This is the Truth Network. Welcome to Finishing Well, brought to you by CardinalGuide.com with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.
Now, let's get started with Finishing Well.
Well, welcome to Finishing Well with Certified Financial Planner Hans Scheil. And today's show, Federal Regulation of Long-Term Care Insurance. Doesn't sound like a lot of fun, but I can assure you that, oh my goodness, what I've learned by understanding some of these things. And also, There's just a lot of truth here that I think you can apply to a lot of other things in life. And so, as we get into this idea of the regulations of long-term care insurance, obviously there must have been a problem before they put regulations in there.
I love what Psalm 10, I really, really do love what Psalm 119, 160 says. It says, Thy word is true from the beginning, and every one of thy righteous judgments endure forever. And the idea of that in Hebraic thought as well as in their words, that truth is the truth from the very beginning, it's the truth at the middle, and when we get to the end of the story, it will still be the truth. And so it's really helpful sometimes when people are. In this day and age, misinformation via the internet and social media is just crazy.
And so to get at the truth and to get at history is really a valuable thing like God's Word. And so I know that based on Hans's experience with this, federal regulations, why it happened, why that might be important to you, and more importantly, from my standpoint, how to make sure that you take care of your family, you know, as it certainly says in 1 Timothy 5, 8, but if anyone doesn't provide for his relatives and especially for members of his household, he's denied the faith, right? And we don't want that.
So with that, Hans.
Okay, so today We're we're setting up the history Of long-term care insurance in both the state and federal regulations. of this stuff Yeah. You know, on the one hand, you could say, well, what are we going over all this history for? Because what I'm really concerned about. is 2025, 2026.
2027 And really, if you're looking at this insurance now and you're 60, 65 years old. you're most concerned about like twenty forty. when you're actually using this stuff, is it going to pay off? Is it going to be something I'm going to regret buying, or is it going to be something that I'm glad I purchased?
So, but what we're doing today is we're going back into the 1980s, the 1990s, the 2000s. And bring it all up to present of kind of like how we got here with long-term care. And one of the main reasons we're doing this He has People bring up, if you haven't already brought it up or you've done your research on the Internet. And you found out long-term care insurance is expensive. I mean, there's all kinds of people that'll tell you it costs way too much to buy it.
They're going to tell you that once you file a claim when you're old and You know, frail, and you end up filing a claim, the insurance company is going to turn you down. because you don't meet their complicated criteria. Um And then, after we get through all of that, you're going to really say, well, it's just really not a good buy anyhow. I've got enough money on my own. I'll just pay for it myself.
Yeah. To a degree, that's what we're up against. Um uh in the business because What I personally, I've been through this. whole history Um Let's just say 50 years. Of the development of this product, and I still own it myself for the current policy that I own.
I bought in 2012. When I was in my early 50s, my wife and I were both in our early 50s. And I paid for it over ten years, so it's It's paid up and taken care of now. Yeah. Um I thank God for these laws because Uh the the laws themselves or make up the policy.
I have a lot of confidence in the policy that I purchased myself. And I'm going to be using it when at a time when when I'm not really in the same position that I'm in right now. To advocate for myself.
So let's kind of dig in. In the long-term care first came out in the 70s. Uh but really in the early 80s. is when the policies be came out from several companies. And there was no real guidance.
to the insurance companies of writing Of the policy.
So, of course, they wrote these. They wanted to make sure that people couldn't just say, now I'm old. I'm moving to an old folks home. Um that has shuffle board and golf and Few other things, and you know, it's very expensive, and I want this long-term care insurance to pay for it. The long-term care companies, the insurance companies, were concerned.
that you're going to have consumers buying these policies and think they can just go to a retirement home. and start collecting. And so they put very strict definitions in like this is the point you need to cross Before we're going to pay a claim. And they had things in there like. You have to go to the hospital first and stay there for three or more days.
and then go to the nursing home. With home health care, it was very strict.
So, and they were all over the place. Different companies had different rules, and so. Um it was problematic, let's just put it at the least that people would buy the insurance. Pay for the insurance. Um and then they'd get sick.
and the insurance companies uh would deny their claim.
Okay. That's what people are writing about in the internet. And that went on all through the eighties.
Okay. I even told a story on the video. that I was representing this Particular company at the time, and I was a young executive with them. And one of the people were coming down and they were bragging, they'd been selling policies for two years. and they only had one claim.
Yeah. You know, how does that grab you, Raleigh? Yeah. Mm. Yeah, I mean obviously they've been collecting millions and millions of dollars and they're thinking they've had one claim in two years, but You know, obviously, the people were buying that met all the criteria, they were in good health, but things would change, right?
Well, yeah.
So, yeah, all the people who were buying it were still young for this stuff, and people don't use it right away, and the insurance company. To their defense, they were reserving money because these people are going to age, and then at some point, the claims are going to come in like a flood. Anyhow.
So that long-term care insurance really got a bad name starting in the beginning in the 80s. in the 90s. And then The insurance Departments, because you've got to remember insurance is regulated by the states, not the federal government.
So in North Carolina, you got certain rules, in Tennessee, you got other rules, New York.
So it is complicated when all these states passed laws to regulate long-term care insurance companies. And then Each individual state kind of has their own agenda, so you got different criteria that you need to meet if you're the insurance company in every state.
So you have this thing called the NAIC, the National Association. of insurance commissioners. And what they do is they put out Guidelines And they put out this long-term care model act. It came out in 1997. Yeah.
It was just the NAIC, the National Association of Insurance Commissioners, just said, this is what we'd like you to adopt. in every state.
Okay, and for the most part. All fifty states adopted The NAIC Model Act.
So That was a good thing. And they didn't all adopt it in identical fashion.
So you still have long-term care. is a little bit different in every state. But for the most part it's it's pretty much the same.
Okay, and this covered a lot of ground. We're not going to go over that today. But at the same time, The IRS which is federal. was doing this they needed to rule whether this long term care insurance qualified Under income taxes. In other words, if you get payments out of a long-term care policy.
of like six thousand a month to pay the nursing home bill. Is that taxable? Or is that tax-free? And so the IRS until 1997, had not even ruled on that.
Okay, so we were selling long-term care deposits. that now they're uncertain whether they're going to pay. And then furthermore, is when they do pay. there was some uncertainty of whether the IRS was going to consider that taxable income.
So It was pretty. Pretty uncertain, I guess is a way to put it. And so they passed. IRS Regulation seventy seven zero two B And I mean, you can look it up right on IRC 7702B. You can Google that.
and this whole regulation will come up, which is not really that interesting to read. I'm going to tell you the highlights of it. Um But You know, what it essentially did is it said. Yes. This is what a tax-qualified long-term care insurance policy is.
So, in other words, in order to have the benefits paid out. to the consumer Which is you. Tax-free. You have to meet these criteria. The policy needs to meet these criteria.
And so and it just had two things in there. Um that you either need help with two of the six activities of daily living. or you have severe cognitive impairment. And so The two to six activities of daily two of six activities of daily living are eating, toileting, transferring, bathing, dressing and continents.
So You know, we can get in in the second half of the show. How We help people file claims. And couch this in a certain way that they meet these criteria.
So we'll talk a little bit in the back of the show, but it's right in the law. That These six things, you need to have s have help with two of them. Damn. And it's importantly, or you need to have severe cognitive impairment. validated by a doctor.
So you meet either one. The policy pays. and then the benefits you get out of it are tax-free. Yeah, I I think that's absolutely a critical understanding. um that happened then So You know, everything else was ancient history on the way that they may have handled claims in the old days.
But now it's pretty simple. I know, because I have one of these policies that include those. You know, like you say, it's not too hard to prove that, and I went through this with both my mother-in-law and my father. When they got to that point, I mean, they simply could not dress themselves and certainly could not bathe. Aren't those usually the two.
Yeah, those are the two. Those are our two favorite out of the six.
Okay. And I just, it's kind of weird to have favorites, but when you're in the long-term care business, you help people with claims. And it's just cut and dried. You either need help getting dressed. Or you can do it by yourself.
Yeah, and this would be a good place to remind you that this show is brought to you by Cardinal Guide, CardinalGuide.com. And if you go there, you're going to see these menu tabs that are the seven worries we talk about every week. Today would be long-term care. And so if you go to the long-term care, you know, tab there, you're going to see a wonderful video with this exact same title. With show notes showing you these laws and the insurance regulations and a board to go with all that.
And it's all there at cardinalguide.com, as well as Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement. And of course, to contact Hans and Tom Page for your questions about long-term care insurance.
So we'll be right back. with more federal regulation of long-term care insurance. Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM. a registered investment advisor. BCM and Cardinal Advisors are independent of each other.
Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.
Well, welcome back to Finishing Well with Certified Financial Planner Hans Schil. And today's show is a federal regulation of long-term Care insurance, which, you know, I got to be honest, Hans, as I watched the video on this and prepared for the show, you know, I was really proud of the government. I was and the Insurance Commission. Like they st they stepped in here, really helped the insurance companies out to some extent, but certainly helped out the consumers and really, in my mind, did a banner job of protecting both the people and the insurance companies from themselves.
So There's a dance that's been going on for a hundred years. between the state regulators the insurance commissioners. of the individual states. and then the federal government. Yeah.
you know, it's been since the 1930s. that it's been very clear that insurance is regulated by the states. by the State Insurance Commissioner. in all fifty states.
So The federal government Would probably like to regulate insurance. They'd like to skip right over these state people. And just make it all the same for everybody in the country. But they can't do that.
So But I guess they could if they got real serious about it.
So with the states. Hebdan. and this is going way back, is they formed this thing called the NAIC, the National Association of Insurance Commissioners. Yeah. The real heart of the NAIC is to keep the feds out of their business.
Okay, it just. That's my thinking. Yeah, is to promote uniformity. And to make all this, to make it make all sense and to keep all fifty states. on somewhat of the same path.
So now as we relate this to long term care insurance, It wasn't like all of a sudden in 1997, that the feds came out with something And then the NAIC came out with something that was pretty similar.
So obviously They were working on this for several years.
So let's just say during the 1980s, all the problems were created. by the insurance companies just coming out with the policies. in an unregulated fashion. or a poorly regulated fashion would be a better word to put. And so they started working on this and working in tandem.
And so what happened in 1997 is you had the IRS which had been asked to Rule on long-term care insurance. It's just say: are the benefits that come out of the policy tax-free? Or are they taxable? And then, under what conditions? And then the NAIC said: well, if you're going to rule on this.
Why don't you just put right into the law? the two of six activities of daily living as a criteria for payment. And as long as you meet that criteria, then the benefits are tax-free. That's kind of an over. simplification but These two things went in force at once.
And then of course the insurance companies had to redo all the policies, but they were all ready. And so we were selling new insurance in 1998. And ever since. That qualified under the IRS as tax qualified. long-term care insurance.
And then it met the minimum standards of the NAIC Model Act, which is to use the two of six activities of daily living. And or severe cognitive impairment. And then it had a few other things. It said it has to have inflation as an option. They're going to regulate how you can raise the price on this stuff.
Replacement and suitability rules. They had a bunch of stuff for us agents. A whole bunch of guidelines. put forth across the country But it just really with the intent of just cleaning up long-term care insurance. And so What I want to point out is that the insurance companies even though their policies have been called bad, From the old days, they weren't charging enough for these bad policies, if you want to call them bad.
is They They just priced them a certain way and They weren't collecting enough. Yeah. You know, I could get into why that is and how it happened, but it doesn't really matter.
So, along about the same time as you had these new regulations. these insurance companies needed to significantly increase The premiums on all the o enforced policies. And that's part of the bad press and I don't want to get about defending that. But the newer policies are much more expensive. Than the old policies will.
And I don't really foresee rate increases on the newer policies. like we had on the old ones but In any case, that was the late 90s. And th things are trucking along. And I'm going to tell you about another watershed. that came about.
is the Pension Protection Act. They put in Attach because that bill was really about protecting people's pensions. And reserving properly and all that kind of stuff. But it was kind of an add-on about long-term care insurance. And it just said that You can now put a rider on a life or annuity policy.
so that the consumer, which is you, could access the death benefit early while you're still alive to pay for long-term care. And then it goes back to that IRC code of 1997. is you're not going to have to pay income taxes. on the money you're pulling out of this lifer annuity policy. to pay for long-term care.
And that's what really invented the modern day long-term care insurance hybrids that you've heard us talk about So much on On the show and on our videos. I love the way you put it in the video. was that now with these higher premiums, And people were investing so much in these products that they wanted some equity. You know, something right. And so it's kind of interesting in God's timing that.
you know, from the end of the nineties till two thousand six, it wasn't didn't take long. Before You know, the government slash, you know, the insurance companies came with a Or or or life insurance companies, however it is, that came with a a plan that would make These new policies just wonderful because you get the idea of equity and y you have the care uh in case you never need it, you have the equity. Yeah. Or if you wanted to cash it in. I mean, it's just like a On the old long-term care policies or the traditional long-term care policies now, effectively you have no equity.
I mean, it's like any other insurance. You're paying a premium. It's guaranteed renewable. And then if you File a claim, you're going to be really glad you had it. But if you die without ever filing a claim, Yeah.
Um, you know, you're just you're out of luck. I mean, you're you're you know you've passed away, but you've gotten no benefit out of it. You had no equity in it. And so all of a sudden these life long term care policies and annuity long term care policy. You don't talk about more expensive.
I mean, you're putting a lump of money, like $100,000, $200,000, $300,000 in there. And of course You want some equity in this thing that in case you change your mind and you want your money back, you're going to get some or all of it back. or in case you pass away and never use it, you're going to want somebody or your estate to get something out of it.
So that was a driving force behind Behind the passing of this law, but it was very necessary to get the law to state that you can pull the money out of there. and not pay taxes on it.
So, the law or the Pension Protection Act actually created. Another very Strong Text. Uh strategy. For people that want to buy long-term care insurance. changed over to my current policy in 2012.
Um So I guess it took him about six years to come out with the particular policy, or at least it took me making it. That's when I made the change. And so I bought one of these life and you know, it's it's a life long-term care policy. I paid about $130,000 for it. Over 10 years.
paid a premium of a little over a thousand a month for 10 years Um which was Pretty painful, but it Um it now has a cash value of About 130,000. Um And it has a death benefit of about 300,000. It covers my wife and my son, me.
So if we both die... Without using it, our children are going to get 300 grand. And if we use it. it could potentially pay out in the millions or over a million so for long-term care So it's a pretty good proposition. It's an expensive proposition.
Um all made possible by all these laws and regulations and all that kind of stuff.
So I'm I'm really just trying to outline The history behind this and give people a sense of my grasp of it. Yeah. you know, where I want to shift to is This is something you need to protect yourself against. I mean, I'm just going to say that, and as if you've. Cast it off.
If you've read all the stuff, which is probably true or part true, about how bad this stuff is, if whatever. You don't have any long-term care insurance. and you don't really have a plan for what's going to happen. I don't really care how much money you have. If you have a lot of money, Uh and you could afford to pay for it yourself.
That that's not real pretty when that happens. I mean, you have your own story, Robbie. Oh, yeah, absolutely. About your father and getting him to part with some of his money for his own care. Um You know, we got lots of stories on this.
I just beg you to. reconsider this is to open yourself up to maybe taking a second look. And if your health or your age as you think, well, I'm too late for this stuff. You know, what I'm going to tell you is no, you're not. You know, unless you're up in your 80s already, well, then it may be a little difficult.
We can still plan. But if you're 80 or under, We still have options for you. Yeah, and also you have options if you don't have that $300,000, which I didn't. Um You know, still there's things that that can be done. That these things still make a huge deal in my life, you know, even though I couldn't afford the $300,000 and that kind of thing.
You know, the plan I do have still, you know, very much is connected to these six activities of daily living and very much will meet the need for my family to the extent that I can afford it. And so, you know, whatever your income level is or whatever your health level is, there's still options. And that's the reason why I want to remind you that this show is brought to you by Cardinal Guide. And if you go to cardinalguy.com, yes, you have the seven worries tabs, and yes, there's long-term care, and there's a wonderful video about it. But there's certainly the Hontact Hans and Tom page and it's amazing.
You give them your situation, whatever that may be, health-wise, financially, and they're going to try to help you with this because they consider this one of the major things of finishing well, which is the whole idea of the show. And also, the reason that Hans wrote his book, The Complete Cardinal Guide to Planning for and Living in Retirement. And there's lots about long-term care in there as well. Great show, Hans. Thank you, and God bless you.
The opinions expressed by Hans Scheil 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. Any statements or opinions are subject to change without notice. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results.
Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing Well is designed to provide accurate and authoritative information with regard to the subject covered.
Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.
We hope you enjoyed Finishing Well, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Han's best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and the Workbook. Once again, for dozens of free resources, past shows, or to get Han's book, go to CardinalGuide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Well radio show on the website and send us a word. Once again, that's CardinalGuide.com.
CardinalGuide.com.
