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. Welcome to Finishing Well with Certified Financial Planner Hans Scheil. And today's show may sound a little bit dry, but it's actually wonderful in my opinion. It's tax qualified. Long-term care insurance, and part of that tax qualified, meaning that there's this.
IRS code, which is a 7702B. We're going to talk about that today. And by the end of the show, I bet you're going to like that word, 7702B. I know I do. And when I think about it, I think about a story in the Bible, you may be familiar with it, where King David was aware that Saul had a descendant that had been dropped at birth.
And because of that, he had a disability. And with a disability that you may not be seeing in your life, but when you have a disability, you're going to find that you're not going to be in a position to take care of yourself like Mefib. wasn't in a position to take care of herself. And so praise God that God put it on King David's heart to have him sit at his table for the rest of his life. But how amazing is it if we could do some planning so our family doesn't have to try to figure this out?
The reason I say this is it wasn't four months ago. I was in the hospital, and my kids were making decisions for me because I was out of it. I'd been in a horrible car accident. My back was severely injured. I was on all kinds of medications.
And this would be no time for me to be making decisions about my care. And fortunately. You know, from my standpoint, these are decisions that we can make ahead of time. And usually we think of the IRS as the bad guys. I'm telling you, I think when you hear this story that you're going to hear today, you're going to agree with me.
In this particular case, the IRS is there to protect the people. And it does so amazingly through this tax qualification for long-term care, Hans? Two. Yeah, so what the IRS was doing Okay. 'Cause they're really looking after themselves.
Because you got all these insurance policies out there. That insurance companies who they don't necessarily look up to the insurance companies as the good guys.
So there Making policies, printing policies, selling policies, collecting money. And They're going to pay out money Where the people get sick or they for long-term care. Yeah. The real question that the IRS was clearing up. Yes.
Are those benefits that come out of the long-term care policy Tax-free, or are they taxable?
So get the picture here. We're you know we're paying two three thousand dollars a year four five thousand dollars a year than premium per person.
So And we're going to do this for several years.
So that we can collect. Ten thousand a month. for several years when we're old and disabled.
Okay. It can't take care of ourselves. And so Picture this, the IRS was thinking Well So under what conditions are we going to tax the $10,000 a month?
So are we going to Take this person who's eighty-five years old. that's going to an assisted living Yeah. They're taking the $10,000 a month and they're paying the assisted living. to care for them And this is going to go on for five years. And we're going to tax them on the $120,000 a year they're collecting from the insurance company?
I don't think so. And that wouldn't have gone too far. But the IRS was charged with coming up Will something they called tax qualified. long-term care insurance.
Okay. So what makes A long-term care insurance policy Tax qualify. And so when you meet all these criteria Then We want tax. the ten thousand dollars a month. If you don't meet these criteria in your policy.
you insurance company and then your customer that buys it It's a non-tax qualified policy. And We're going to tax the benefits.
So, I mean that was the implication. They didn't say that, but it was. The implication, and this is in the late nineties. trying to right all the wrongs of the last Um century Yeah. the end of it where they can't long-term care policies that said all kinds of things.
And so What I'm getting at here is the IRS wrote the rules. for collecting off of a long-term care policy. and the insurance companies, if they wanted to stay in the business, Had to print these rules. exactly into their policy. They had to bake the rules and charge for them.
and then pay claims. based on these rules. And if you didn't do that, you weren't going to be in the long-term care insurance business.
So why are we talking about this today? Because it really matters. I mean, it's just it is. You can shop for long-term care insurance. You can do it all with me because I've got most of the companies.
And the expertise behind this of what kind of policy to buy But they're all tax qualified. Long-term care policy. And they all, the way you collect off them, is worded Exactly the same way. That makes sense? Yeah, and again, it's like the insurance companies quickly understood if I'm going to.
you know, be able to sell this to anybody They obviously are not going to be in a position to pay taxes on these benefits. And so I better word. My policy to meet that qualification But it's also extremely helpful then to understand that. And again, I'm not one of those people who wants to read that whole bill. To know, okay, this is going to lead to this giant question that I think is in everybody's mind if they consider this.
How do I collect on my long-term care insurance?
Okay. How is it that I'm able to qualified to get the benefits. Is based again on this idea of what they wrote into this 7702B, right?
So if you're sitting there and you've been listening to us for six minutes And you're wondering why in the world am I listening to all this stuff? You just came up with it now. I mean, it's just how am I going to collect off my long-term care funds? What are the rules? How do I go about doing it?
And then you're asking that question to me. And then what I will do. He says I will take you right now. to the 7702B. which is in every policy I set.
Okay. Right.
So It defines the IRS defined for us right in the code. What a chronically Yeah. Individual Yeah.
So And I can tell you right now four or five months ago whenever this action happened. And you were in the hospital. You are a chronically ill individual. You met this. Yeah.
And they didn't really write this for somebody in your situation. They wrote it for somebody. two years after your accident. And you're you're just you appear to be just fine right now.
So you are not a chronically ill individual. Right.
But if you really want to try to make a case to collect off your policy, You and I could have sat down. and filled out the form and written out bad you off you are right now. when we could have made a case, we probably wouldn't have won. But just trying to get the point is they've drawn the line.
So, what is a chronically ill individual?
Okay. And the insurance companies don't want people that are just fine. collecting off their policies, just trying to go after them for money. and the IRS made it easy for them. Because they wrote out A definition in a tax-qualified long-term care process.
So what is it? It's really just one sentence. It says unable. to perform Without substantial Persistence. at least two of the six activities of daily living.
Okay, and now it lists those six points. Eating Twilighting Transferring. Bathing. Dressing Cabinet.
Okay. So you got six there. And then it says for at least ninety days.
So it's one sentence.
So that's a chronically ill individual.
Now there's another criteria. It's coming up. It's an or criterion.
So let's just talk about this one for a minute.
So it's just in one sentence, that's in every tax qualified. long-term care policy.
So what they've said. Yes. You need uh I have to have help. with two of the six. And so, would you like to know what my two personal favorites are?
Absolutely. Yeah. When I learned this helping my mother claim on her policy. They are bathing Then dress him. And why do you think I like bathing and dressing?
over transferring toileting Eating and continuance. Yeah. Blender. I mean So they're going to give me a choice of all these. I mean, you gotta go to a doctor to prove that somebody's incontinent.
And then you gotta have somebody come help them.
So let's just talk about the two that are my personal favorites. And I used these with my mother. My mother had Alzheimer's. With dementia. Bathing Sh it was not safe for her to take a bath.
It just pyramid. When she was eighty. Seven, eighty eight, eighty nine. Or one. Should run the water too hot.
She'd fall over Um She was very just Toweling herself off was a problem. But added to the fact, people with dementia. They don't want to take a bed. If you ask them if they've already taken one, they lie. Oh yeah, they don't want to do it.
So it's very easy. with somebody that has dementia to just check they need human assistance, substantial assistance with baby. Jack.
Now What do you think about dressing? for somebody with dementia. Same thing. Same thing. I mean, they got to pick out their clothes.
My mother used to come with some of the strangest outfits and Stuff that didn't match. Exactly. Will this be a good time? To remind you that the show is brought to you by Cardinal Guide, CardinalGuide.com. And if you go to CardinalGuide.com, One of the seven worries right near the end is long-term care.
Which is what we're definitely talking about today. And if you go there, you're going to see. A video right along these same lines called the Tax Qualified Long-Term Care Insurance. It's got a beautiful board to give you all kinds of examples and numbers to look at, as well as some tremendous information on the whole idea of long-term care. All those resources there at CardinalGuide.com, as well as Kahn's book.
The Complete Cardinal Guide to Planning for and Living in Retirement. And of course my favorite, just to make it real easy. The contact Tons and Tom page because if there's one thing we talk about on here that I think. You know, God put in my life in order to protect me, protect my family. And I can certainly see it this year more than ever: that there are those times where you're just not going to be in a position to make these decisions, and this is.
Critical information, critical information. It's all there at cardinalguy.com. And we're going to be right back with a whole lot more of tax-qualified long-term care insurance. Investment advisory services offered through Brookstone 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 Scheil and today show tax qualified long-term care insurance and the tax code we're talking about is the IRS code 7702B. And I I'm so excited to understand, kind of, underneath, you know, why all these things, and we've talked about them many, many times, Hans. But now I can kind of see why it's so standardized and why it's so important that we understand these things so that we can navigate both making the decision on our policy purchases, but also you know, once we're in a position to file claims, you know, what all's involved? Yeah, and this just gets down to the wording. In a tax-qualified long-term care policy which covers all of them that I sell.
It's worded exactly the same because it was written by the IRS. In the first part of the show, we Went over the f because there's two qualifications and it's an or.
So you either meet the first one, Or you meet the second one. You don't have to meet both of them. And the first one was unable to perform without substantial assistance least two of the six activities of daily living. which are eating, toileting, transferring, bathing, dressing, Fire. and the need to do this for at least 90 days.
Or Number two is requiring Substantial supervision. to protect against Health and safety threats Due to a severe Cognitive impairment.
So that's pretty clear. Substantial supervision. to protect the person against threat. And so the simple question is you'd say, well, why didn't you use that with your mother? Why don't you just go to number two?
And I'll tell you why. Because if she needed supervision From twelve to one She needed it from one to two. Two to three. three to four. I mean in other words, to qualify under number two You gotta have somebody with you.
Twenty-four hours death.
Okay. The substantial supervision to protect against threats, it's not a Two hour or four hour or so. I was trying to get home healthcare approved for my mom. Because she wasn't so bad off that she Needed somebody watching her 24 hours a day, she just needed somebody to come in. Make sure she took her medicines.
Help her get dressed.
Okay. Help her take a bath. three or four days a week.
So we did it every day. Make sure she's been down to eat. Just to go through the checklist and anything else she needs help with. And I was just trying to get the insurance company. to send her a couple hundred bucks a day.
or open up a check book for that, and she was in an independent living.
So the home health care was right down the hall. And they build in fifteen minute increments, which is kinda cool. or 30 minute increments. Um So Just getting down, so so so we've got two criteria, you only need to meet one of them. Yeah.
for the people that have Alzheimer's, what I'm going to tell you or dementia is they're probably going to file a claim under number one. At home First. Before they file a claim under number two. And when they file a claim under number two, they're going to be checking into the memory care, which my mom ultimately did.
Okay. Right.
I mean that's That's Pretty much it. And then There was a few other things that we went over in the video. And really another one is the IRS code 101G. And again, you don't have to memorize all this stuff. It just legitimizes to me.
the products that we sell. Is The wording in the policy. The procedure for paying the claim, the criteria to pay a claim. was written by the IRS. And then the insurance company didn't really have a choice of whether they follow this stuff.
Because their policy has to be tax qualified to make it saleable.
So, this is just how the world works. And so, what the 101G comes in is. Uh let let's say I have somebody who's just completely opposed to long term care insurance. They're they're just they they ain't buying. I I could talk myself blue in the face.
But yet they're open to life insurance, and they need the life insurance maybe for some other reasons. And let's say I'm selling them a half a million dollar policy. Because if you're going to use 101G, and you want to provide substantial long-term care business. benefits, you really need to sell them a half a million dollars. Points.
Okay. It just Not going to get into the details of that today. But A lot of these people that I've sold, I've sold them a million dollar costs. with a 101 G rider in there. which is a chronic illness right.
And so all the IRS is defining under 101 G What are the terms if you've got Let's use a half a million dollar policy. And now the guy develops Alzheimer's or he has a Accident, or he has a stroke. And now he needs pretty much full-time care. He's going to get it at home or he's going to go to an assisted living. Yeah.
To make things simple, Yeah. The the insurance company has written into the chronic illness rider. just that they're going to give him twenty percent. Of his five hundred thousand each year for five years. I mean they're just oversimplifying this.
But he has access to 100,000. Before he dies to pay for long term care or pay for anything he wants to pay for with it. $100,000 a year. For five years or 20% of his benefit. And then, when he ultimately passes away, if he uses up all 500,000.
There's going to be no death benefit. But if we took another example, let's say he used um three years of it So he's collected 300,000, then he dies. The policy is still going to pay the remaining $200,000. Again, I'm oversimplifying this. What I want to emphasis is the way the insurance company It's the legitimacy.
To pay out a benefit early, tax-free, or where you, the consumer, It's a legitimate thing you get paid this tax free money. That if it wasn't for One On One G wouldn't be tax-free.
So There are What we call or what you've Referred to on the show many times as long-term care hybrid policies. And from what I understand, those long-term care hybrid policies. fit under the idea of the seventy seven O two B Versus. That's correct. And One of the things that Tom explained in the video, which was really helpful to me.
It's from a planning purpose. These policies, since the number one idea of them is long-term care versus life insurance, there's still a life insurance benefit. And a fallback if you never use the policy, but. You know exactly how much money you're going to get. And you can plan based on those things versus the one oh.
3B, whatever it is. Can you? It's 101G. 101 G, can you kinda explain that? Difference.
Yeah, it The benefits On the chronic illness rider are not paired up. with long-term care costs. That's the simplest way to explain it. is the chronic illness rider It gives you the consumer that's buying this half a million dollar policy The right to access your $500,000 death benefit. in a certain amount If you meet these criteria Did you meet the criteria for chronic illness?
And those correct Tyria Well, the benefits don't exactly match up with long-term care costs unless I do that for you. Unless I take the long-term care costs. And then Work backwards. Then match the chronic Illness benefits on a 101 G policy so that it'll pay this certain amount. For two or three or four or five years And then I select an amount of life insurance.
And that's just kind of buried in there.
So, right. That's the difference. And on a 7702B policy, That's already been done from the beginning by the insurance company. We Great. The benefits by definition just match up.
to a certain monthly amount for long-term care. Right, so if I'm understanding the maybe the plainer way to say that is that You know, based on the the life insurance with the rider the 101g Shmuh. That's going to just pay out a percentage. Of my cost, the percentage of what my death benefit is going to be, as opposed to. Yeah.
Long-term care that goes under the hybrid that we've talked about so many times. Which Is to 7702B. That one, if my long-term care costs exceeded my death benefit, I would still be getting those. Covered, right? Am I right?
That's correct. Let me make this simpler for you. The life insurance that you bought from me. That runs out. after ten years, so it's probably another six or seven years because it was term insurance.
That has a 101 G writer in it.
So if you actually would have needed to access that Um I would have helped to do that. I didn't even tell you about that when you bought it because you didn't buy it for long-term care. You bought it for the life insurance. Right.
It's an option. And it's in most life insurance policies. that have been sold for the last five years. Right.
Just so you listeners. If you've got a large life insurance, I'd be glad to help you find the long-term care benefits in there.
Now, why are we talking about all of this stuff? Because I really want you to protect yourself. Against the losses for long-term care. I really want you to buy a policy of some sort. And what we've been going over is really kind of an answering an objection.
that people give. I don't want to buy one of those things because it's never going to pay out. And they got all these long clauses.
So that's what we've been talking about for the whole radio show. But What I'd really want to just get in here in the end is give me a call. Or send me an email or a Message. And let's have a conversation about you. and your insurability and your assets and You're going to go about paying for one of these things.
This show is brought to you by Cardinal Guide, CardinalGuide.com. And if you go to CardinalGuide.com, you know, there you're going to find the seven worries tabs and the one we're talking about today, long-term care. Again, there's a show right along those same lines of tax-qualified long-term care insurance with all sorts of resources and things to know, as well as, of course, Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, the workbook that goes with that. All that goes into a great deal about these ideas of long-term care insurance, hybrids, those kinds of things. And then, of course, what Hans said right there at the end, the easy thing is just Contact Hans, right?
Call him. You know, he'll set up a Zoom, whatever it is that you want that he can understand. Just what he just talked about. You know, what might you qualify? What would be the most affordable?
What fits into your world? And again, based on your family and all these things, they all go into the equation. It's all there at cardinalguide.com. Again, the contact Hans or Tom page. 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. 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.
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