Jason and Stephen discuss how long-term care insurance can help protect your assets.
Below is the full transcript:
Jason: Welcome back America to another round of Sound Retirement Radio. My name is Jason Parker. We are so glad to have you here on the program with us today. As you know, we like to bring experts onto this program who we believe can add significant meaningful value to your financial life as you prepare for and transition through retirement. I’ve got one of those folks on the program that we’re going to bring on in just a minute. Before we do, as many of you know, I like to get the morning started right by renewing our minds, and I think one of the best way to do that is with a verse. This comes to us from Proverbs 13:3. “Those who guard their lips preserve their lives, but those who speak rashly will come to ruin.” I thought that was a good one. I think I’ll bring our guest on, then I’ll share with you our joke. Today, this is Episode 97. The title is Five Misconceptions Around Long-term Care. It’s my good fortune to bring my friend and long-term care insurance expert back onto the program. Steve Brown, welcome back to Sound Retirement Radio.
Steve: Good morning, Jason.
Jason: Hey. I’m glad you’re there. For a second, you made me nervous. Hey, good morning. Did you hear about the pigs that could do their own laundry?
Jason: Oh, it’s a bunch of hogwash.
Steve: Okay. Jason, I must say I’m actually reading Proverbs. I enjoyed that, but your jokes need some help.
Jason: I didn’t want to do that one without you, Steve. I thought I’d bring you onto the program.
Steve, I’m glad you’re on the program today. We want to talk about long-term care. We’re going to be doing a webinar on this on Wednesday, June 22nd. Just for our listeners, remember if it’s something that you’re thinking about, maybe you’re getting close to retirement, you haven’t done any planning for this yet, go to Soundretirementplanning.com, on the right-hand side of the screen you’ll see a link that says “webinar registration.” Just click that link, sign up for the webinar, and join us on Wednesday, June 22nd, to learn more about this important retirement- planning topic.
Steve, this is an area that you’ve spent a lot of time for a lot of years helping people. I’m curious to know your story about why you’re passionate about long-term care planning.
Steve: Jason, as you know, as we look back on our lives, it’s really the things we go through and our experiences that shape our thoughts forever. There are actually two experiences that as I look back on my life that have shaped my thoughts concerning long-term care.
I’m 60 years young now, but if we go back about 30 years, I was 30 years old. I had a friend that had a really nice place down in Jackson Hole. He and I would get together down there all the time. I’d fly down there, and we’d do these extreme sports, like extreme mountain biking or hiking or things like that. I remember one fall when I went down there for a week. One morning we got up. It was a really nice morning. It was about 65, 70-degree day, and he said, “Why don’t we do a hike up to Grand Tetons’?” We’d done that before. My buddy, Wyatt, I’d known him since college, and he was always one to prepare for the unexpected, and so as we were eating breakfast he was off in the other room. By the time he was done, he brought out these two packs. I said, “Wyatt, what’s going on?” He said, “Well, it’s going to be a nice day up there, but you never know and I always like to over prepare.”
I wasn’t too enamored about wearing these packs as they were 30, 35 pounds and it was a nice day, but I did. We left, and we’re in our shorts and our hiking boots, and I asked him about how long this hike took. He said, “Oh, three, three and a half hours.” As we got into this hike, it was about the second hour and we’re coming up this trail and it flattened out and there was, if you can imagine, a beautiful day, a big open field, we could see some moose, and it was just a perfect scene of nature. We sat down to take a break, and as we’re taking a break the wind changed and all the sudden a nice warm breeze turned into a chill breeze and cold enough to where I had to put on a jacket. I remember that real well. It caught me off guard, and I was glad that Wyatt had brought a pack and some gear and a jacket.
By the time we got up, the sky had clouded over and within the next half an hour a few snowflakes started falling. I remember asking Wyatt, “What’s going on?” He says, “Well, the weather’s changing.” He immediately got out his compass, and we went another half hour and within the half hour the snow started falling so hard it was near blizzard conditions.
Steve: Within the next 15 minutes from that point, you couldn’t see 10 feet in front of you. Right then, I was really gripped by the what if, I wonder if we’re going to make it. I looked at Wyatt and I could see a little bit of fear on his face. The bottom line was it took us 10 hours to get out of there, the snow was well over a foot deep. There were points when I always looked back on that pack and everything he had in there because if we hadn’t planned for the unexpected we might not have made it.
Jason: Wow. That’s a pretty cool story.
I’m sorry, Steve. We’ve got a little bit of a delay there. One of the cool things about that story is I’ve, thanks to you, I’ve had the good fortune to meet Wyatt, and so now I know who to go hiking with.
Steve: He is definitely the icon of somebody that’s prepared.
That’s at 30 years old. Ten years later, still a young man, going to this big Lutheran Church, and this elderly gentleman brought me aside one day and said, “We’d like you to consider being an elder.” I said, “Well, what does an elder do?” He laid that out, and I thought, “Well, I don’t know. I don’t really feel like I’m an elder. The title doesn’t sound all that grandiose.” He said, “No, we’re looking for people that have a good heart and inherently just want to help people.” I took that responsibility and became an elder. A couple of the duties in a church to being an elder besides just helping people is to go out and help people that can’t come to church.
You have a shepherd group and a shepherd area and people that call in and for whatever reason that say I can’t come to church, but I’d like an elder to come visit me for whatever reason. That was almost a weekly part of my duty, and one of the things I learned about that was that these changes in life can affect anybody at anytime unexpectedly. I saw that in my shepherding. I’d go out to somebody who was at one time perfectly healthy and given a change in life now couldn’t come to church, and then that effect of that was little did I know I was witnessing kind of a long-term care event, somebody that basically didn’t plan for that, didn’t want it to happen, but it did happen.
The one gripping emotion I always remember about going out on my shepherd calls was it was always emotional. There was always some carnage with the family. The family hadn’t planned for this. There was some financial carnage, some family crisis. One of the things I always remember after I went out on these emotional appointments, it became very emotional for me to watch people suffer when you’re totally out of control, in other words, when you’re not in control but you have to witness the suffering. I can always remember when I was done with my appointments, many times I would go back to my car and sit there and actually grip the steering wheel and cry because there wasn’t anything I could do to take them out of their misery. I didn’t have a magic wand. I didn’t know what to do.
That second experience actually exposed me to the problem of long-term care and some of the things that we go through when this happens to our friends and family.
Jason: Man, those are two good stories, Steve. One about being prepared for the unexpected, and one about the harsh reality that anybody that’s been there, that’s had to walk that walk. I’ve been down that path just recently. I tell you, it’s a tough one no matter how prepared you are.
Steve, today’s show is the Five Misconceptions Around Long-term Care. A lot of people I meet with, they just say that this is never going to happen to me, I’m healthy, I take good care of myself, I eat right, I exercise, and it didn’t happen in my family. If it never happened in a family history, should people just dismiss planning for a long-term care event?
Steve: No. My question to somebody like that, since long-term care is oriented around a change in your health, my question to that person would simple be what’s the probability that you will ever have a health change in your life?
Jason: A lot of people they say, “Well, Steve, I’m just going to go to sleep one night and I won’t wake up in the morning.”
Steve: I would say to that, that’s a great plan as long as that’s what happens, but how many people do you actually know, when you look around honestly at your friends and family, how many people do you really know that have gotten that blessing?
Jason: Steve, what about the folks that say I don’t want to ever be in that situation, if that ever happens to me where I need long-term care. I’ve heard anything from I’m going to get on a sailboat and we’re just going to head for open seas and we’re never going to turn around, never look back. I’ve heard one guy call it his 9-millimeter option. People just say if I start down that path, I’m ending it.
Steve: In my 15 years of going out and sitting with people and talking about this, especially for men, I call it the gun approach, I’ve actually had a few guys actually go to their gun closet and get their gun out and show me their gun and say if it gets that bad I’ll take this and I’ll use it and blah, blah, blah. I understand that nobody wants to go through suffering and pain for a long period of time. I joke around with that a little bit to soften the blow. I’ll say, “You know, Mr. Jones, you know, unfortunately a lot of people get dementia or Alzheimer’s. Being that you probably won’t be able to remember where your gun is, do you think your wife is going to go get it for you?”
Jason: If he says yes, you know there are other problems that need to be dealt with.
Steve: Good luck with that approach. Jason, that rolls back into this concept I had with Wyatt when he brought out these packs. I actually thought he was crazy. On a nice day like this, we would carry 35-pound packs. It’s no different than the concept of somebody being in a little bit of denial and just to the point where they just don’t want anything bad to happen. I understand that.
One of the famous coined phrases I use in my seminars is actually from Ben Franklin, the guy that said by failing to prepare, so by failing to prepare in any area of your life including long-term care, you’re actually preparing to fail.
Jason: This morning we were talking about advice, advice givers, and we were talking about the idea of you go see a surgeon that specializes in a certain type of surgery and you question whether or not that surgeon is going to really say yes you need the surgery or are they going to point you down a path of physical therapy. In the back of your mind, there’s this thought that is this person conflicted, are they more of a business person and they’re just interested in doing as many procedures as they can, they’re a surgeon so maybe they see the world more through the lens of somebody that thinks that that’s the best solution, or do you feel like you’re getting unbiased advice if you go to somebody that specializes in surgery to treat a problem.
I want to bring that back to your world too. You specialize in insurance, so aren’t your views on this subject maybe a little bit slanted towards insurance? How can people make sure that if they’re planning for this, it’s really in their best interest and they’re just not meeting with somebody that’s trying to sell them an insurance policy no matter what?
Steve: The first approach, Jason, is actually not to sell somebody insurance but to just prepare them and educate them on all these options that they have. The goal is, much like Benjamin Franklin said, is you have to have a plan, you have to prepare yourself. When we lay out all these options, as you know being a financial planner, insurance is just one of the options; it may the best option for each person. We typically believe and find that if you educate people on all their options and you make them abundantly clear, rational people will make rational choices and pick a good plan ahead of the problem.
Jason: You made a great point there, which is I believe people should have a plan before they make financial decisions. Most people don’t. Most people have an asset allocation, they have a diversification strategy, they own a couple of different mutual funds, and that’s they’re plan. Folks, that’s not a retirement plan. You need to have a good cash flow plan and you need to stress test it against various issues, such as long-term care, what if one spouse dies, what if we have runaway inflation, what if the stock market doesn’t perform while you’re in retirement. That’s what a plan does is it helps you make better decisions, not emotional decisions.
I want to remind our listeners that on Wednesday, June 22nd, we have a special event coming up. It’s a webinar. People join us from all over the country. We’re going to have an expert to talk you through some of the planning decisions you need to be thinking about on this topic, this subject of long-term care, because frankly as somebody that does a lot of retirement planning for folks, we meet with people via Skype all over the country, this is one area that I find people have a crack in their nest egg. There are solutions, and insurance is one solution for addressing that crack in the nest egg.
Steve, I want to transition into talking about these hybrid long-term care contracts because that seems like it’s really popular these days. Will you take a minute and help our listeners understand hybrid long-term care insurance?
Steve: We first probably just go back 15, 20 years and the common form of long-term care insurance, the chassis for that is much like your health insurance. In other words, you would pay a monthly premium for your health insurance, and if you need a doctor, surgeon, hospital the insurance company would have a liability limit on how much they would pay. Traditionally, long-term care insurance operates in that same mode; we pay a monthly premium, and if we should need it the insurance company would have a pile of money that we could access to pay our benefits. Then, of course, the upside to that is, boy, if we need it it’s a lot better the insurance company pay than are assets. The downside could be I’m healthy, I’m catching my bet, but if I never use the pile of money all the insurance premiums go to the insurance company.
Roughly 10 years ago, the insurance companies figured out that people didn’t want to lose all the premiums they paid in case they didn’t use their plan, so they developed what we call just an asset-based plan. The best way I’ve found to explain it is think of the old days when you had safe money in a CD. In other words, you’d put this money with a bank, you’d make 2%, 3%, 4%, 5% on it, it was safe and secure, and if you needed it you could get it. Let’s take that CD and just take it through a potential life event. If you’re healthy all the way through your life, that CD will grow, you can go access it and get it anytime you want. If you should pass away at some point in time, that same amount of money that’s in that CD will be available to your beneficiary. The third thing would be what if you have a long-term care event? That CD, whatever it’s worth, you’ll have to spend dollar for dollar. Let’s say you needed $100,000 for long-term care one year and you had $100,000 CD, then you will use all that money and you spent all that asset for your care.
Jason: Why do you use the analogy, because we’re talking about insurance here, right? Why call it a CD?
Jason: Why refer to it as a CD instead of just insurance?
Steve: The reason I do that is most people are familiar with CDs, and it’s a safe and secure asset that they always have access to and they understand it.
The concept of asset-based care would be imagine if your bank said, “Well, we’ve got a super CD we’re going to add a few little features to, that you can always get your money, number two, if you should pass away we’ll give you about double the value of that CD, so if you had $100,000 CD, if you pass away unexpectedly, you’d get a return of $200,000, and then third, just in case you might need it for long-term care we’ll give you about a four-to-one payout, in other words, that $100,000 CD would be leveraged up to about $400,000 to pay for your care. That’s exactly what the insurance companies have done. Instead of that money maybe possibly being with a bank, now it’s with an insurance company, and most of these asset-based programs have a three-fold payout. One, you can get your money back. Two, if you should pass away, you’ll get more money back, and three if you should need it for long-term care there’s typically about a three-to-one or four-to-one payout on your original investment.
Jason: Okay. Let’s just clarify because I don’t want people leaving this program today thinking you’re talking about a bank CD. We’re talking about insurance that’s built either on a life insurance contract or an annuity contract. It’s not built on a bank CD, right?
Jason: I just want to make sure that our listeners are aware of the difference there. I appreciate the analogy where you’re trying to help people understand the concept.
Steve: That’s correct. It would be like you had $100,000 and in one example you gave it to a bank and in the other example you gave it to an insurance company and you said, “What can you do with that money to protect my … ?”
Jason: In the insurance company, the bottom line is the insurance company gives you liquidity in some instances, they’re all contract driven, but you may be able to get your principal back if you need it, number two, if you end up dying and never needing long-term care then it pays a death benefit to your heirs or your estate, and then number three, if you end up needing long-term care then the original amount that you put in gets leveraged up, so there’s additional money that’s available to you. It’s kind of like have your cake and eat it too. It’s for the people that don’t want to buy traditional insurance, but they want to know that they’ve got a safety net in place and if they end up dying and never needing care then at least something is going to go to their estate. That kind of sums it up, right?
Steve: That’s correct. It really is intended for the people that say I don’t think I’ll ever need care, I don’t want it to happen, but just in case this is what I have to protect my interest.
Jason: Steve, in 30 seconds, some of our listeners are probably going to want to talk to you about this subject. Is there a contact way, the best way, for them to reach out to you.
Steve: Sure, they can call my office number, which is area code 360-893-2172.
Jason: Okay. With that, folks, we’re out of time. You’re listening to Sound Retirement Radio, Episode 97. We archive these for you online. Join us on our webinar on June 22nd, sign up at Soundretirementplanning.com. This is Jason Parker. Over and out.
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