Long Term Care Life Insurance Hybrid

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Christmasairlift.com in just a few seconds. Enjoy it, share it, but most of all, thank you for listening and for choosing the Truth Podcast Network. Today on Finishing Well with Certified Financial Planner Hans Scheil, we're talking long-term care, life insurance, hybrid. And so maybe you've heard that word, hybrid. And I was thinking about it from a biblical standpoint that it's really, really cool. You may know that it says faith comes by hearing and hearing by the word of God. That's in the book of Hebrews. And so when it comes to that word, we've got an idea of hybrids here in Hebrews 4, verse 12.

It says, the word of God is quick and powerful and sharper than any two-edged sword, piercing even to the dividing asunder of soul and spirit and joints and marrow, and it is a discerner of the thoughts and intents of the heart. And so the idea of that is telling you that you've got some hybrids. There's a hybrid of your soul and your spirit. I don't know if you ever thought about that, but the word of God can get in there and help you see both sides of that.

There's a hybrid of your joints and your marrow that's actually in your bones. And then it's a discerner of the thoughts and the intents of your heart. And quite often, we can't tell where our intentions end and our thoughts begin or our thoughts begin on our intentions.

And so, you know, all those are really concerning, but the great news is by spending time in the word of God, like, oh, my goodness, God reveals that stuff in your heart is what it's saying. It takes the hybrids and kind of gives you back the pieces so you can see what's involved in that. And so very cool today is we're thinking about, wow, there's a lot of ways that we can figure out how to make sure that we're cared for well in our old age, so to speak, and our children aren't left with that burden. But by the same token, if we never use it, you know, how could we end up giving them the benefit of that as well? And that leads us to this whole idea of the long-term care life insurance hybrid, right, Hans?

Well, yeah. I mean, this is a little complicated to explain. And I try to do that in my videos and on the show, and I try to explain insurance and explain investments and explain putting them together in this hybrid life insurance long-term care.

And I try to do it in somewhat of a simple way. So we always start with the word hybrid, which is the putting together the marriage of two things, or mixing them together and coming out with one thing that is better than the two things apart, okay, or has advantages of both sides. The case of today, this is a life insurance policy at its core, okay, and it's a life insurance has had tax advantages to it for since its inception, or since the inception of the tax code is there's several inherent tax benefits. And then long-term care insurance hasn't been around for as many years as life insurance, it's really about 40 years old, but it enjoys some tax advantages as well, all by itself, a long-term care insurance policy. And when you put these two things together, which was made possible by the Pension Protection Act in 2007, so it was really created by the government in the sense of it created the tax advantages of this is where you can take a lump of money, put it in as a single premium into a life insurance policy. And then it will pay a much larger death benefit than the amount you put in.

And then you say, well, that's no big deal, that's been around forever. Well, then when the long-term care player comes in, or the hybrid, the long-term care piece comes in, is if you need long-term care while you're still alive before you die, and you need it, you can access the death benefit of the policy month by month, and use it up in that fashion. So, nothing really special about that, other than the fact that you now have long-term care insurance that you're paying for, that if you don't ever use it for long-term care, it just returns the money through life insurance to your heirs.

It returns more than the money. And then, so it's a life insurance long-term care hybrid. I mean, that's about as simple as I can make it.

Is that clear? Yeah, it really is, because it has the benefit of the best of both worlds, right? The idea that, wow, if something does happen to me, I end up with dementia or something, that I'm going to have this care and not burden my children, or be without care, that'd be even worse. Or, if I never need it, then, wow, the money doesn't get used, and it's there for my estate.

And away you go with that. And then there's the idea of the hybrid having tax advantages on both sides, right? Well, yeah, because before the Pension Protection Act, if you were accessing this death benefit early, through the use of long-term care, you would have had to pay taxes on the long-term care benefit that you were pulling out of the policy while you were still alive. So you're, in effect, the beneficiary of your own life insurance policy. And that used to be a taxable event, but they changed that. So you can take any life insurance policy, if it allows you to take an early payment that you use for long-term care, or to pay for expenses for a chronic illness, that's not taxable. And that's due to the Pension Protection Act, so they thought about this 15 years ago, in 2007. And that fostered the creation of these type policies.

But there's more, it gets better. Because, like in the example we have in the YouTube video, we put in $200,000 of IRA money, right up front, that's all we're ever going to pay into this policy. And we're using IRA money.

And we're not paying taxes all at once, because we're just doing a rollover. We're just taking it from the IRA or the 401k that it's in, and rolling it over to an IRA at the insurance company. And then that amount of money, or that transfer, buys us a $230,000 life insurance policy. So it's not a big, huge life insurance policy, but it's more than you put in. And then the $230,000 is available to the tune of almost $7,000 a month, $6,917 a month. So it's almost $7,000 a month, and that's 33 months of care. If you take $6,917 times 33, it equals $230,000. So you've just used up what is really your own money for 33 months.

And so people just look at that at its basis, and you say, well, that's not very good. I mean, it's just I got a little more out of this. And I had to get going to a nursing home, or I had to use home health care to get it. Yeah, but where it gets better is with this particular company, the One America that we're showing you, it has a lifetime continuation of benefits.

So once you use up all the life insurance, then it just kicks in and starts paying $6,917 a month for care for the rest of your life, no matter how long that is. And when I watch the video, am I right, this is for both you and your spouse? Yeah, this covers two people.

Right. That's a whole lot of coverage when you think about it. It's not just you, but it's actually both of you at the same time for that same $200,000?

It's just fabulous. And how we get the money out of the IRA is it takes a little bit out every year and moves it out of the IRA that's at the insurance company that you haven't paid tax yet. And it takes $24,000 a year out for 10 years. And so it spreads the taxation over 10 years. And just little by little, the money moves over into the life insurance policy. And then after 10 years, the IRA is empty. You've paid tax on the money. This also counts as minimum distributions if you get into the years where those are required.

And then you're done paying. Okay. And we're covering two people. In this example, I believe the man was 61 and the woman was 60.

And I just used the example that the company came up and we got show notes on the YouTube video so you can actually download those and read the official stuff coming from the company. So as far as the life insurance policy, the way it works is there aren't going to be two $200,000 life insured, $230,000 life insurance, but the last person to pass away, then the money goes to the heirs, right? Correct.

Correct. And a lot of people that can afford this, most of their money that they have in their 60s is still in an IRA to be taxed at some point. And most people don't have $200,000 laying around of money they've already paid tax on.

Some people do. And then this thing actually works better if you just use money you already paid tax on. But this company has a way that we can do a rollover from your IRA into an IRA there, and then they can piecemeal it over 10 years into the life insurance policy, and then provide not only the $230,000 of life insurance at the second death, and that's assuming you didn't use it for long term care, because if you did use it for long term care and use it all up, there's going to be no death benefit.

Right. But you're going to be real glad you bought it if you're using it up in advance. And when that's expired, then you have a lifetime extension for both of you. So there's no upper limit on what this policy could pay out.

It's almost $84,000 a year, more like $83,000 or something, for each of you. So you could both be collecting off of this thing at the same time. But who knows into the future, with the development of home health care and all the medical technology, lifespans are getting longer all the time. I mean, you could have people 20 years from now collecting off this thing for 20 years.

We got to go to a break. When we come back, Hans is going to share some amazing details of this idea, this hybrid, and you can find them all in his book, The Complete Cardinal Guide to Planning for and Living in Retirement. It's brought to you by Cardinal Guide, which is what this show is brought to you by. CardinalGuide.com, where you can get the show notes that go into all the details on this, as well as the video that Hans and Tom did showing a lot more details.

So stay tuned. We got a lot more coming up on Long Term Care, Life Insurance Hybrid. Welcome back to Finishing Well with Certified Financial Planner, Hans Scheil, and today's show, Long Term Care, Life Insurance Hybrid. And what a fantastic thing this is, and there are so many advantages to this particular plan, this particular company.

Hans, I'm sure people watching the video can see that as well, but share some of the other cool stuff. Yeah, I mean, this is one example of hybrid life insurance long term care, okay? And so we're going to be doing a lot of that over time, where we're going to be showing you specific examples. And this example, we do a lot with this product, simply because they let you pay a single premium with your IRA money or your 401k money. And is that a lot of people just hoard their money in their 401k and their IRA. When I say hoard it, I mean, they just they're in their 60s. And they're just letting it sit there till they have to take something out, which is age 72. And then it's just a little bit you got to take and so people just have a tendency to hoard their IRA money.

And when I really pin them down, and I asked them what it's for, and what would be a situation that they would take that out and pay taxes on it. And I really push them down on that a lot of people are gonna say, Well, I may never need I may need long term care. You know, I'm, if I had to go on a nursing home, or I had to get home health care, and then that money's there. Okay, so I'm gonna make a note of that, that, that that's about the only thing and then people say, Well, what happens if that doesn't happen? What if you what if you never need long term care? Well, then that money is there for my kids. Okay. I mean, that's just when we're gone, then that IRA money or that 401k money is whatever's left they can have.

And that's, you know, that's a whole nother show and a whole nother discussion. But if you're if you've got what amounts to excess IRA money, or that money is looked upon a little bit as excess, you don't need it immediately. Or you don't need all of it immediately. Then this is a this is a good product for you to take a look at where you can just take a piece of your IRA, it hasn't gone anywhere. You've just taken it from one pocket, which is where it is now, and put it in another pocket in an IRA at the insurance company. And then what it done is it's just set up over multiple years to pay for a long term care policy that's going to cover you for an unlimited period of time, not only cover you but your spouse as well.

So I had a question as I watched the video. My question was, since it's taken money out of your IRA and into the life insurance, and you're paying tax on it, right? Would that not count as your minimum distribution or at least towards your minimum distribution every year?

Oh, it definitely will. But most of the people buying these are under 72. So but but you can still buy these at 72.

I mean, this is this is actually a great product to buy in your low 70s. Because you've got this distribution every year for 10 years, that absolutely counts as your required minimum distribution or RMD. Right.

And by the same token, if you're before you're, you're, you're 60, or before you're 72, it's going to lower the balance in your IRA, which is going to make the minimum distribution lower at whatever point you got to do it right. Oh, yeah. Yeah, it serves multiple purposes here. And then what we're also doing is there's a lot of couples that come to us. One of them has a whole lot more 401k or IRA money than the other one does.

Okay. For multitude of reasons, but it just is. So what's interesting about this is we can take the larger IRA, take a piece of that, move it over, not pay taxes yet, and we're going to have to pay taxes over 10 years. But it allows a transfer now and then we're covering even though it's coming out of one IRA for one person. We're covering two people on the life long term care insurance is really cool. Yeah, it really is.

Cause that, you know, to think that, you know, some would happen where you both wouldn't would need it. And, and that's a large benefit, right? Almost $7,000 a month is. Well, yeah, 84,000 a year. And the fact that it's unlimited, you know, I've been in debates for years with people is how long of a benefit period should I buy when we're just buying traditional longterm care insurance, three years, four years, people will say, well, 80% of the people are all, um, they don't, they don't last longer than four years or three years.

And there's all kinds of statistics. And the first thing that I have is what about the 20%? I mean, so if you're telling me four years is long enough of a benefit period on your insurance, that 80% of the people are fine. That means I got an 80% chance of being fine. But what if I'm in the 20% and I'm sitting there, um, in a facility or I'm at home collecting this, and then now I say I'm out of benefits because I live too long. Um, and so with this insurance, you don't ever have to worry about that.

If you live a long time collecting benefits, it's just, it's an unlimited policy. Yeah, it's so amazing. The thing that you pointed out in the video that I absolutely loved where you went through the four different things that really highlight the plan, right?

Yeah. I mean, so it's number one, the premiums never increase on this thing. Everything that this thing is going to do is all baked right from the beginning, baked into it. There will never be a change in anything. Change in the interest rate, change in the premiums.

There's a whole bunch going on internally, moving your money around. Um, to create this thing, there will never be any changes in that. You're not going to get a letter at 80 years old that says, hey, we didn't charge you enough in the beginning.

Now we're going to charge you more. It can't happen. The other thing is the long-term care benefits can never decrease. So the benefits are the benefits, and everything's cooked from the beginning. So they can't send you a letter at 80 and say, we can't pay as much as we thought we could, so we're going to lower your benefit.

It can't happen. There's a cash value growth inside of the policy. So we'd have to run one for you individually, but the cash value gets larger every year on the policy, just like any other life insurance policy. And the death benefits, there are death benefits, or specifically $230,000 if you never use it, for long-term care. So if both you and your spouse buy this thing in this example, and then you both pass away without using it, there's $230,000 to go to your kids. But let's say that one of you uses it just for a short period of time, and then the other one uses it for a short period of time or not at all, and so maybe you've collected $60,000 out of the policy. Well, that'll just get deducted from the death benefit. And so there'll still be a benefit there for your kids if you just use this in a small amount. Well, in my mind, the way it works, I was just thinking there is a real ka-ching opportunity, too, not that you want this to happen.

But I mean, you really come out huge if you buy this thing. Let's say you buy it at $61,000 and you and your wife both are in an airplane crash. You know, six months later, then you've got a $230,000 life insurance policy, and oh, by the way, you've still got $200,000 in your IRA, too, right? So your heirs are going to get $400,000-some-odd dollars, right? Because the one is going down as the other one's increasing the whole time, right?

Oh, yeah. Yeah, and it's not quite those numbers that you did, for example, because the first $24,000 deduction in this example happens immediately as soon as they issue the policy. But fundamentally, you're correct that if you passed away soon after you buy this thing, both of you, there would be money in the IRA that would go to your kids, and there would be money from the life insurance that would go to your kids, and that would add up to more than that amount.

So it's very good. And as I was saying, this is the example that we're talking about today is using a hunk of IRA money, but this thing looks even sweeter if you purchase it for just out of money that you've already paid taxes on. You can also space that out over 10, 12 years, so that if maybe you said, well, I don't have $200,000 to pay right now, what would this be if I paid it for 10 years? If I paid, you know, probably $24,000 a year.

I mean, I don't know exactly, but we could figure it out for you exactly. So you can space the premiums out yourself over a number of years, maybe even a little longer than that. You can also buy this on one person. So if you're single, or your spouse is uninsurable, or just for whatever reason, you can buy this on one person. And it's going to cost you more than $100,000 to get similar benefits because there's some benefits for the insurance company of insuring two people. So it'll cost you a little more than that for the same benefits, but we've got all different versions of this, and we have several other companies that we sell it for as well. So that really highlights one of the issues that I think we need to be clear on for sure, is it by buying it with after-tax money, not your IRA, then you don't have to show the income every year, which if you do buy it with IRA money, which we still, it's going to work out really, really good for you in so many different ways, then you have to show that income every year, right? So by doing it with after-tax money, it's not going to affect your income at all.

Right. And then you can buy one of these policies that's not even made specifically for long-term care, where it's really made to be regular life insurance. And then it just has a long-term care benefit added to it. Like as an example, we could put a $500,000 policy of regular life insurance on somebody, which they're really buying to have their heirs paid $500,000 when they die. Then it just simply pays $10,000 a month for long-term care for 50 months. And so it's simpler to explain than this thing.

Right. So you can see there'd be a lot of reasons to contact Cardinal Guy Hans or Tom. You just go to Cardinal Guide. The show is brought to you today by cardinalguide.com. And of course, we've got way, way, way more to talk about, but that's where good counsel really comes in helpful. And that's why we want to remind you, go to cardinalguide.com, as well as Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. And again, great show Hans today. Thank you so much.

Thank you and God bless you. The opinions expressed by Hans Schile and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

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