BM: Hi there, Bridget Mackay here and I’m sitting here with Sasha Specht who is a insurance professional who works in that area of long term care. We’re going to ask Sasha a few questions that I hear a lot in my office after seminars. People really want to know about long term care. So, we’re going to get some basics today.
BM: Welcome Sasha thank you for coming. So, the first question I have is, when should someone start looking to plan for their long-term care needs?
SS: Yes absolute, so the best time to plan for someone’s long term care is typically between their 50s and 60s. I would typically say that the optimal time it’s going to be between 50 and 55. That’s not to say that you can’t get coverage between your 55 all the way up to that when you’re 65. But typically, people are going to start having health issues that come up that are going to make it either cost prohibitive or that some will get declined during underwriting.
BM: You want to get it sort of, long before, because I mean you may not use it into your 80s but you kind of want to get it long before because physically, you’re going to qualify, and your premiums will be cheaper in the long run.
SS: Absolutely. Your premiums overall when you’re getting it in your 50s versus in your 60s, it will be significantly less because the care has more time to invest that capital to be able to pay for those future claims.
BM: OK. So, in speaking along those lines, what are the different types of policies you would get? Is it still just kind of the standard premium? I pay this much, and I’ll have unlimited care, or four years’ worth of care?
SS: Right. So, there’s really kind of two main pools of policies that we see in this day and age. One is still kind of traditional long-term care. I always kind of represent it like car insurance. You pay your annual premium each year. You have a pool of benefits that you can use whenever there long-term care needs arise. If you pass away without eating any long-term care, the policy disappears like you never used to.
BM: OK. So all those premiums go away.
SS: Exactly, it is essentially like car insurance; if you don’t use it you lose it. A new entry into the policies that have been around for the last 10 years or so are what are called hybrid contracts. These combined a small portion of life insurance and long-term care insurance together. Typically, the life insurance benefits would be relatively small. Just to make up the amount of money that you’re putting into this policy, so on the off chance that you don’t use those benefits, excuse me, your heirs and beneficiaries will get that money back in the form of life insurance benefit.
BM: And both of those examples, do you need to also medically qualify for?
SS: Yes, both do require some sort of a medical evaluation depending on which carrier we’re going with. The requirements are going to vary but it’s going to be some sort of a, either a telephone interview, possibly a full kind of paramed or a mini medical exam. All the way to a in person registered nurse come into your home and kind of assessing your abilities to get around.
BM: I’ve also heard of policies that you may be able to get around the medical piece of it if you put your own money into, like an annuity or something like that. That would have a long-term care with what they call a rider. I don’t know, maybe I’m not using the same term?
SS: No absolutely. So, with annuity products, typically there’s minimal medical underwriting. They may ask about three or four kind of what they call knock out questions, that if anybody answers yes to those questions and they can’t have the rider on the policy. But more often than not, it’s much more of a simplified issue process. Where you’re putting a large sum of money, you will get some kind of an income stream. And then if you start needing long term care insurance services, such as in-home health care, assisted living or for blown nursing home care there will be a higher amount of pay out that you get to be able to pay for services.
BM: OK. And, but people have to have that sort of chunk of money to start it.
SS: Correct. And that’s similar to those hybrid, those hybrid products as well because those hybrid products. They are typically more of a front-loaded payment schedule. Either anywhere from a large sum of money going in the first year to maybe more of over the course of 10 years. And then at the end of that 10-year period, the policy is fully paid up and ready for you whenever you need those long-term care services.
BM: Okay. And we were talking earlier for some folks their, who may be in their 50s to 60s or 50 to 60 age range might have some old whole life policies. And there’s now some way of converting the investment into that, into a long-term care policy. Can you tell me about that?
SS: Absolutely. So, way back when, maybe about 20 or so years ago when a lot of whole life insurance policies, Universal Life were being sold. They weren’t thinking about using, position them to be able to pay for long term care insurance services. Policies in this day and age allowing you to pull from that death benefit to use towards long term care. There is a section of the tax code that allows you to move life insurance policy products from one to another. So, if you have any life insurance policies that may just be sitting around, they don’t necessarily need the cash value from those policies. We can move those and position them into the newer long-term care paying policies that will provide you an actual living benefit rather than just a death benefit when you do pass.
BM: OK so that’s nice for folks who have those laying around. They may have earned enough money that they’re not really relying on their $500,000 policy that has a $50,000 cash value.
BM: They can pull that and buy a hybrid.
SS: Yep, exactly. Those hybrid policies that, we’ll take, in your example, the $50,000 of cash value. We would move that money into a new product that essentially kind of, fund it, with just that premium. So, you wouldn’t necessarily have any future premium payments due.
BM: Oh wow.
SS: And you would just have a smaller death benefit, probably of $50,000 or so of the money that you put into the contract.
SS: But then usually with about a five to six times the amount in long term care benefits. Of somewhere maybe a quarter million range they could pull for those long-term care services.
BM: Oh, that’s wonderful, because that’s a lot of money when it comes to long term care.
SS: When you get into the granuloma version of it, it’s much more tax efficient as well because all those benefits from that policy can be used tax free rather than having to pay capital gains or ordinary income tax.
BM: From the, from what it earns from when you started it exactly who pulled the money to use it.
SS: Yep, absolutely. That long term care benefit will be all tax-free money. So, much more efficient way to use those policies for long term care insurance.
BM: Great, good information. Thank you.
SS: Awesome, thank you.
BM: Thanks for coming. Thanks.