Long-Term Care Insurance - Purchased With IRA Money

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. insurance that, you know, if you are in need of long-term care insurance and really more of us will be than will not be, then, you know, at that point in time, that insurance is more for your family because, you know, they're going to be the ones that are dealing with, you know, whatever situation you find yourself in. And he makes this amazing point that, you know, from a priority standpoint, you want your family not to be focused on the money, which is where they're going to be focused if there's no insurance, believe me. You want them focused on the care. I know I want them focused on the care. Like Hans said before the show, you know, we want them, I want to make sure there's somebody there to get my coffee right.

I want to make sure that I can be at home if I want to be. I want to be focused. I want them to be focused on that. But it made me think about priorities. And recently I thought about the priorities and maybe you're familiar with the story of Mary and Martha and, you know, Mary was sitting at Jesus's feet learning and Martha was, you know, making sure the dishes got done and all that stuff. She complains and Jesus said, you know, your sister picked better.

Sure, her priorities were better. Well, this being an idea of priorities, I couldn't help but note that there was a woman in Luke chapter 7 that, you know, she went into the, she was a prostitute, but she knew Jesus was in the house of the Pharisee, which would have been like the local pastor. And you can imagine that this woman slips in the side door. I don't know how she gets in there. But, you know, she immediately falls at Jesus's feet, breaks an alabaster jar, cleans his feet with her hair, but then she begins to kiss his feet.

Right? And from what you can see in studying the Bible, you'll find that nobody got to kiss Jesus in worship with the exception of this woman because her priorities were completely straight. Like, I don't care what you think I am.

I don't care what you think about me. Jesus is in there. I'm getting in there. I'm going to clean his feet and I'm going to kiss his feet. And wow, if we could get our priorities that straight, our families would certainly, you know, get him there at the point in time we need long-term care. Right, Hans?

Well, that's exactly right. I've been in this situation where I'm there with the family and with the daughter, the son, the spouse, the husband or wife, perhaps the lawyer, and we're all together and we're going to see this person who's now 85. They need long-term care. And the reason I'm there is we're talking about money. And generally, this person doesn't have long-term care insurance because otherwise I wouldn't be there.

I don't need to be there. If they have long-term care insurance, I just help them get a claim started. But many times this person has some money and their daughter or son-in-law absolutely does not know how to get the resources tapped to pay the bill to get the home health care people to come in or pay the bill at the nursing home or the assisted living. And the whole discussion is about money.

I mean, just to make Tom's point, Tom's been in this situation with people and counseling them. And it's really sad because what we're doing is we're sitting with this older person that maybe rejected long-term care insurance 10, 15, 20 years ago because they just said, well, we have the money, we'll just pay for it. Well, now it's time to pay for it. And that is not as simple even if the person has millions. It's just not as simple as it sounds and getting them to part with it. So we're just going to throw that in there is to buy this stuff and to really put – it costs a lot of money.

And to get you in the right frame of mind, you need to get yourself in the frame of mind of the person, you, sitting there needing this 20 years from now, 15 years from now, and what do you want to have happen? So today we're talking about long-term care insurance and we're talking about one specific way to buy it. And that's through a hybrid life long-term care policy.

And a lot of people just don't have money sitting around that they can chunk a big bunch of money into a life long-term care policy. But they many times have IRA money that they're willing to use some of that. And this particular policy and the example we're showing is two people, a man age 65, his wife age 65, and we're talking about $200,000 of IRA money. So the example is obviously $200,000 is not the entire size of their IRA.

If it was, we wouldn't put it all in one of these policies. We're talking about somebody here that has $600,000, $700,000, a million or more. And it was more, we might even be talking about more than $200,000, but they're going to take a piece of their IRA, which is $200,000 in this example, and transfer it from where it is to an IRA at the insurance company. So there's not going to be any taxes due on this IRA transfer. And then once it happens, and you've got the money at the insurance company in the IRA, the insurance company is going to add a $50,000 bonus to it. So it quickly becomes $250,000. And then from this IRA, they're going to shoot out $25,000 a year for 10 years. So the IRA is going to be depleted from $200,000 down to zero over 10 years.

And you say, well, why would I want to do that? Well, that pays the premium on the life long-term care policy. And you say, well, why do I have to do it over 10 years? You're going to have to pay taxes on the $25,000 each year when the money comes out. So you don't want to add $200,000 to your tax return all in one year, like this year. And so it's a way of spreading out the taxation on the use of the IRA money over 10 years. Does that make sense to you, Robbie? Right. So essentially, by spreading it out, in some cases, you wouldn't necessarily even have to pay any additional tax on the IRA if your income was low enough, or if you had other things that you were doing as far as taking money out of other savings accounts and whatever, that your income – in other words, it's such a better idea to spread it out, it's not even funny. Well, yeah. And if these people that are 65, they don't face minimum distributions until 73 or 74 or 75.

So it's really going to be the tail end of this thing. But that $25,000 counts as a required minimum distribution. So if we have some people listening, you didn't buy long-term care, and you're in your early 70s or your mid-70s or late 60s, and now you're facing or incurring required minimum distributions, RMDs, you can still buy something like this all the way up to age 84.

You can buy it in the late 70s. I mean, it's pretty pricey for what you get, and you've got some tough underwriting qualifications that you're going to have to meet for a person at 80, 82, 84, but I don't want to discourage anybody. But if you're in the low 70s right at RMDs, you could buy the same kind of policy, and then they're going to drain this money over 10 years, $25,000 a year. That whole amount counts as your RMD just about every year.

So this is well thought out. I just want to repeat that we're not going to put somebody's whole IRA into one of these things. So this is going to be a piece of your IRA. But in any case, what this buys you for this premium is you're going to have a death benefit of $176,000. So if neither one of these people need care, and then when they both pass away, the second one passes away, and they never use the long-term care, there's going to be $176,000 paid tax-free to their beneficiaries.

The likelihood of that is low. I mean, if you take these two people over a long lifetime, somebody's going to need some long-term care for a while, most likely. And so the first dollars coming out of the long-term care policy reduce the death benefit. So to the tune of $176,000, you get that much long-term care. The long-term care is $7,335 a month. That's your monthly benefit for long-term care for either home health care or nursing home care.

On an annual basis, that's $88,000 a year. But the thing that's cool about this policy is it covers you for a lifetime of long-term care. So you could use long-term care for 12 years at the end of your life, and it would pay that $88,000 all 12 years. And if your spouse was still alive, covered, they would still have lifetime coverage for them as well, or it could be paying on both of you at the same time. I mean, this is an unlimited policy.

So that's a lot for a one-time $200,000 IRA transfer. That make sense? Oh, yeah.

You're not a kitten. Because like you say, if one gets Alzheimer's or something like that that takes a long time, your family is going to be so grateful. And in your own way, you're going to be grateful because you desperately need the care as the case may be. So this is a good time to mention that the show is brought to you by cardinalguide.com. If you go to cardinalguide.com, there you're going to find seven worries tabs. And one of those is long-term care, a gigantic, gigantic issue we all need to face up to at some point in time. And if you pull down on that tab, you're going to see there's a video right along these same lines, especially saying that long-term care paid for by IRA money, which gives you some video examples, a board to look at, and a lot of great information on the same idea and how all these payouts work and all that, which looks a little bit confusing as you go through it on the radio. So it's all there at cardinalguide.com, again, under the long-term care tab. And of course, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the all-important contact haunt or contact Tom tab, right, so that you can literally have them to fit this into what you need from long-term care standpoint, what your special situations may be for the qualifications and all sorts of different ways. But one thing I can tell you from my own experience is that Hans and Tom, they will work together with what your needs are and what your financial ability is and do something that will make the most sense for you and your family.

And again, it's all there at cardinalguide.com. We'll be right back with a whole lot more on long-term care with IRA money. by the Social Security Administration or any other government agency. Welcome back to Finishing Well with certified financial planner Hans Seil and today's show, long-term care insurance paid for by IRA money. And you know, the beauty of this really is, is for a lot of folks, you know, they've got that IRA money, they know they're going to have to pay tax.

This is really a structured way to essentially kill two birds with one stone. Well, it is because if you have IRA money, 401k money, money you haven't paid taxes on yet, and you're retired or you're near retirement, you're going to have to distribute this money over some time at some point. And a lot of people just postpone any decision on this to required minimum distributions. They maybe don't postpone decisions in fact that they pull money out to live off of.

They don't really put together a plan. And so we do more planning for people and this long-term care policy is just a part of a financial plan. But today we're just talking about that part of this long-term care policy. And this is for people that have money sitting in an IRA that they're not using it, or all of it, and they're going to have to distribute it. And it's a way we're just showing an example to take $200,000 of IRA money, distribute it to yourself over ten years, and use that distribution to buy a pretty substantial long-term care policy.

I mean that's the gist of what we went over. And I want to make the point is if you took $100,000 and bought the same thing on two people, you would just get a benefit for long-term care of like $3,700 a month. And you say, well, that's not enough.

Well, it's not enough, but it's certainly a whole lot better than zero. And it is enough to perhaps pay for a very nice home health care plan for the rest of your life. And if you did go into an assisted living, it might pay half of it or 40% of it, and it's not like you're going to be void of money.

So don't let the numbers and the size of the numbers scare you off. If you have a smaller amount in an IRA, or perhaps you're just one person and you're single, and you wanted to use $100,000 of IRA money, you can get a pretty substantial policy just on yourself. So I want to leave the numbers around the policy up to you give us a call, and first we're going to determine if this type of policy is going to be right for you, and we can produce an illustration based on a given amount of money.

Now, what I'd like to do is jump into a lot of questions that people ask us. And the first one being is, like, how do I collect on the policy? What are the benefit triggers?

What's the rule? And what I want to say is this policy is the same as any other tax-qualified long-term care policies. So I want to point out that if you get out any of these policies, when they meet the criteria of tax-qualified, the benefit triggers or the standard of care was written by the government, by the IRS, and we've done other videos on this. And I'm going to just tell you what it is, is you have to need help, substantial help or substantial assistance, with two of the six activities of daily living, which are bathing, continence, dressing, eating, toileting, transfer. And it's been my experience, the two that are the easiest to prove or have the simplest explanation are bathing and dressing. And, you know, when I help people with claims, that's where I get them to focus in on. If you need help taking a bath and you need help getting dressed or undressed, that's enough, okay? Now, you got four other ones that you can prove and, you know, I have people do it, but you start writing, you know, your doctor starts writing a book on the claim form and, you know, the thing is 22 paragraphs long that gives the claims people all kinds of stuff to study for months.

You just stick with bathing and dressing. If that in fact is true, you need help with those two, you meet the criteria, okay? And then the alternative, so it's an or after this, is severe cognitive impairment. So if you have severe cognitive impairment, meaning you have trouble with your memory, you need somebody to guide you, supervise you, help you, then you don't have to meet the two or six activities of daily living.

Most people with severe cognitive impairment also need help with two of the six activities of daily living, but the point being is if you have a person and we're filing a claim and they have severe cognitive impairment, then I'm going to encourage them to just stick to that. We're going to have the doctor write out that and make that diagnosis, and then we're not even going to say anything about the activities of daily living. Does that make sense? Oh, yeah. Good idea.

Yeah. And we are going to stick with the advice I've just given you is going to work with any tax-qualified long-term care policy. So perhaps if you have somebody or you yourself have a long-term care policy and you're listening to the show and maybe you're wondering if it's time to file a claim, it's time to get some home health care in there, I'll be glad to help any of you. If you just get in touch with me, I'll give you some guidance and put you in touch with some professionals that you can get assessed to see if it is time. I'll help you with a claim with another claim.

Glad to do it. Now, the next question that comes up a lot is elimination period. So how soon do they start paying this $7,335 a month? And if you start out with home health care, there's a zero-day elimination period. In other words, if you have this policy and somebody needs to come out for three weeks and they need to come every day for three weeks to your home and provide services to you, there will be no elimination period, zero days.

So they're going to pay the money from the first day. And if you make it 90 days at home without needing assisted living and then you later transfer to an assisted living or a nursing home, you've got a 90-day elimination period at the assisted living or nursing home, but you've already met the 90 days for the days they paid for home health care. So in other words, if you go straight into the facility, you've got a 90-day elimination period.

But if you start at home and then go to the facility later, you have no elimination period or no deductible policy. Now, next is this company has what's called a care benefit concierge. And the claims concierge essentially is what we call it. And they're going to contact doctors, contact care providers, handle direct payments to providers. And this company does it right where they have this one point of contact, and it probably won't be you.

It's going to be your son or daughter or your spouse or somebody. They make it real easy for them, and they have a concierge service for that. This policy has what's called an informal care benefit on it. And what that's talking about is it will pay up to 75 percent or it will pay 75 percent of the monthly benefit limit for or of the $7,335 a month where you can get that paid as an indemnity and you've got no receipts, no nothing. So you get the care certified and you say, I want the cash benefit. So you take 75 percent of $7,335, they'll send that to you every month.

You spend it as you see fit. OK, that's wonderful. That could be like a family members taking care of you or something. And they also have a caregiver consultant line. So if you have a nonprofessional caregiver, which is somebody related to you or somebody you've hired or somebody from your church and you're paying them or you're not paying them, if you have this policy, they can work with this caregiver consultant so they can be taught how to do the things they're doing.

OK. And then we talk about formal care at home. And this just talks about how it will pay for independent providers. It'll pay for home health care agencies. It'll pay for adult daycare. And it also purchase supportive equipment and tools and things to make your house long term care friendly. So I just kind of rattled all that stuff out.

Do you have any reactions to any of that, Rob? Oh, yeah, because we talked about at the beginning of the show that if this is your situation that, oh, my goodness, you're going to want the care, especially for my case and I think in yours, too. You know, if at all possible, I want to be at home, if at all possible, you know, provide whatever services that I get there. And it is kind of cool to think you can get a relative or somebody that you know, that you trust that will take the time with your coffee and other things that are really important to you, your own privacy and all that stuff. You know, this would really be one of the best decisions you might ever make.

Slowly. And the peace of mind, you know, that I have with this is just knowing that, you know, first and foremost, I'm staying home if there's any way possible. And knowing that we have a substantial benefit that's going to be paid every month. And I'm going to have all kinds of people coming, or my wife is, for me.

My sons are going to be in the game where they're going to be contacting people. I mean, and through home health care, you can have people mowing the lawn, washing dishes, bringing in food, making coffee. That needs to all be along with all the six activities of daily living.

I mean, you got to have that first. But once you have that through the home health care agency, you get all that other stuff to turn your home into a care home for you. And by being able to hire people, it'll allow my wife to keep on living. And we want to remind you, the show is brought to you by Cardinal Guide, cardinalguide.com, where you're going to see the Seven Worries tab, one of which, again, we're talking about today is long-term care.

And in this case, How Cool Through IRA Money. There's a wonderful video along these same lines. The Seven Worries tabs are there. You click on long-term care, and away you go. And of course, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, really helpful on this whole subject to just really give you a good background. And then, of course, the Contact Hans and Tom page.

It's all there at cardinalguide.com. Great show, Hans. Thank you, and God bless you. Thank you.

God bless. 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.

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