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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire On Time, a show that answers your retirement questions. We're here to move past that oversimplified advice and get into the nitty gritty. As always, text your questions to (913) 363-1234. Again, (913) 363-1234. And remember, this show is just a show.
Mike:It's not financial advice, so make sure you do your research. David, what do we got today?
David:Hey, Mike Can you really get long-term care insurance through an annuity without any health exams?
Mike:Yeah. Yeah. Long term care insurance. Okay. They probably sent in a typo.
Mike:That's okay.
David:Okay.
Mike:Yes. We're not the grammar police. That's okay. We'll get it. So okay.
Mike:The question is about long term care insurance, and can they get it through an annuity? Alright. So, David, let me pitch you this idea. I'm an insurance company. Right.
Mike:I make lots of money on taking on risk knowing the odds are in my favor. K. But guess what? I'm gonna sell you an annuity. It's gonna double your income each year for your long term care.
Mike:You're gonna have it for life. All is well, and I'm not even gonna check your health.
David:Woah. That sound like a good deal? Yes. If you're not gonna check my health.
Mike:Yeah. Doesn't it feel uncomfortable? It doesn't sound give you a long term care like benefit
David:Yeah.
Mike:Without checking your health?
David:There must be a catch. There must be something hidden in the fine print.
Mike:Yeah. So let me say it back a little bit differently. Long term care insurance requires a health exam, because if you're doing traditional long term care insurance or asset based long term care insurance, asset based long term cares, you put a certain amount of money in there, and then if you need long term care assistance
David:Uh-huh.
Mike:That you're gonna get a nice benefit for a couple of years. K. That's the idea. You have the benefit for life. You with me so far?
Mike:Yep. They're gonna check your health care, because it does makes no sense in the world to pay, like, let's say 50,000, and get some huge benefit if in two years you need long term care. That's not financially prudent for the insurance company. It doesn't work for them. They have to check to make sure, and these are my numbers, my opinions, that you won't use it for at least ten to fifteen years so that if you do use it, you're the exception to the rule, you're the statistical outlier, and that the insurance companies can keep solvent.
Mike:If you use, let's say, index universal life insurance, they're going to check your health. They need to know that you're probably not gonna die in the next ten to fifteen years so that if you do, you're the statistical outlier. And that if you do need long term care insurance, you've got the health sufficient enough that in ten to fifteen years and you start tapping into your death benefit because you've got terminal illness, chronic illness, whatever the rider is. Riders are the additional feature that's with your insurance policy that the odds are in the favor of the insurance company. K?
Mike:You with me so far?
David:Yeah. Yeah. They're doing their due diligence because they need to make the numbers work so they can stay in business. If everyone who created a policy, like, filed at once, then they won't have enough to pay everybody. Is that right?
Mike:Yeah. I mean, I guess this is so grim. I hope this doesn't happen. But let's say a city of a million people all got term life insurance for a million dollars.
David:Okay.
Mike:K? And then let's say in five years, there's a horrible accident, and everyone in this city dies.
David:Oh, yeah. That is grim.
Mike:And it qualifies now for everyone's term life insurance to go to some beneficiary. That would really hurt an insurance company.
David:Right.
Mike:Now I'm not trying to gloss over the tragedy of what this is. Sure. I'm trying to be hyperbolic in something that's so crazy that hopefully this doesn't happen. But can you see how that wasn't statistically probable?
David:Sure. Yeah.
Mike:You don't buy term life insurance hoping to die in a year or two. You buy in case statistically it happens it was the unexpected outlier. So okay. Now with the annuity, this is pitched over and over again. And what's almost never disclosed so if you're thinking about annuity, read the contract.
Mike:Yeah. Maybe even upload it to your favorite AI and have the AI also help you understand it.
David:For sure. Yeah.
Mike:It's a good
David:tool.
Mike:AI are not attorneys.
David:Alright.
Mike:K? But it might help you ask a few questions that might help prompt a further conversation. Annuities are not good or bad. They're just a tool. But in the products that I'm aware of, there's many that do this, where your income doubles for up to five years, if you have long term care needs, that only lasts as long as the cash value lasts.
David:Oh, is the cash value what you put in to fund the policy?
Mike:Yep. So this is not an illustration. Alright. I'm not quoting any policy. I'm just saying an example just to illustrate kind of the mechanisms here.
Mike:Alright. I love regulators because I think they do a good service. I just don't wanna say something where they're gonna be upset. So I try to over disclose everything. K?
Mike:So I want people to understand these concepts. Let's say you put, I don't know, a million dollars into a policy, and this policy is gonna pay you 70,000 flat income for life. So remember, flat income, it doesn't increase, so inflation's gonna erode this over time. So that 70,000 eventually is gonna feel like 30,000. So just caveat.
Mike:Yeah. Sidebar. It's the flat income. But if you need long term care, that 70 thousand's like a 140,000 for five years. That sounds like a good deal.
Mike:But what happens is the million dollars goes into an indexed, usually around, like, bond funds or something lower risk, so it's got lower growth. And so within, like, ten, twelve years or so, that cash value is gone. So if you needed long term care help in the first ten years, maybe you get it. But once the cash value is gone, it goes back to the 70,000. And they know if you're needing long term care help in any capacity, you have a lower life expectancy from that point on.
Mike:I think it's like once you need long term care, there's, like, around three years to five years left of life anyway. So they don't mind giving you more of your own money back at a faster rate, but once that cash value hits zero, there's no death benefit, and they just go back to the 70,000. And, yeah, they can kind of just wait a couple more years, and then you're probably dead. So that's why they don't check your health
David:Okay.
Mike:In advance, because the benefit is only based on your cash value. And once that's gone, what what do they care? They already made money off of your money.
David:Uh-huh.
Mike:And when you grab enough pool of people together, the odds are in their favor, so it works out for them. The reason why I'm saying this is it's not a bad policy. It's not a bad strategy. It's not a bad benefit. But don't think you're gonna double your income at 86 years old when you need long term care.
Mike:That benefit's gone.
David:Because the cash value would already be gone by then.
Mike:Cash value's usually gone based on what I've seen and experienced and looked at around ten, fifteen years or so Mhmm. Based on what we've talked about. Now there's other versions. There's other ways you could structure the policy, less income that allows more cash growth, so it kinda lasts longer, but notice you had less income at the beginning. So to get something, you've gotta give something up.
Mike:There's always this negotiation of what do you want, what do you have to give up. Always gonna happen. But don't think you can cheat an insurance company, and don't think insurance companies are charities. They're not. They're not bad.
Mike:They're just a business. It's just insurance. But almost every time I've explained that to someone, they said, well, I'm glad I didn't buy it because that was never disclosed. I said, great. I guess we've made some progress here.
David:Mhmm.
Mike:And then we keep the conversation going. Long term care insurance is as simple as this. If you need it, you probably can't afford it, realistically. And if you can afford it, you probably don't need it. The only reason in my opinion why you might buy it is survivorship.
Mike:So just in case someone gets like, you're willing to pay a premium to protect the surviving spouse just in case, because there are certain lifestyle goals or risks that you're concerned about, and you're willing to pay for that premium just to have the peace of mind. That might be a reason. Another reason is you just want the peace of mind because you've got this legacy intention, and you're okay just paying for the peace of mind. You're okay transferring the long term care risk to an insurance company knowing the odds are not in your favor. But notice how we're defining things as they are.
Mike:Yeah. I've never actually sold a long term care policy. I've done so many illustrations.
David:And what usually happens when you run those?
Mike:The people that really want it are denied because they know they're probably gonna need long term care help sooner than later. Uh-huh. So it's like
David:The insurance company is nope.
Mike:We'll check. Doesn't hurt anyone to try and get a policy. If you know you might need long term care sooner than later, what if the insurance company may make some mistake? That could happen. Mhmm.
Mike:It's rare. I mean, it's worth checking. And then for the people that are really, really healthy, I just do a quick cost analysis and say, here's your protected category. Here's your growth category. Here's the benefits and risks of each of them.
Mike:Here's the liquidity needs. Here's that health timelines. You know your health. How do you wanna proceed? And once I lay things out, they almost never really sign up because things are explained as they are very objectively.
Mike:Yeah. I've never been invited to speak at a long term care conference.
David:Yeah. And you're not doing yourself any favors now either.
Mike:But I'm I'm fine. I'm licensed to sell them, and I'm fine giving a very open conversation about it, because I'd rather you not buy it, and we structured the plan. My business does better, admittedly, when I give more honest advice, when I give more transparent advice Mhmm. Because we make our money based on a flat fee schedule. So we need retention.
Mike:We need that openness and transparency. It's not about putting all your money in the market. We're indifferent on where your money goes. But we do well when we have that objective conversation of what truly is right for you, and that does make us slightly unique. It's a subscription model, basically.
Mike:Yeah. Well, how much does it cost to do the job? Great. Now let's really dive into the details and figure out what's right for you, because we're paid the same regardless of where your money goes. So that also kind of affects, I guess, our horrible long term care insurance, which are basically zero.
Mike:Yeah. Because we've never sold one. But do you see my point here?
David:Yes. You just have to know what are the motivations for either either the proposed insured or the insurance company, and do they line up? Where's the Venn diagram?
Mike:Yeah. Now one last note on this question. We've had many people come into our office already with long term care policies.
David:Okay.
Mike:And they were amazing. Uh-huh. They were priced wrong. The insurance company either didn't do an effective check on their family history, or they were just priced wrong, and they got in at the good time, and then they changed the prices, but the insurance company in a contract has to honor it. Uh-huh.
Mike:And I'm going, oh, hold this. You keep this thing. If they're gonna try to increase prices, you know, in the seventies or so on, there's a whole thing about that to increase insurance price. It has to go through the insurance commissioner of the state. Sometimes they're accepted.
Mike:Sometimes they're denied. Like, there's a whole process of that. They can't do it willy nilly, but, oh, yeah, let's build in assumed price increase on these things so you can keep this. Because it is priced so well, it's in your favor.
David:Those are gone now. Right?
Mike:You're not gonna get those today. That's too The insurance company's a wise doc. So I guess you could say I have a really good retention policy for the old long term care. The, you know, the stuff that you got from your work? Oh.
Mike:It's like a group long term care insurance, something like that years ago.
David:Okay.
Mike:And I was like a relic. You'll hold it dear and close to your heart. But long term care is a tricky conversation. Just don't think that it's an investment. It's not an investment.
Mike:It's the transference of risk. And sometimes that transference risk is a high premium. Sometimes you got lucky. Just understand it's a cost benefit analysis that needs to be done for you to understand what that should look like. That's all the time we've got for the show today.
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