37 – Planning for Incapacity Part 2

Christian Financial Perspectives

English - June 04, 2019 00:15 - 34 minutes - 47.4 MB - ★★★★★ - 11 ratings
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Previous Episode: 36 – Planning for Incapacity Part 1 of 2

Next Episode: 38 – Who Is Kingdom Advisors

On today’s show, Mary Jo is joined again by Ron First of Christian Insurance Services to discuss “Planning for Incapacity” in our 2 part series. In this episode, Mary Jo and Ron discuss protection - primarily long term care planning and ways to cover this expense.

Click below to listen to Episode 37 – Planning for Incapacity Part 2

Planning for Incapacity Part 2

Check out Part 2 of our “Planning for Incapacity” series focusing on Long Term Care in this episode.

More episodes >>

On today’s show, Mary Jo is joined again by Ron First of Christian Insurance Services to discuss “Planning for Incapacity” in our 2 part series. In this episode, Mary Jo and Ron discuss protection – primarily long term care planning and ways to cover this expense.

Long term care is a very complex topic. In this episode, Mary Jo and Ron cover the basics of long term care and give our listeners a high level overview of the key elements surrounding it. Learn exactly what long term care insurance is, why it’s important, and the best time to get it.

GUESTS: Ron First of Christian Insurance Services

HOSTED BY: Mary Jo Lyons, CFP®

* Ron First and Christian Insurance Services are not affiliated with Christian Financial Advisors

Mentioned In This Episode

Christian Financial Advisors

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Bob Barber, CWS®, CKA®

Mary Jo Lyons, CFP®, CKA®

Ron First

Christian Insurance Services

Want to ask a question about your specific situation? Schedule a complimentary 15 minute phone call.

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EPISODE TRANSCRIPT

[INTRODUCTION]

Bob: Welcome to Christian Financial Perspectives, a weekly podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.

Mary Jo: And I’m Mary Jo Lyons.

Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?

Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.

[EPISODE]

Mary Jo:

“But let all who take refuge in you rejoice, let them sing joyful praises forever. Spread your protection over them, that all who love your name may be filled with joy.” Psalm 5:11. Today, we’re talking about just that, protection. Maintaining their independence is one of the top concerns that our clients share with us. In our last episode, we talked about tools available to help protect your financial independence, as well as your physical independence. We discussed the various estate planning documents that most everyone should have in place. Those include a will; a living will, which is also known as the healthcare directive; a medical power of attorney, which appoints someone to make a healthcare decision on your behalf if you are no longer able to do so; a durable power of attorney, which appoints someone to make financial decisions on your behalf if you are incapacitated; and finally an out of hospital DNR, that’s a do not resuscitate form. Tune in to part one of this series to learn more about the legal documents everyone should have in place and disability insurance and how it can be used to replace your income in the event you become disabled and are no longer able to work. Did you know that we are far more likely to become disabled than we are to die prematurely? These are basic tools to help us control what we can in the case of an unforeseen medical emergency. We’re not always in control, but these are some tools we can make sure we have in place in order to protect our independence. Today, we are going to be discussing long-term care planning and ways to cover this expense. I’d like to welcome back our friend and colleague, Ron First, founder and president of Christian Insurance Services. Welcome Ron.

Ron:

Thank you so much, Mary Jo, for having me back discuss such a passionate topic of mine.

Mary Jo:

You and me both, Ron. It’s something that’s near and dear to me. And it’s something I’m very passionate about as well. I think some of our listeners may have heard my story about caring for my mother who had a 12 year journey with Alzheimer’s dementia. So I know firsthand how challenging it can be to cover the cost of this type of long-term care.

Ron:

I didn’t tell you this, but my mom also passed from Alzheimer’s disease as well. In fact, 5.8 million people are living with Alzheimer’s disease today, and it’s expected by 2050, that number is estimated to rise to 14 million. Today, one in three die from Alzheimer’s or related dementia. And it’s the sixth leading cause of death, even outpacing breast and prostate cancer combined.

Mary Jo:

It’s amazing. Those numbers are staggering. So many people say, well, it’s not going to happen to me, but I say the numbers tell a different story, wouldn’t you?

Ron:

Oh, definitely. By the end of this year Alzheimer’s and other dementia disease will have cost the nation more than $290 billion. And by 2050, it could be as high as $1.1 trillion. So such realities deserve great public awareness and information. And to be honest with you, Mary Jo, I really wish my industry, the insurance industry, would do a better job in educating the public about what the long-term care insurance they sell actually does and what it’s for.

Mary Jo:

I agree with that for sure. It’s definitely a very complex topic. In today’s podcast, we’re going to try and cover the basics and give our listeners a very high level overview of the key elements of long-term care. It’s going to be a fast paced show, but we’re going to do our best to break this down into key points. So buckle up and let’s get started. Ron, first off, what exactly is long-term care insurance and what does this mean for our listeners?

Ron:

Well, Mary Jo, long-term care insurance benefits kick in to cover the costs associated with extended care and/or an extended stay in a nursing home or possibly even in a home care setting.

Mary Jo:

We’re all aware that healthcare costs are rising rapidly, certainly outpacing inflation. And one of the other things that I think is really important to think about is that due to modern medicine, we are as a society, we’re living longer, sometimes much longer. And our odds of needing assistance as we age are increasing.

Ron:

Yeah, absolutely. Long-term care insurance allows you to actually transfer the cost of this very expensive care to a third party and protect you from exhausting all your assets in the process. That in a nutshell is the benefit of long-term care insurance. It’s a form of protection.

Mary Jo:

Many people are under the impression that Medicare or Medicaid covers the cost of this type of care, but that’s just not the case, is it?

Ron:

That’s right. Mary Jo, there’s a lot of misinformation out there. The fact is Medicare helps to pay for your recovery in skilled nursing care facilities, such as a nursing home, only after a three-day hospital’s stay and only for the first 20 days. Let’s put some numbers to it so you can think of it another way. If the average cost of a semi-private room in a nursing home is 225 days. Multiply that by 20 days, which is the maximum. That’s $4,500. Medicare would cover this assuming it was for care needed after a hospital stay, but after 20 days, Medicare only covers a portion of the daily charge. That will mean you will have to personally pay $170.50 per day. If you have to cover this share for 100 days, the cost would be nearly $14,000. And after 100 days, you’re on your own and Medicare pays zero.

Mary Jo:

And an interesting thing is that a lot of seniors have more than one stay in a nursing home or more than one hospitalization. They might have multiple falls or incidents. So it may not just be the one-time that they have to cover those costs. Medicaid is a welfare program funded by folks, federal, and state governments. It’s designed to provide healthcare for the truly impoverished. There are some key points to consider when it comes to understanding Medicaid eligibility for benefits under Medicaid are typically based on an individual’s income and assets and eligibility rules vary by state. Alzheimer’s and dementia, which we usually lump together and use Alzheimer’s as a label, can be all of the different forms of dementia. So for simplification, we’ll refer to that as Alzheimer’s dementia. This can last for years. My mom’s journey was for 12 years. So if you’re covering that big, expensive cost and it drags on and on, it can really devastate a family. Medicaid often becomes necessary when dealing with the cost of caring for someone with Alzheimer’s dementia because of the long-term nature of the illness.

Ron:

Oh, absolutely. And the biggest challenge with Medicaid is that it takes away the choice from the family. Medicaid beds are limited, and you may have to settle for a place in a facility that’s not your choice, or that’s not the most ideal place for your loved ones. It may be located across town or in an undesirable neighborhood. Not all communities are Medicaid eligible. In fact, the majority of assisted living facilities and memory care facilities are actually private pay.

Mary Jo:

One other thing, Medicaid policies differ by state, but in Texas in general, to be able to get Texas Medicaid program to pay for long-term care, in 2019 a single person’s monthly income cannot be higher than $2,313. A couple’s monthly income cannot be higher than approximately $4,500. The other thing you want to look at is your resources and assets. The resource limit for a single person to qualify for Texas Medicaid is $2,000 and for a married couple who both want to qualify for Medicaid, it’s $3,000. That’s not a lot of goods if you think about it. One good thing is that there is also some property aspects. Your home is not considered an asset as long as it’s worth less than $585,000. Some property does not count towards the resource limit. Other excluded resources include one car. So any assets above the household and the one car are looked at very closely. Ron, I know there’s something about a look back period. Can you talk about that a little?

Ron:

Oh, absolutely. Yeah. It’s important to know that the government has instituted what is known as the “five-year look back”. that means that an audit is conducted on a person or a family’s personal assets to ensure that a person hasn’t unloaded their assets intentionally just to qualify for Medicaid benefits. So while it does have a hint of unethical-ness, in one sense, it’s actually perfectly legal and a way to pay for long-term care needs provided that most assets were transferred prior to the feds looking back five years.

Mary Jo:

Don’t they call moving assets like that a “Miller’s Trust”?

Ron:

Yes, exactly.

Mary Jo:

That’s definitely something that you want to work with an estate planning attorney on in order to see what makes sense for your specific situation. So we’ve talked about Medicare and Medicaid, but most people have a Medicare supplement to cover the loophole or the amount that the Medicare doesn’t cover. Will that cover the cost of long-term?

Ron:

Well, actually Mary Jo, even the most comprehensive Medigap or Medicare plan does not cover long-term care needs for the elderly. These policies do not pay for assisted livings, Alzheimer’s, custodial care, personal care, nor adult daycare. At best, they supplement nursing home care on a temporary basis and help with hospice coverage. That’s it.

Mary Jo:

Wow. Ron, how do people absorb this cost? I know a lot of them can use their savings, but what if the nursing home is for an extended period or in a lot of cases, it’s more than one hospitalization, as I mentioned earlier? I’m sure 100 days or 3 months is wishful thinking in some cases. What is the average time span that a person typically needs long-term nursing care for?

Ron:

Yeah, the average long-term care need actually lasts approximately 3.5 years, but it’s increasing every year because of medical breakthroughs that are sustaining life longer. So as we do the math, 3.5 years times 225 days equals $82,000 a year. You multiply that by 3.5 years, you’re at $300,000.

Mary Jo:

It just goes so quick.

Ron:

Inflation and skyrocketing medical costs also obviously raises the price of care as well. Mary Jo, it’s important to keep in mind that even if you have Alzheimer’s dementia or Parkinson’s or any other debilitating cognitive disease, the average long-term care need then increases to approximately 7.8 years. And most Americans simply do not have $600,000 on hand to pay for that.

Mary Jo:

Ron, as a financial planner, I know most of my clients could not afford to pay for this care without liquidating retirement assets. And when that happens, it jeopardizes the savings needed to sustain the surviving spouse. They have to continue to go on living. They still need a roof over their heads and they need to pay for their living expenses and their health care. Maybe they have legacy goals that they want to fulfill as a couple or as an individual. So you certainly don’t want to have to put the surviving spouse at risk. So if Medicare and Medicaid are not options to cover these expenses, what other options for covering long-term care are there?

Ron:

Well, there are actually only three ways to cover, or pay for, long-term care needs and you already mentioned the Medicaid as one. The second would be personal savings or perhaps savings or the assets of a rich uncle or a family member that wants to help. But the third way is a long-term care insurance policy. This is something you can purchase well ahead of the actual date you might need protection, assuming you are in relatively good health when you’re purchasing it. Now it goes without saying, just like all types of personal individual insurance, the longer you wait, the older you get, and the older you get, you develop health issues and the price of insurance goes much higher and oftentimes could be price prohibitive. These policies require a health underwriting, and this could become a little more difficult as we age.

Mary Jo:

I’m glad you brought that up. That brings us to our next point. I know there are now several types of long-term care insurance policies that are on the market that serve as alternatives to the traditional types introduced back in the 1970s. I know they’ve come a long way.

Ron:

Oh, isn’t that the case very much so, Mary Jo.

Mary Jo:

Can you walk us through the various types of long-term care policies that are now available?

Ron:

Oh, absolutely. Yeah. So the first type is what’s known as the traditional long-term care policy and they came about in the 1970s, approximately, and they have a fixed monthly long-term care dollar benefit that pays for long-term care expenses to a nursing home on an insurance behalf. Unfortunately, there are two Achilles heels associated with the traditional long-term care policy.

Mary Jo:

And what are those?

Ron:

They are, number one, if you died before the policy ever paid out a penny for long-term care benefits, everything you’ve paid in is actually lost. So that rendered the policy as if it were almost like an automobile policy. Now you pay and pay and if you don’t use the coverage, you’ll lose it. It’s a sunk cost.

Mary Jo:

I know that really bothers people. So, that’s something we should think about.

Ron:

Yeah. Yeah. The second point in the Achilles heel of traditional long-term care, also, is there’s no way to guarantee the premiums you’re paying now will be the same 10 years from now, and the costs have been skyrocketing and many people are forced to actually surrender their policies without even using them. So, this is a dilemma.

Mary Jo:

Knock on wood. We were talking before the show and I’m not seeing any premium increases in my own policy. I certainly know that it is not the norm. I’ve had mine in place for about 10 years now. And luckily, the premiums have stayed steady, but that is certainly not usual in today’s marketplace.

Ron:

Yeah, you are quite blessed my friend.

Mary Jo:

And I’m knocking on wood!

Ron:

Actually, there used to be hundreds of long-term care carriers, traditional long-term care carriers, in the market. There are only a handful now. You happen to have one of those handful of carriers. So, you’re very blessed.

Mary Jo:

Let’s just hope it stays that way.

Ron:

Yes. But you’re going to realize some increases for sure. As the need for other long-term care settings have expanded through the years, like these two Achilles heels, the insurance industry has kind of risen to the occasion and they’ve come up with more robust policies. So due to the constraints of the traditional long-term care insurance sales, that was even more imperative for them to come up with policies that would take care of these two deficits, the rising premiums and use it or lose it. And the way they’ve done that is they’ve creatively linked it to a life insurance policy.

Mary Jo:

Oh, that’s interesting.

Ron:

Yeah. So this way, if you die before you use your long-term care benefits, there’s a death benefit to the family.

Mary Jo:

There’s always some benefit no matter what happens, and you’re not losing all the money that you’ve paid in. So I can certainly see how that writer makes it more user-friendly. That’s especially true for those individuals that hate paying for something that they may never use, yet those same people will buy car insurance. They buy homeowner’s insurance in case their house ever catches on fire, and hopefully they’ll never use that either. Long-term care is really not that much different.

Ron:

Exactly. By the way, we call this second type of long-term care life insurance with a long-term care rider, by the way, for the listening audience out there, a rider is a contractual benefit that’s added to a base policy. In this case, the base policy acts like a life insurance plan and the rider is added to it. Think of it like buying an entree and adding a side to your meal. So just to keep in mind if the policy holder needed long-term care benefits first, the base life insurance policy would in essence speed up or accelerate the death benefit portion of the policy and pay for the long-term care need. That’s why this policy is known as the life insurance with long-term care rider, but it’s also known as an accelerated death benefit rider. And it could be used for qualified, long-term care needs. While the second type of policy rectified the ‘use it or lose it” deficit and has premiums that will not increase, its weakness is that if the person needs the long-term care benefits first, those benefits would eat up the death benefit. Depending upon the policy contract, there could be also a ceiling of money to pay for long-term care expenses, and if the dollar amount of these benefits were used up on long-term expenses, there would be no benefit left for the surviving.

Mary Jo:

I look at it as a bucket of money that can be used for either or, but not both. Or if you don’t use it at all for one, then you can use the remainder for the other.

Ron:

Absolutely. And that’s what led to the third type of long-term policy. And that’s known as a hybrid policy. While a hybrid is also constructed on a whole life insurance platform, what we call it in the business, the whole life chassis, it behaves very differently though. This policy emphasizes the longterm care aspect as the primary function and the death benefit as a secondary. As a result, the longer the person lives without triggering a long-term care event, the cash value that’s in the policy accumulates and actually can go towards even a larger long-term care benefit. It accumulates. It’s important to note this product typically has a five to seven year duration of benefits, and both long-term care and death benefit can be robust depending upon the policy. Oh, by the way, which brings to remembrance. There’s one carrier out there that will actually write a lifetime long-term care coverage benefit. That’s incredible. We said earlier that three to five years is your average long-term care benefit need, but with Alzheimer’s or cognitive disease, it’s five to seven, but because people are living longer, this very unique product can be very, very desirable for someone who knows they have Alzheimer’s in their family.

Mary Jo:

So you’re going to have to determine whether or not your primary need is life insurance or your primary need is long-term care. Is that right?

Ron:

Exactly. So when people come to me, I counsel them and I ask them, what’s your focus? What do you really want?

Mary Jo:

What are you going to solve for first?

Ron:

Exactly. So if they’re really looking for life insurance, but also have that longterm care as an after thought or a possibility, then we want to look at the many policies that are on the market for the life insurance with a long-term care rider. But if they have cognitive issues, disease, Alzheimer’s dementia in the family, they know this. Then we want to look at something that has a five to seven year or even beyond that and look at the hybrid.

Mary Jo:

Well, that makes sense, Ron. Would it be a fair assumption that the traditional long-term care policy is the least expensive compared to the life insurance policy with the long-term care rider or even the hybrid type of policy that you mentioned?

Ron:

Oh, most definitely. Absolutely. You get what you pay for. The life insurance with long-term care and the hybrid have so many more bells and whistles in the policy and you actually pay for that.

Mary Jo:

What are the most important we should keep in mind when considering a longterm care policy?

Ron:

Great question, Mary Jo. There are some key components that are common to all long-term care insurance, regardless of which of the three types of policies that you purchase. There are four main factors to be considered. Number one, the duration of the benefits and how long they will last for, the amount of monthly or daily benefit that will be paid out for the long-term care benefits itself, and remember that there’s a waiting period or what we call an elimination period. And then you have to weigh whether you want a reimbursement type plan or an indemnity payout plan.

Mary Jo:

Ron, that’s a lot to consider. Can you talk through that in layman’s terms for our listeners?

Ron:

Yeah. Again, the duration is just like a term policy. You can get a 10 year policy, a 20 year policy, or a 30 year policy. That’s the duration of the actual long-term care benefit. Of course, as I said before, the amount of the daily payout or monthly payout is what will be paid out. We said earlier that typically it costs $225 a day for a semi-private room or $6,750 a month for longterm care. You’d want to build that into the amount that you would need. The waiting period is how long you have to wait before the long-term care benefits kick in or there’s a triggering event. And that’s typically 0, 30, 60 or 90 days of waiting, which you would have to fund before the policy starts paying. And finally, I mentioned the reimbursement care versus the indemnity, the reimbursement long-term care insurance policies pay benefits based upon the actual expenses you incur, the indemnity plan pays a monthly cash benefit regardless of the expense incurred. So, there could be some cash left over after you’ve paid the nursing home or the facility that you’re at and that cash could actually be used for other areas.

Mary Jo:

I have a question. Who do they typically pay the benefits to?

Ron:

Well, it all depends. The indemnity plan will pay the cash to you and then you have to pay the provider or the nursing home. Whereas the reimbursement can go either way, but typically you sign, or your caregiver signs, the permission for the insurance company to pay the reimbursement direct to the facility.

Mary Jo:

You mentioned the waiting period. Is 90 days the standard?

Ron:

Not so much the standard, Mary Jo, but typically 60 to 90 days is the most popular waiting periods that I see and that we work with.

Mary Jo:

What are the things that actually trigger the benefits of those payments? How do you qualify for them?

Ron:

Yeah. The government has identified six activities of daily living. We call those ADL’s. The six ADL’s include bathing, dressing, eating, toileting, transferring, and continence. So in order for the benefits to start being paid, at least two of those have to be triggering events.

Mary Jo:

In other words, they can’t do those things by themselves and they need assistance. Most of the time they need cues. They forget how to bathe. They can’t dress themselves. A lot of times they can’t feed themselves. Incontinence becomes an issue. They often need help transferring from the bed to a wheelchair and back and forth. Isn’t that right?

Ron:

Yes, exactly. And it’s important to know also that severe Alzheimer’s or dementia or even Parkinson’s can also trigger long-term care benefits as well.

Mary Jo:

What about the families that really want to be able to provide care in their home? Are home health care benefits important?

Ron:

Oh, absolutely. And great point that you brought that up. In fact, statistics show that 50% of all long-term care claimants prefer this setting, actually. This feature is typically included in the base policy of all three types of long-term care we’ve already discussed.

Mary Jo:

We’ve covered a lot today, but it’s a complex topic. I think there are a few more key things that are really important when it comes to long-term care policy.

Ron:

Absolutely. As I said before, there are lots of options or what we call riders that are available to add to base policies. And it’s important that the listening audience understands that the ones I’m going to mention are probably the most important, but there are several more that we don’t have time for. The first one is called a waiver of premium rider. That’s a very, very important consideration. When you go on long-term care benefits, the waiver of premium rider would actually cancel the payment of premiums. So if you’re paying monthly, you wouldn’t have to pay anymore. That’s a very, very important rider.

Mary Jo:

I could see how that would be beneficial for the owner of the policy. It does make sense.

Ron:

Absolutely. The last thing you want to be doing as you’re dealing with this emotionally and you want to be paying an insurance company. You may have been paying for so many years already. So that’s a pretty important one. Another important one is the inflation rider, critical to the long-term care policy because we know that the inflation and the cost of long-term care is increasing astronomically. So typically, an insurance policy will offer a 3% or a 5% compounding annual inflation protection. And that keeps adding every year to the amount of insurance that you have. It’s kind of like a piggy bank in a sense.

Mary Jo:

When we do financial planning for clients, we typically look at inflation at about 2.5%, But when it comes to healthcare costs, we may inflate that 6-7% because they’re rising so much faster than any other expenses that we have.

Ron:

Yeah, absolutely. Yeah. We alluded to this earlier, Mary Jo, and we’ve talked about the nursing home versus the home itself. We call this flexible venues and caregivers. And we also know that sometimes there are very skilled people that are taking care of our loved ones – nurses. Sometimes, there are unskilled people. We want to make sure that the policy, that the rider that’s added to the policy, allows for payment to your choice, where you want to send your loved one – to a nursing home or do you want to take care of that person at home where they feel more comfortable.

Mary Jo:

You have formal and informal caregivers. If a family member wants to get certified to be a caregiver, there is a way for that to happen, then they can get paid for their services. Is that correct?

Ron:

Absolutely correct. And that’s where that indemnity type of plan would probably be more beneficial. The other important rider would be to make sure, or not so much a rider, but the pricing of the plan, do they give discounts for couples? And is there a couples pricing? So even though you can have a couple that both want to purchase a policy, there would be a discount, but you can have a married couple that gets a discount even though that one person is only buying the policy, because the fact that they’re married. The insurance company knows there’s a chance that that loved one would take care of that person.

Mary Jo:

Is there such a thing as a shared policy where it could cover one or the other?

Ron:

Absolutely. And that’s where we have the pooled money rider. It’s another important rider that needs to be looked at and considered. If one needs it and the other doesn’t, let’s say one passes away, that money can be doubled up for one person. Very important.

Mary Jo:

Is there a sweet spot in your lifetime for buying long-term care insurance?

Ron:

Great question. And the answer is yes. Research shows that the sweet spot or the best time to buy long-term care insurance is typically between the ages of 50 to 64. You may ask yourself, well, why is this well, think about it. The mortgage is typically paid off between this period. The kids are grown. They’re out of the house. Although though today, that can be a different story.

Mary Jo:

I hear they come back, but I think that’s a topic for another podcast.

Ron:

Retirement assets have typically been built up. They’ve accumulated during this time span. And also life insurance policies are either paid up or if someone purchased a 24 or 30 year term policy, they typically end at this point. So this makes it the most opportune time to buy long-term care. However, if you know there are some genetics in your families that are not good, it would make sense to buy this before the fifth year period.

Mary Jo:

So paying for long-term care, it’s pretty expensive, but there’s some creative ways that you can cover the purchase of long-term care. Can you run through some of those for us?

Ron:

Oh, absolutely. Great question. There are so many different types of policies on the market now. And depending upon the type that you aspire to, you want to purchase, you can use cash savings. You can use required minimum distributions. If you’re over 70 and a half, and you’re getting these from your IRA or 401k, they could be designated to pay for long-term care or a portion of it. Also, you may have cash value life insurance that you paid for all your life. You can actually do a 1035 exchange. We would think of that as a rollover, but it’s called an exchange and you can actually move from one insurance company that you use for your life insurance and just exchange it over to a brand new plan with a long-term care annuity. You could also use an annuity to pay it in full, or you can use a stream of income from that annuity to cover the cost of longterm care premiums. So, there’s many ways to pay. You can even use an IRA, which is a qualified.

Mary Jo:

If you use money out of an IRA, you want to make sure that you talk with your tax advisor. And if it’s IRA money that’s funding the policy, that is money that has never been taxed, so the long-term care benefit becomes taxable income. Isn’t that correct, Ron?

Ron:

Absolutely correct. That would be very, very wise. And with the mixing of the life insurance and the investment in a plan, it can get a little complicated. So, you definitely want to work with your tax professional and your advisor on the tax ramifications.

Mary Jo:

How can they pay for long-term care premiums?

Ron:

Well, we would call that the mode of payment. You can pay monthly. You can pay quarterly, bi-annually, annually. You can pay in full with a lump sum. We can pay it at a number of set years. We call it a 10 year pay, a 20 year pay. So there’s lots of options out there.

Mary Jo:

And what about the tax deductibility of the premiums?

Ron:

I say this with a grain of salt. Typically, the long-term care benefit premium actually can be tax deductible. You may want to speak to the actual amount as a financial planner, but the benefits, of course, on any life insurance plan are tax-free when you take them out. Likewise, the longterm care.

Mary Jo:

In 2019, the IRS has changed that. They made a duct only the amount of the total unreimbursed, allowable medical care expenses for the year that exceed 10% of their adjusted gross income. For example, if your adjusted gross income is $100,000, your total medical expenses may have to be over $10,000. So this is another good reason to consult your tax advisors.

Ron:

Absolutely.

Mary Jo:

We’ve covered a lot today. Thanks again for joining us, Ron. If you have questions, give us a call at Christian Financial Advisors or you can find more resources on our podcast website christianfinancialpodcast.com. Assessing the need for long-term care insurance is an important part of the financial planning process. The tremendous economic impact of paying for such care should be measured against available resources. Some families are equipped to pay for this, and some aren’t. If you need care, what effect will this have on your estate, your legacy goals, and what you want to leave to the next generation. Also, consider whether to purchase long-term care insurance either privately or through an employer benefit if it’s available to you. You want to make sure that you’re making these decisions while you are still healthy. Once a disabling condition occurs, it’s too late to take action. One of the last things I want to leave you with is to remember that there is no perfect long-term care policy. It just doesn’t exist. It’s not a one size fits most situation. We always want to encourage you to talk to your licensed insurance agent, someone who is very knowledgeable in the long-term care area. Thanks for staying with us. We know we’ve covered a lot today, and we really value our listeners.

[DISCLOSURES]

Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor.