Yellow say you can have every component. You can have long term care benefits. You can have a death benefit.
If you never need care, a cash value return of premium up to 100% can be yours.
[00:29:36] Speaker C: Sign me up. Sign me up. Where do I sign?
[00:29:39] Speaker A: You've got the trifecta. You've got all three pieces here, so you pay for it. But don't worry, you get all your money back.
[00:29:45] Speaker C: Yeah, and I hear that pitch all the time. There's a little bit of truth to it, but one of the things that is a little misleading is you only end up getting one of those items ultimately, and you end up paying dearly for the other two. So of course it sounds great. Hey, if I don't use it, I get my premiums back. In fact, there's a, there's a death benefit for my beneficiaries.
What could possibly go wrong? And I can actually have a return of my premium if I wanted to cancel the policy. There's no doubt. It just, it sounds like it's pretty amazing.
But let's think about insurance. Just, for example, imagine laying awake at night and just hoping for a giant kitchen fire. Because think about it. For the last 20 years, you've been paying your homeowners policy or your auto insurance policy. And imagine laying awake, just hoping that tomorrow on your way to work that you're involved in a giant accident so you can finally make good on all those insurance premiums you've just been wasting for the last 20 years.
Nobody treats insurance that way.
[00:30:46] Speaker A: No. Actually, anybody that has recently had to have a car fixed or recently gone through a home repair on insurance probably would agree that's not the desired effect. Right. Don't want to have to go through that.
[00:31:00] Speaker C: And then think about it like this. Imagine if you, if you happen to live well into your nineties and you get to remain in your home and you get to remain in the town or the city that you live in, obviously, your folks are a little bit of an exception where now they get to see family more than they ever got to see family before. But for most people, its the other way around most of the time. Like, especially if youre applying for Medicaid. For Medicaid, the assistance that they offer, a lot of times youre not even in a semi private room. Maybe youre several hours away from your family.
But imagine not having to use that long term care policy. You just ended up passing away in your nineties, and without any adverse health effects, you were able to care for yourself the entire time. You didn't need any intervention. How awful would that be?
[00:31:50] Speaker A: You know, it is funny, though, when you, when you said, hey, this is kind of how insurance works, right? Well, imagine laying in bed at night, waiting for the kitchen fire to happen, et cetera.
It's not a matter of saying, hey, it's my money, etcetera, and I don't want it to be wasted on something. It's a matter of saying, hey, if something does happen, if a catastrophic event does happen, if I do need care that costs thousands and thousands and thousands of dollars, I now have the capability to pay for it. Right? I mean, that's what insurance really is. Instead of lying in bed waiting for the kitchen fire to come, you're lying in bed knowing that if something catastrophic does happen, you're covered, you're taken care of. It's insurance 101, right?
[00:32:34] Speaker C: Yeah, it is. And I think where there's a huge disconnect is, you know, we mentioned this in the beginning, long term care policies haven't been around for all that long, since the seventies. Like, that's when you could purchase a long term care insurance policies policy. And a lot of what I've, what I've read on some of the actuarial data is people, just the actuaries, they assume that they would have, like, a 30% to 40% retention rate of. And it turns out nobody surrenders their long term care insurance policies. It's something like 90%. So everybody's keeping their long term care insurance policies, and what do you know? 50% of people actually end up using their long term care insurance policies. Well, that's a problem if you're an actuary, if you're a long term care insurance company, especially since we had a long period of very low rates. Interest rates were very, very low. So the assets that these long term care insurance companies are bringing in, your premiums, they're not really earning what they were hoping to earn, and people ended up keeping all their policies, and most people ended up using their policies. So now you have all these premium increases, and people don't like premium increases. In fact, if you were expecting the premiums to remain relatively level, that was a problem, because on traditional long term care insurance, especially in the nineties and early two thousands, even mid two thousands, we saw huge premium increases, like doubling or even tripling their premiums over that time. So people have really just.
That's not going to be something that is a great selling point. Of course, now, today, the actuaries are a little bit more attuned to what's happening in the environment. And even though you can hear all day long that, hey, we're not really experiencing the price increases that we did in the nineties because we have a better idea of who's going to keep these policies, the retention rates and so on and so forth. And the cost people still, they're just a little suspicious of traditional long term care. But one thing I would say, traditional long term care, when you buy a traditional long term care policy, you are buying a long term care insurance policy. I know that sounds obvious. When you buy a hybrid policy, you're not only getting a long term care insurance policy, you're also getting a life insurance policy. You're also paying for that rider to be able to have a return of premium and those things, that's what ends up being more costly. So traditional long term care, dollar for dollar how much you'd spend on a long term care insurance policy versus the hybrid, you're spending more on the hybrid. And there's some additional benefits that we'll talk about in just a few minutes that you're not necessarily getting with a hybrid, although there are some, some things that you are getting. Like, for instance, you don't have to worry about your premiums increasing. They tell you right up, right away, this is what you're going to pay for the policy. You could pay all upfront, you could pay over time. There's different opportunities for different premium payments that you can choose. There's some flexibility there, but you pretty much know what you're going to pay. Whereas with the traditional long term care insurance policy, even though the insurance company has assured us, hey, we're not going to see those large rate increases that we saw in the nineties and two thousands, you can assure people all day long. But everybody, especially the people who end up getting long term care insurance, they're people who experienced it with their parents, their grandparents, and they've seen these large premium increases that have been devastating for your budget. Imagine in retirement if you're budgeting for $1,000 a month, but before you know it, you're paying $2,000 a month for your long term care insurance rates. So you do have to contend with that, even though it's not really something that I anticipate us seeing in terms of long term care insurance.
[00:35:56] Speaker A: So, yeah, and I think, you know, we're talking about the difference in traditional versus hybrid plans here. And the hybrid really is a combination of multiple things, one of the things that were not going to spend a ton of time on, but its worth mentioning is I know a few of our clients have, its actually more of a financial product and weve talked about annuities a little bit, but there are even annuities out there that have long term care riders on them. And its simply something that you say, hey, its another form, its another facet where we can get a supplemental portion of income. If I have an annuity, ive turned it into a pension and I'm getting an income off of that, and then I can't meet two out of the six daily living activities. Well, there are provisions out there on some of these products where that you can all sudden double or more that income value just based on it being a long term care rider. Now, it's not a long term care policy, it's not an insurance in that factor, but it's an add on to some existing policies out there. And some people have found that, hey, you know what, long term care doesn't necessarily make sense for me. It is still a concern. So we found another avenue to help protect us and protect our assets down the road should we need something, right, and not a pitch for any one of these things, but I think it's worth looking at and like we always say, come up with a plan, come up with a balanced plan, right. And if you're talking to somebody about any of these policies and you only get one option, it's worth a second opinion. Whether it's ask the person that you're already talking to, if the person that you're working with, great person, you know, and trust them, etcetera, maybe just say, hey, this is great, can you show me another option? Can I look at something to compare to? Right. And if they don't really want to give you a second option, then maybe it's worth looking up that the next person down the road to see if they can give you a second opinion as well and say, what do you guys offer? Or what in your opinion would be the best bet for this? Yeah, we talked about it in one of our previous podcasts. But when it comes to, hey, do I need a trust or do I need this or that or whatever it is. If you call and say, if you call an attorney and say, hey, I'm interested in a trust, can you help me out? Well, of course you're going to end up with a trust if you call an attorney and say, hey, I'm interested in find out what's best for me and I want to set up an appointment? Well, of course, then you're going to get more options potentially. But if you just call and ask for long term care, that's what the focus is going to be on. Right. So knowing what to ask for but then also reviewing your options and always have something to compare it to I think is really, really valuable advice.
[00:38:39] Speaker C: Yeah. And to piggyback on the annuity conversation. A lot of times people turn to annuities because they have those long term care provisions and some annuities, just like you mentioned, Ryan, if you have a triggering event, if you can't complete two of six ADL's, then what they do is they either double or triple the income that you have, just like you mentioned. But now because of the need for long term care and how much the industry has changed, I think I could be wrong on the number, but I want to say that there were over 100 companies that were in the long term care insurance space, let's say in the nineties, eighties or nineties. Today I think there's less than 20 because the industry has changed. It's evolved over time and it's weeded out a lot of these companies and some of them for very, very good reasons. Some of them, it was just basically they were driven out of the industry because profits weren't keeping up with what they expected. And by the way, a lot of times whenever you see a rate increase, they have to petition those to be able to enact those increases. They can't just decide, hey, we're going to hike up the premiums. No, they have to show their books. They have to show, hey, we can't pay out these claims. We don't have enough premiums coming in. A lot of times what ends up happening is not every state is very lenient on premium increases. So what they end up doing is the insurance companies, they petition in every state because it's dependent on that state approving the rate increase. So they'll make a petition in Massachusetts, they'll make a petition in Pennsylvania, in Minnesota, and a lot of these other states that allow for them to have the increases, they end up subsidizing states that don't allow for the increases because its that much of a problem. Theyre not able to keep up with the claims that are being made. So anyways, I wanted to circle back to the other types of annuities. Not only are the annuities that double or triple your payment, but now theres actually companies who have products that are specifically designed for long term care, not in the sense that you have a payment or a paycheck coming in or youre looking for accumulation, but the policy only works under the conditions of you having a long term care event. And if you have questions on that, of course we'd be happy to answer those questions. The reason why a lot of times people turn to those policies dollar for dollar, they end up being extremely competitive, but they don't have the stringent underwriting requirements that you would find on a traditional long term care policy or even a hybrid. Now, one of the, one of the things that you hear about hybrids all the time is that it's easier to qualify, easier to qualify for a hybridization. There's no way I can qualify at my age with my conditions, with what I have for a traditional long term care policy. So I'm going to pursue a hybrid.
I've talked to several people, professionals in the industry, and specifically I've asked them on this very point, and most of them have said that that's really overplayed a little bit. Sure. On average, probably you're going to find more cases where a hybrid policy is going to be approved compared to traditional long term care policy. Uh, but that's, that's not, it's not as often as you would think, and it's not as widespread as you would think. It's actually under very, very specific circumstances where that may be true. And most of them, really, most of the two guys that I talked to, they both said, yeah, take that with a grain of salt. So just want to make sure that we have that out there. But, you know, the biggest thing that, you know, I'm not going to pretend like I know anything about psychology, but I think that, you know, I just recently, uh, passed the CFP. So a little bit of a shameless plug here, but one of the things that we had to talk about was financial psychology and some of the things that drive our decisions and some of the things that, if you're not careful, a lot of people succumb to these types of emotions and feelings when it comes to the investments and even when it comes to being sold certain insurance policies. And that's why I wanna make sure that, like, we're not, you know, you're not dealing with somebody who's selling you a hybrid plan because they're pandering to some of the short sightedness that that is, that all of us have. Right. And when it comes to psychology, when you look at some of the decisions that some of the things that play a role in our decision making process we have a cognitive bias called loss aversion. We'd rather avoid any of the losses that potentially that we see than even more so than pursuing some of the gains. And that's where some, I think that fallacy of, hey, lose it, use it or lose it with traditional long term care insurance. One of the biggest problems with long term care insurance, if you don't use it, you lose it. All these premiums. Obviously, not to beat a horse to death, but we've talked about this, and I just want to make sure that we're aware of the biggest difference. Now, there are some huge advantages, right, to a hybrid policy.
It may not be the most cost effective option, but a lot of times, when you look at it, there are certainly advantages.
You do have consistent premiums. You don't have to worry about that.
There's flexibility in it. You know, if it's, you know, 50% of people end up using their policy and 50% don't. I mean, that's a flip of a coin. You could be in any one of those camps. And of course, with a hybrid policy, you aren't necessarily throwing away your premiums, even though we've discussed how that might end up being a fallacy. But you do have the ability to be able to get your premiums back and even have a death benefit.
It is slightly, potentially easier to get a hybrid policy, although, as I mentioned, very, very slightly.
And then there's the cash value, cash value of the policy. A lot of times on traditional long term care, if there's long term care related expenses that aren't necessarily like the nursing home or long term care facility, you might have some limitations on being able to use that policy for some of those miscellaneous expenses. Whereas with a hybrid policy, if you have any of those miscellaneous expenses, you can dip into the cash value of your, of your life insurance or the death benefit to help pay for some of those expenses outside of the long term care facility. So there are some, some advantages. We're not saying that one is better than the other, but I just want to make sure that we're not misrepresenting the two either.
[00:44:33] Speaker A: Right. Well, and, you know, we've only got a couple minutes left here, but I think long term care fits into our conversations and our podcast because it's all about retirement planning. It's all about saying what are the things that I need, what are my options, and what's the best way to secure our retirement, both financially and as well as secure our plan for our care when we need it. Right? So we'd be certainly remiss if we didn't talk about long term care planning. We're happy to dive into any of these topics with you, whether it's just simply giving another opinion on what type of things should be looking into for care. Can you afford to be self insured? Are you more focused on the financial aspect of it or are you more focused on the care portion of it? And like Elsa said, we don't necessarily sell long term care plans, but it's certainly a conversation that we have with clients pretty frequently, given, given our focus here.
[00:45:35] Speaker C: By we, Ryan, you mean you and I don't, but we do have a, we've partnered with people who do. So if you have questions on that, we certainly have the resources for you.
[00:45:45] Speaker A: Correct? Absolutely correct. Yelse, myself, Trey, we don't, but we absolutely, absolutely have resources. Is correct. Thank you for that clarification. You can reach out to us, our email anytime. It's Ryan, r y a n or yellise.com y e l I s e ydeene or treealth.com dot. So you can also call phone number is 612-286-0580 happy to dive into these topics. Yellow say anything else as we wrap up here.
[00:46:22] Speaker C: Well, there's a million more things we could say on the topic. It's a very, this could be a much longer conversation than I anticipated. I thought we'd cover a lot of it here, but we are short on time. The last thing that I will say is if any agent or any advisor or anybody tries to present only one type of coverage, get a second opinion. There isn't just one way to do things. There isn't one glove size that fits all. There's so many different ways to do it. And I mention this all the time. We all have different assets, different sources of income, different needs in retirement, different objectives that we have. Our goals are going to vary from one person to another. So there's not going to be one solution that fits any one person. So make sure you explore all the different options. Find somebody who's a professional in that area. Don't work with somebody who, like, who has the ability to sell you a long term care plan or some variation of that. And it's like a one off thing that they do, right? That they do occasionally, whenever a client asks for it. Find somebody who specializes in long term care related expenses and coverages and policies and find somebody who can, who can compare all the various options and find out which one meets all of your meets meets as a solution that you might need for you specifically. So with that, I think we'll close it out, hand it over to Ryan to mention some of our information where you can find us. And it's been a great podcast and I think the Red Bull is extremely helpful.
[00:47:46] Speaker A: We need to have that in every podcast, right?
No. You know what Trey always says, says this, and I couldn't agree more. And it goes right along with what you say y'all say, is that find an expert in what you're trying to accomplish, right? If it's something that you don't have the information, and find an expert in the area that does have that information and even find two experts if you need to. Right. But always look for somebody who is highly skilled in that particular topic. There's plenty, plenty of resources out there. But as we close again, if you've got questions, whether it comes to something as simple as, you know, double checking your Social Security plan or double checking, hey, what to do? I just had a meeting with somebody yesterday and it was a, you know, what are the advantages of a 401K versus an IRA? Any of those topics? That's what we're here for. We're here to map out a retirement income plan for you. Confirm that, yes, you've got the security desired and also, yes, you have the option to look into whether it's a long term care plan or otherwise. Right. Because when it comes to retirement, security and options are the two goals. But you can reach out to us by phone. The phone number is 612-286-0580 you can email us at any point. It's our first name, either Ryan or Trey or yellow. Say at g wealth.com, the letter g of the word wealth.com dot. It has been an absolute blast doing episode 15. I'm going to leave you with one more quote of the day because we just found some really good ones today. But this is by Mark Twain and he said that age is simply an issue of mind over matter. And if you don't mind, it doesn't matter.
I think that's just a good way to make things a little more relaxed in life.
With that, we hope you have a wonderful day, a wonderful evening, whenever it is that you're listening to this.
[00:49:44] Speaker B: And thanks for listening to all things financial. You deserve to work with retirement planning specialists who care about your money and take a unique approach to your financial and retirement needs. Visit allthingsfinancial.com and set an appointment today.
