Protecting Yourself With Long-Term Care Insurance - Adviser Investments

Protecting Yourself With Long-Term Care Insurance

March 11, 2020

Episode Description
Featuring David Mastroianni and Diana Linn

Today’s retirees are living longer, more active lives than ever—but many come to a point where they need some extra help. Even if an injury or illness means you or a loved one require assistance with the day-to-day tasks of life, there are often ways to get that care and still maintain your independence—but with costs rising across the board, it pays to start planning now.

In this podcast, we cover the intricacies of how to anticipate and pay for long-term care needs, including:

  • How to incorporate long-term care needs into your financial plan
  • What Medicaid and Medicare cover—and what they don’t
  • Pitfalls to be wary of when buying long-term care insurance

Understanding your options and planning for long-terms needs is one of the best gifts you can give your heirs and yourself. Click here to listen today!

For more resources on how and when to plan for long-term care costs, listen to our podcasts on health savings accounts and insurance needs at every age.

Episode Transcript

Diana Linn:
A long-term care event can be a huge burden financially and emotionally. Are you adequately prepared for a long-term care situation?

Diana Linn:
Hello, and welcome to another episode of The Adviser You Can Talk To Podcast. My name is Diana Linn. I’m an account manager and a financial planner here at Adviser Investments. Today we’re going to be discussing long-term care insurance. And to help me navigate this topic, I’ve invited my colleague David Mastroianni to join us. David is an account executive and CERTIFIED FINANCIAL PLANNER™ with Adviser Investments and our resident long-term care insurance expert. So thanks for coming, David.

David Mastroianni:
Thanks for having me, Diana.

Diana Linn:
Okay, so you may be thinking, why is this important? Why am I going to invest the next 40 minutes or so listening to a conversation about long-term care? Well, I’ll tell you why. So the majority of the clients we talk to think that they are never going to need living assistance. I’m going to peacefully pass away in my sleep at home.

Diana Linn:
They don’t want to confront the possibility that they might be faced with this big long-term care expense later in life. So, when I say long-term care expense, that could be anything including home care, assisted living facilities or traditional nursing care. It’s a sensitive issue because I mean, I know I personally don’t want to think about myself or my loved one in this type of situation. It’s unpleasant. But David, what do you say? I think we’re going to just rip the Band-Aid off and face this issue head-on today.

David Mastroianni:
I totally agree with you, Diana. And to your point, it’s definitely a situation that comes up where I think a client’s inclination is to just kind of shun it, do the ostrich routine.

Diana Linn:
Totally.

David Mastroianni:
Put their head in the sand and for good reason. This is a huge burden not just financially, but emotionally as well.

Diana Linn:
Absolutely.

David Mastroianni:
I’ll even share with you a personal anecdote. My grandfather was diagnosed with Alzheimer’s and had to go into a nursing home and watching my parents have to deal with, how are we going to take care of his care, how are we going to pay for it, the transition getting him settled in, the ongoing care and expenses. All those things combined create just this huge burden that becomes, in some ways, insurmountable if you haven’t done the proper planning and aren’t proactive in addressing the issue head on.

Diana Linn:
Absolutely.

David Mastroianni:
To kind of dovetail with that, I’ll just mention some statistics out there, because I know a lot of people kind of like the factual data to put kind of the hard tangible facts behind it. But statistically speaking, 70% of the people over the age of 65 will need some type of long-term care services in their lifetime.

Diana Linn:
70%?

David Mastroianni:
Yes, and the cost for this care is not cheap. According to the Alzheimer’s Association, the estimated cost for long-term care range services is going to be between $217,000 and $341,000 approximately.

Diana Linn:
Whoa, each year?

David Mastroianni:
We’re talking big numbers here. Here’s the thing, when you put those numbers, that hard data into someone’s financial plan, it runs the risk of seriously derailing someone’s retirement income plan, ensuring that they’re not going to meet their goals, whether it be of retirement financially, leaving a legacy, funding their grandchild’s education, all those things, present risks that, again, you’re not going to be able to fulfill the goals and dreams that you’ve saved hard for.

Diana Linn:
Yeah, those numbers are staggering. And this is exactly why this is so important. You spend all this time and that wealth accumulation phase of really thinking about, okay, I’ve got to prep my portfolio for retirement. And now, David, you’re also telling me that I need to plan for long-term care, or if I don’t adequately prepare, then it’s going to be my kids that are faced with that burden of making sure that I’m taken care of.

David Mastroianni:
Exactly.

Diana Linn:
I know that long-term care insurance, it’s a hot topic and it is absolutely one way of dealing with this problem, but it’s not the only way. So I was thinking that we could structure today’s conversation by first, let’s define what long-term care is and then navigate the four main ways that people think of mitigating this risk, including self-insurance, long-term care insurance, I mean, self-insuring, Medicaid and Medicare. So, David, could you first, let’s just get this out there and explain what long-term care is. Let’s define it, so to speak.

David Mastroianni:
Sure. So, you already talked about it a little bit earlier, Diana, but just to reiterate for our listeners. Long-term care is any type of assisted care that is nonmedical related. When I mean nonmedical, it’s not related to doctor’s visits or receiving medications. It’s some type of custodial care, getting around the house, being able to get dressed in the morning, go to the bathroom.

David Mastroianni:
Those services can be provided in a variety of ways. It might be as you pointed out, adult daycare. It could be an assisted living facility. It might even be a nursing home. So generally speaking, that’s long-term care in a nutshell.

Diana Linn:
So when I’ve kind of failed to meet one of those activities of daily living, two of them then I qualify for this type of assistance?

David Mastroianni:
You jumped right ahead. But you’re exactly right. So typically how long-term care is qualified from an insurance perspective, because that’s usually the trigger that will enable someone to be able to go on long-term care insurance is if they’re unable to perform what’s referred two out of the six ADLs or “activities of daily living.” They are eating, bathing, dressing, toileting, transferring and maintaining continence.

Diana Linn:
Okay.

David Mastroianni:
The other also possibility is a cognitive issue. So, dementia or as we referred to already, Alzheimer’s.

Diana Linn:
Alzheimer’s, okay. So now that we have defined what long-term care is and what qualifies as a long-term care situation. Let’s go ahead and dive into those four ways that we mentioned of potentially paying for and mitigating this risk.

David Mastroianni:
Absolutely. So, Diana, as you said, there’s four primary ways for funding long-term care. The first one, which is fairly self-explanatory, but I will kind of go into some details is self-insuring. And when I mean self-insure, essentially you’re paying on your own, and that can be through a variety of sources. If you’re fortunate enough to have a sufficient income stream, not just Social Security, but a pension as well, that income could theoretically be sufficient enough to cover your ongoing long-term care expenses.

David Mastroianni:
Also, if you’ve accumulated enough wealth through your portfolio, other investments, maybe other assets like real estate that you could tap into, all those different assets are going to provide you an avenue to pay for long-term care on an ongoing basis, which is good in some sense, because you already have the money to rely on. But you also have to factor in the risk of having to spend down assets, maybe diminishing the size of your estate, especially if you want to leave a legacy and also, again, kind of offsetting maybe some of the other financial goals that you had in mind.

Diana Linn:
I know that sometimes we kind of use that rule of thumb, so to speak, that if you have accumulated a portfolio net worth of around $2 million, that self-insuring is a good possibility for you.

David Mastroianni:
It’s an interesting thought, Diana, but I tend to steer away from those rules of thumb in this type of event, because here’s the thing, everyone’s standard of living is going to be different. You don’t know what someone’s expenses are going to be, what type of means they’re living on, on a case by case basis. Obviously, $2 million goes a lot farther in Green Bay, Wisconsin than it does in New York City, for example.

Diana Linn:
This is true, and this is where the value of a financial plan and really looking in to see your total portfolio, the effect of what this extra cost would do to your assets becomes really valuable.

David Mastroianni:
I’m glad you brought that up, Diana, because here’s the thing, we do a lot of work here at Adviser Investments as it relates to helping our clients with their retirement income plan. And oftentimes, we try to give them the benefit of looking how a long-term care situation will impact them being able to meet their financial goals and expectations.

David Mastroianni:
So in other words, we can look at their investment and financial goals through one paradigm of everything is normal, and then also through another perspective of what happens if you unfortunately need some type of long-term care. So, I know you and the planning team have done a lot of that before, right?

Diana Linn:
Yeah, we sure have. Okay, so we’ve talked about self-insuring, and this is already such a daunting possibility and an expensive expense here. What are some other options that we have if paying for this entirely out of pocket doesn’t feel quite right?

David Mastroianni:
Sure. So, let me first off by describing Medicare, because Medicare does provide some coverage, but there is an asterisk that we have to attach to it. As most of our listeners know, Medicare is the health insurance that you get at 65 in retirement. Now, how Medicare law is written is that it will provide you in a best case scenario up to 100 days of coverage if you require some type of long-term care assistance.

David Mastroianni:
But here’s the issue. There are situations where if you’re going through rehabilitative care that Medicare will shut off the spigot if you plateau in terms of your recovery. I’ll give you an example. Let’s say you slip and fall, break your hip, you require to go to rehab and require again long-term care assistance. Well, Medicare is going to start the clock and say, okay, your 100 days starts now.

David Mastroianni:
But let’s say you get to the point where you’ve got as good as you’re going to get. You’ve pretty much reached the peak of your recovery. Your doctor is keeping notes, and as soon as they say, okay, we’ve done everything we can for you. Medicare is going to turn off the switch, and basically, you’re on your own from there.

Diana Linn:
Wait, David, say that again, because I think that’s so important. You’re saying so that that’s all I get, that that is, I’m on Medicare. That’s all they’re providing for me. And that’s it. It’s turned off.

David Mastroianni:
Exactly. Best case scenario, 100 days, and oftentimes, it’s going to be less than that depending on your situation.

Diana Linn:
Okay, so that’s most likely not going to be sufficient, especially if I’ve had Alzheimer’s or some form of dementia, I’m going to need help longer than 100 days. So, what are my other two options?

David Mastroianni:
The other one is I’ll talk about next is Medicaid, which most of our listeners know Medicaid is different in the sense that’s more of means-based healthcare that unfortunately does require you to spend down your assets below the poverty line, which presents a definitely downside when you’re thinking about protecting your home and your assets that you would normally want to leave to save your spouse, your children, your heirs.

Diana Linn:
To my kids, my heirs, yeah.

David Mastroianni:
And not only that, I think that even if you were considering some type of Medicaid situation for funding, there are a lot of downsides in terms of the quality of care that you’re going to receive. I’ll give you an example that you are going to lose a lot of your flexibility in choosing care options. So, when you go on Medicaid claim, Medicaid will draw a radius around where you live and identify what facilities are available to provide you care.

Diana Linn:
So I don’t get to pick. I don’t get to say I’m going to go to A.

David Mastroianni:
No.

Diana Linn:
They’re going to give me B.

David Mastroianni:
Under normal circumstances if you were funding or had insurance or what have you where you might want to be inclined to say go to the nice, get the nice platinum package at the Green Grove retirement community, you might end up having to go to a less glamorous state-run facility that semi-private might not have all the bells and whistles and comforts that you would expect from a place you would want to live under normal circumstances.

Diana Linn:
Okay. I see. I get that.

David Mastroianni:
I do want to point out, though, that Medicaid planning is possible, though, and could be a potentially good avenue to pursue through proper trust-funding. But there are a lot of restrictions, though, depending on what state you live in, which is why it’s also important to make sure you seek out good professional help as it relates to setting up a Medicaid trust, for example.

Diana Linn:
Right, and I will throw in the caveat because I do know that that comes up from time to time when we’re doing and working on a financial plan for somebody that the Medicaid planning it’s extremely tricky, but there are certain strategies. So, we just want to be sure that you find an attorney that can help you, that are specially trained in these Medicaid situations.

David Mastroianni:
Exactly. Anyone who’s a specialist in elder care law or Medicaid law definitely are going to be a good resource for setting up and planning any type of trust.

Diana Linn:
Okay. All right, David, I am excited because now we are here to what I would assume a lot of our listeners have tuned in for and that is to hear about long-term care insurance. And that is, of course, the last of our four potential options of paying for long-term care. We’ve already covered self-insurance or paying for these expenses out of pocket and we know that they can be quite costly.

Diana Linn:
They might have a huge impact on our portfolio, Medicare, and then unfortunately, we’re only going to receive about 100 days of coverage, probably not long enough to facilitate especially if we have something like a dementia, something that’s going to require extensive periods of time of care. Medicaid, which you’ve told us is going to be spending down my assets. So now we have found ourselves here at long-term care insurance, the bulk of care. So where should we even begin, David?

David Mastroianni:
Thanks for teeing me up there, Diana. Because there are a lot of variables to look at when looking at a long-term care insurance policy. There are four primary features that need to be evaluated when putting together a long-term care insurance.

Diana Linn:
Features of my policy, so things that when I’m speaking to my insurance agent, I need to be sure my policy has these four things.

David Mastroianni:
Exactly. But before I get into that, I just want to present a little bit of a caveat beforehand that it’s important when you’re looking at long-term care insurance to look at the track record of the insurer. Because the landscape has changed dramatically over the last 10, 15 plus years, in terms of less companies are providing the insurance. There has been rate increases, really because not only have insurers under-priced the premiums on these policies but more people are actually using them.

David Mastroianni:
So when the insurance company is losing money, I mean, it’s a good thing for the consumer because they’re actually getting out ahead in terms of being able to use these benefits. And again, they undershot their actuaries.

Diana Linn:
Well, I’m not sure if they really anticipated the cost of this care really climbing as rapidly as it did. I know that when we do a financial plan for a client, we do inflate those costs much more aggressively, at 5.5% over the traditional just 2.5% inflation. So, I’m sure that plays a part into the huge changing landscape as well.

David Mastroianni:
It’s certainly part of it. But again, I would just reiterate that it’s important to make sure that whenever you’re examining the features of a policy, also look at the quality of the insurer, and check that they’re in good financial standing through a Standard and Poor’s, AM Best really, because you want to make sure that they’re going to have the financial stability and backing to pay out claims, especially after you’ve been paying premiums for several years.

Diana Linn:
One of the risk of signing up with a not as well-known established name is what if they go out of business, and I’ve been paying for this policy, and they can’t help me when I need it.

David Mastroianni:
Exactly.

Diana Linn:
Okay.

David Mastroianni:
So the first feature that we’re going to talk about is the benefit amount, which is pretty self-explanatory. It’s how much the insurance company is going to reimburse you in a given period of time. Benefits are given either on a daily amount, or a monthly amount. That’s an important feature to distinguish because it affects the flexibility in terms of how you receive your long-term care benefits.

David Mastroianni:
Let me give you an example. Let’s say that you have a policy that provides you a reimbursement of $200 for a daily benefit amount, and you’re receiving long-term care. On Monday, your care costs you $100 a day, which is fine. Tuesday, it’s $200 a day which although at your limit, you’re still covered, but on Wednesday, it’s $300 a day.

David Mastroianni:
You’re not only going to get reimbursed up to that $200 high-water mark, which again diminishes the flexibility you have even though on average you’re using roughly around the same amount of benefits because you use less earlier in the week.

Diana Linn:
I guess one of the nice perks about a daily benefit like that could be what if my son is coming to help me Monday, Wednesday and Friday, so my cost is obviously much lower. But on Tuesdays and Thursdays, I need a little bit more help from a skilled nursing assistant. And that’s going to cost a little bit more.

David Mastroianni:
That also presents the other side of the coin, Diana, and why a monthly benefit might make more sense just because you have-

Diana Linn:
Okay, tell me more.

David Mastroianni:
Because you have more flexibility because your cap is actually set at a monthly allotment. So let’s say if you’re receiving benefits of, gosh, I don’t know, $6,000 a month, for example, and you only use in total in the aggregate, $4,000 or $5,000. Well, that is going to be fully covered because again, you’re aggregating all of your care based on the totals for that preceding month.

David Mastroianni:
So to use your analogy, if you have someone that’s maybe coming in, like your son or a child or a cousin that’s providing some level of care to you in a given period of time, that’s kind of offsetting your care costs on a month by month basis. Well, you’re going to be able to really maximize the flexibility with your benefits by getting a monthly benefit amount.

Diana Linn:
And so what will happen with the excess amount? So, if I’m only spending, you’re tallying it all together, you’re averaging it out, I’m spending only $500 a month but my benefit is $600 a month, where is that extra $100 going to go?

David Mastroianni:
Yeah, so that’s a good example, Diana, and actually dovetails with our next variable when it comes to long-term care policy design, which is your benefit period.

Diana Linn:
Okay.

David Mastroianni:
And when I mean benefit period, we’re talking about the length of time that you’re going to receive benefits. Here’s the wrinkle is that it’s not a set period of time. The benefit period is really a multiplier that creates a pool of coverage.

Diana Linn:
Oh boy, he’s getting his calculator out. So, let me get on the edge of my seat here, this is going to get good.

David Mastroianni:
Just want to make sure all listeners can follow along with the math. But here I’ll give you an example. Let’s say that you have a policy that provides you with $200 a day. So that’s 200 times 30 days in a month, so that’s $6,000 a month, and then multiply that by 12 months in a year, or excuse me, 12 months, yeah, 12 months in a year. So that’s $72,000 a year.

David Mastroianni:
Well, if your benefit period is three years, for example, $72,000 times three, that’s $216,000. That’s your benefit pool that I used, that I mentioned as an example. Now, here’s what’s interesting, your benefit pool is $216,000. But let’s just say for example, you go on claim and you’re only using instead of $200 a day $100 a day. Well, after three years, you’re still going to have half of your benefit pool leftover, which is $108,000.

Diana Linn:
What?

David Mastroianni:
Theoretically, you could extend your benefits for an additional three years, assuming, again, your level of care costs remain static and remain consistent. So that flexibility in terms of being able to extend your benefit, the amount of time that you’re going to receive benefits, especially early on when you’re not using the full allotment of reimbursement that you’re entitled to, that provides a huge advantage especially as it relates to care flexibility.

Diana Linn:
That is huge. I mean, now I’m getting extended period of extra time. I also wanted to ask you, I know that I have seen some policies when looking into doing financial plans for clients that has different, I don’t want to say a rider, but a different flexibility, so to speak, for like, let’s say for example for myself and my partner, we have this long-term care policy that is purchasing the policy together. Aren’t there couples discounts? Or can’t we use this excess valued amount of unused benefit together?

David Mastroianni:
That’s a good point, Diana, and I think it dovetails well with the benefit pool. You are correct that there are a lot of policies that you can purchase as a husband and wife, couples discount. And it’s not just the cost savings that’s great there. You also have the advantage with most of these insurance policies that you can tie in the benefit pools together.

David Mastroianni:
So I’ll give you an example. Let’s say Mr. and Mrs. Jones purchase long-term care insurance. Mr. Jones never uses his insurance, he passes on and Mrs. Jones continues to live on her own but then in a few years she has to go on claim. Well, even if she uses all of the benefits that she was allotted to in her pool, she has the ability to tap into her husband’s pool benefit, assuming that there was still money leftover there.

David Mastroianni:
So being able again to tie those pools together and kind of provide a certain level of hedge of coverage because statistically speaking more often than not, it’s usually one spouse or the other that’s going to require some type of extended long-term care coverage and not necessarily both of them to the full allotment.

Diana Linn:
And women, we tend to live longer statistically speaking, and I know that 70% of the population in a nursing home traditionally are women. So, this is a really nice option to consider. Anything else about long-term care insurance that we should really think about before we move on?

David Mastroianni:
Well, we got two more policy benefits that we need to talk about, and I’ll cover them, try to be a little concise because they are pretty straightforward, but important to touch upon. The third one that we haven’t discussed is the elimination period, which pretty much is the insurance company version of a deductible. It’s saying that you have to wait a certain amount of time when you go on claim before actually receiving benefits. The vast majority, I want to say over 90% of policies have a 90-day elimination period.

Diana Linn:
Okay.

David Mastroianni:
And if you’re listening at home, you may think-

Diana Linn:
Yeah, why 90 days?

David Mastroianni:
Well, it goes back to what we talked about before with paying with Medicare, because Medicare in a best case scenario will cover you up to 100 days. So, whenever you go on claim, Medicare is going to provide the first layer of coverage while you’re going through that elimination period. And ideally, whenever Medicare drops off, you’ll be able to provide a seamless transition into your long-term care insurance once you’ve satisfied your elimination period.

Diana Linn:
Okay.

David Mastroianni:
So the last policy benefit is the inflation rider, which you know Diana as well as I do a dollar today isn’t worth a dollar tomorrow and the cost of long-term care is going up. Not necessarily so much in line with health care cost, but within the cost of labor, the cost of housing, which are the real drivers of long-term care insurance. That being said, most policies have some level of inflation protection that they can provide, usually through some type of simple or compound interest coverage.

David Mastroianni:
Another thing that we’ve seen that’s become more prevalent is actually tying your inflation protection to the CPI or the “consumer price index.” So that way, you have a stronger corollary to the actual cost of long-term care expenses to the amount of benefit of your long-term care coverage.

Diana Linn:
As you’re saying, so it’s just … And that’s a great important thing to note that when you are taking out this long-term care policy, when you’re looking at that daily benefit or that monthly benefit, daily benefit of $500 a day, that seems wonderful right now, but 10 years down the road with inflation being let’s say 2.5% or so, that $500 is not going to take me as far then as it will today. So, making sure that you are adequately protected with what we call COLA, or the “cost of living adjustment.”

David Mastroianni:
Exactly.

Diana Linn:
All right. I think this is great. Thank you so much for that, David. I’m so excited that we’ve adequately covered those four different types of paying for insurance, paying for a long-term care, really three since we’ve fully disclosed that Medicare isn’t going to adequately prepare us for us.

Diana Linn:
So changing gears a little bit here. I was shocked to learn that the medium cost of a semi-private nursing home was $85,000 a year and that’s coming from Genworth. So, David, how much of this annual cost would be covered by long-term care policy? And how much is this long-term care policy going to cost me?

David Mastroianni:
That’s a really good question, Diana, but it’s also a very difficult question to answer just because long-term care insurance isn’t necessarily mean to be the be-all end-all when it comes to full coverage. It’s really meant to act as coinsurance. And when I mean coinsurance, you’re trying to hedge your risk, you’re not intending to fully insure or fully fund a long-term care situation.

David Mastroianni:
Think of it this way that whenever you’re purchasing any other type of insurance, you don’t want to get necessarily all the bells and whistles and fully insure whether it be for disability or homeowners or car insurance. You just want to have enough coverage that’s going to adequately protect you in the event of a loss. So long-term care coverage is the same way.

Diana Linn:
So kind of thinking of it like a car maybe, I can have the option, I can purchase the Cadillac with all the bells and whistles. I got a heated steering wheel. I got lane assist or maybe I don’t need all that. Maybe I drive a Toyota Prius and I’m super happy with that. Is that what you mean?

David Mastroianni:
Exactly, just as long as you don’t buy the Pinto.

Diana Linn:
Okay, so no Pinto. Okay. We’ve spoken about the cost, we have the option we can get that premium policy or we can just get a policy that’s going to meet our needs. Just making sure we are fully protected and not getting the bottom of the line. So another trend that we’re seeing, and I think this might kind of play off of what you mentioned earlier, David, about how the landscape of long-term care is really shifting.

Diana Linn:
The costs are escalating, fewer and fewer insurance companies out there are even offering long-term care as an option. I know that we’ve started to see this transition of other types of insurance policies with a long-term care rider associated with it. Could you elaborate into some other alternative options that we might have available to us?

David Mastroianni:
Diana, as you alluded to, the landscape has kind of migrated to match the needs of consumers to have more hybrid options when it comes to long-term care funding. A classic example would be a life insurance policy with the long-term care rider. So, oftentimes, clients will have a type of permanent insurance with cash value that they’ve accumulated over time, they’ve been paying premiums into, they have it for estate planning reasons or legacy reasons and so forth.

David Mastroianni:
Well, what you can do is actually “1035” your cash value into a new policy that not only will pay a life insurance benefit, but also have the potential to provide you or I should say, to allow you to receive long-term care benefits by tapping into that cash value prematurely.

Diana Linn:
So I’m going to stop you because I know we’re both financial planners. So you said 1035, I was with you, I know exactly what that meant. But do you want to explain just in case somebody’s listening that doesn’t exactly know what the 1035 exchange is?

David Mastroianni:
Sure, so good question. 1035 exchange simply stated is being able to have a tax-free transition of your life insurance cash value from one policy to another. So, whereas normally if you sold your policy and had this cash value, that might present some tax hurdles that you’d have to go over, especially if you wanted to use that money to reapply it elsewhere. But if you work with an insurance agent and you do this properly, you can transition your life insurance cash value tax free from one policy to another through the IRS code, which is again a 1035 exchange.

Diana Linn:
Yeah, I have actually seen this work. It worked really successfully for people that maybe took out an insurance policy years ago, and now their needs are very different. And this whole life insurance or whatever type of policy that isn’t quite fitting their need, they can go ahead and make this exchange and shift it into something that fits their current needs.

David Mastroianni:
Exactly. I’ll just mention a few things too, that there are other types of hybrid products out there, certain annuities, for example, that do provide additional benefits again, for going on long-term care claim. That’s also an option. One thing I do want to point out though, and I’ve kind of mentioned this in passing about not only pursuing companies that are going to provide sufficient coverage and are in good financial standing, but also make sure that you work with an independent insurance agent that is well versed in long-term care policies.

David Mastroianni:
Preferably someone who has a CLTC designation, otherwise known as Certification for Long-Term Care, because they’re going to understand not just the pros and cons with each policies, but which insurers are going to be more inclined to provide better rates, more favorable underwriting and really just be able to match you with the policy that best meets your needs and expectations.

Diana Linn:
Yeah. I’m just going to put an exclamation point on what you just said, so to speak, that this is a really good potential option. So, take a look at the current policies that you have, out right now, be sure that they’re still meeting your needs. If not, maybe speak to your insurance agent and consider this is an option.

Diana Linn:
So I also wanted to mention, David, you and I, as financial planners, we encounter clients all the time that are, they’ve taken the proper steps to protect themselves, they’ve taken out this long-term care policy, but in the same vein of this landscape shifting and the times changing that the long-term care policies aren’t all exactly what they used to be. So maybe now my policy is renewable. So what that means is, every year, the insurance company is guaranteed to renew my policy again, without me having to go through the underwriting.

Diana Linn:
I don’t have to go through another health screening. But these policies, unfortunately, you can’t get a non-cancelable policy anymore. So, meaning that every year while the insurance company has got to continue to renew the policy for me, they also can’t increase my premiums. That unfortunately has gone by the wayside, and now we’re just in those guaranteed renewable. So basically, they can’t kick us out, but they reserve the rights to receive their premium. So, I just wanted to kind of get your opinion on this.

David Mastroianni:
Sure, Diana, and not to again sound redundant, but we have talked about the changing landscape and the fact that insurance companies really misread the market when it came to creating these policies many decades ago. And as you said, there is the potential for a rate increase. And if someone receives that letter in the mail, they’re thinking, well, what should I do now?

David Mastroianni:
To take a step back, I do want to point out that insurance companies cannot raise rates on individual policyholders. So, they can’t go to the Smith family and say we’re raising your rates. They have to do it for a class of policyholders state by state. Typically, how the process works is that the insurance company will sit down with the state insurance commission and say, listen, we misread the market, our actuaries were wrong. This is what we found out, we need to raise rates by X amount in order to make sure that we have proper funding and can provide coverage.

David Mastroianni:
So once the commissioner hears out their case, they’ll decide, okay, we agree with you. We will allow a rate increase, or maybe they won’t, or maybe they will kind of go back and forth at determining what’s appropriate. In the event of a rate increase, though, I do want to point out that it’s always better to pursue a lower level of coverage or augment your benefits as opposed to canceling outright. Because if you cancel your policy, you’re not going to get your premiums back. There’s no reimbursement. You’re basically–

Diana Linn:
I’m just out.

David Mastroianni:
You’re out completely. But you might be able to, if there’s a concern as it relates to your budget and being able to afford your premiums, there are ways that you can make adjustment to your policy benefits that we talked about before. So, whether it’s lowering your benefit amount, maybe adjusting your inflation coverage, maybe even potentially increasing your elimination period, if you think you’re going to have enough of a safety net to cover you before your insurance kicks in. All those things are potential factors so that way you can make sure that you’re adjusting your policy within your budget in the event of a rate increase.

Diana Linn:
So we have options.

David Mastroianni:
Exactly.

Diana Linn:
We’re not stuck. Okay, so I think we got really nitty-gritty there. Let’s bring it back to the big picture. What are some of the factors to decide if this is a lot to digest, so how do I really decide if I’m a good candidate for a long-term care insurance policy? And is it a good fit for me?

David Mastroianni:
Diana, it’s an interesting question from the perspective that I don’t want to oversimplify this, but we haven’t really talked about the underwriting component of long-term care insurance.

Diana Linn:
You make a very good point.

David Mastroianni:
Because you’re not just like going to the store to buy an eggs. Long-term care insurance isn’t really commoditized there. You are applying for it.

Diana Linn:
I got to qualify.

David Mastroianni:
You do have to qualify, you need to be approved. And a lot of that plays into your health history, your family’s health history, typical red flags that an insurance company is going to look for to see if you’re viable for long-term care insurance is saying, is there any history of cancer, strokes, diabetes, certain medications you take, all those things will affect your insurability.

David Mastroianni:
So, again, going back to what we talked about before, make sure that you are working with an independent agent that knows which companies are going to be best suited to apply for because frankly, certain companies might be sticklers for one medical condition versus another, depending on who you apply with.

Diana Linn:
I think this is a really good thing to remember is that just to kind of be open minded in that some of it is out of our control, out of our hands and what we can qualify for.

David Mastroianni:
Yeah, and bringing it more big picture Diana, talking about the more qualitative factors, think about what you are trying to achieve with your financial plan. If you have, again, a certain amount of assets that you’re worried about jeopardizing, especially if you want to leave money as part of a legacy plan be it to your children, other heirs or even a charity.

David Mastroianni:
Think about, again, the impact of a long-term care situation and how that might diminish the value of not just your portfolio but your other assets as well. We talked about this in the beginning of the show, but doing a financial plan certainly will provide some perspective on that and might dictate at least evaluating long-term care insurance as an option of the what ifs situation.

Diana Linn:
I think another component too, is long-term care insurance the right fit for me? It kind of almost seems like the sweet spot so to speak for purchasing a long-term care policy could be somewhere maybe if I’m in my mid-50s. My kids are out of the house. They’re kind of off my payroll, so to speak, college is paid for. I’m not quite retired yet, so I’m still bringing in an income. When do you see the best time is to purchase this policy?

David Mastroianni:
Typically, the sweet spot that we find is somewhere in the kind of mid-50s.

Diana Linn:
Okay, that’s what I was thinking.

David Mastroianni:
Yeah, I mean, you could also purchase a little bit later, but the premiums are really going to spike once you hit the age 65. The reason being is that as you get older, obviously more health issues become prevalent. And that presents a risk in terms of insurability. Is it possible to purchase a policy later in life? Absolutely. But again, the math starts to get a little bit more difficult, especially when you’re kind of weighing the pros and cons and doing a cost-benefit analysis.

David Mastroianni:
But I would definitely reiterate what you said, Diana, that what we’ve seen in trends is that people are purchasing these policies around that kind of transitionary period where the kids are grown up, they’re out of the house. They’re thinking more from the perspective of what do I need to do prepare for retirement? Usually that provides a good avenue to also look at long-term care coverage in parallel.

Diana Linn:
Yeah. I mean, I know that this sounds like a lot and so really, if this is something you’re considering, reach out to your adviser, reach out to a financial planner, consider doing a financial plan. We always think of a financial plan as our job is we’re really trying to poke holes into your plan to find areas of weakness, and hopefully maybe we can bring some different ideas into what would best be fitted for you. So, David, any last bits of advice for us here?

David Mastroianni:
A couple of things I want to mention, Diana. First off, statistically 89% of long-term care claims are filed for those over the age of 70. So, as we talked about before, buying a policy younger can be beneficial. So, don’t wait to plan, look at something sooner rather than later. It’s always better to be early to the game than late when it comes to looking at a long-term care coverage.

David Mastroianni:
The other thing I’ll mention is that there are certain tax advantages when buying long-term care insurance if you’re a business owner, premiums may be deductible if you have certain types of sole proprietorships or partnerships, and also can be partially deductible depending on if you have a corporation like an S-corp, for example, and may be able to write off some of those premiums come tax time. The other thing I’ll mention is that on this podcast, I know in the past, we’ve talked about health care savings accounts or HSAs.

Diana Linn:
Yep, that’s a really good point.

David Mastroianni:
HSAs present another avenue for paying for long-term care premiums if again, you do decide to pursue the insurance route.

Diana Linn:
One more time, say that one more time. So, health savings accounts, my HSAs, I can continue to use this to pay for long-term care.

David Mastroianni:
Exactly.

Diana Linn:
That’s huge.

David Mastroianni:
The last thing I’ll mention is that depending on what state you live in, there are a lot of incentives and residual benefits that they might not have thought of when it comes to purchasing long-term care insurance. I’ll give you an example. In Massachusetts, if you purchase a policy that meets certain minimum requirements, it will actually protect your home even if you have to use up all your insurance, you spend down your assets to the Medicaid poverty level, even in that event, your house is protected if you’re proactive enough to pursue a certain level of long-term care coverage.

Diana Linn:
No, that’s a really good point. I know that a lot of financial planning kind of revolves around confronting uncomfortable topics. So, I’m glad we ripped the Band-Aid off of this one, so to speak, and dove in.

David Mastroianni:
Yeah, I know, it can be a shock to some of our listeners. But hopefully, we’ve provided some good input so that you have a good avenue for pursuing what plans you need to take and what you need to address so that you can be proactive and protecting yourself.

Diana Linn:
Yeah. All right. So just to recap here, we’ve talked about the likelihood of yourself or a loved one experiencing some kind of need for long-term care assistant, it’s high. I hope that if you’ve taken away one thing from this podcast is that it’s expensive and so you need to plan, you need to prepare, you need to think about this in the same way that you are thinking about planning for your retirement.

Diana Linn:
And so, like we’ve learned from our expert here, David, the long-term care insurance isn’t necessarily the end all be all. There are variety of different methods of paying for this type of situation. So please speak to a financial planner about what strategy might be the best fit for you.

Diana Linn:
We at Adviser Investments, we’re not insurance specialists, but one of our financial planners can absolutely help steer you down the right path in determining the best course of action for you. It’s an important decision. So, we want to be sure you have the correct people on your team. Thank you all so much for joining us today. And a special thank you to you, David.

David Mastroianni:
Thanks again for having me, Diana.

Diana Linn:
Yeah. If you found today’s conversation helpful, please subscribe for future episodes. You can also view our library of podcasts at adviserinvestments.com/podcast. If there are any particular topics you would like us to discuss in future podcasts, please shoot us an email at info@adviserinvestments.com. We greatly value your feedback. Thank you again.

Podcast released on March 11, 2020. This podcast is for informational purposes only. It is not intended as financial, legal, tax or insurance advice even though these topics may be discussed. Information and events addressed in this podcast, as well as the job titles, job functions and employment of the podcast’s participants with respect to Adviser Investments, LLC may have changed since this podcast was released. For more information on each individual featured in this podcast, see the Our People section of our website.

The Adviser You Can Talk To Podcast is a trademark of Adviser Investments, LLC. Registration pending.

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Work with an independent agent that knows which companies are going to be best suited [for you]… certain companies might be sticklers for one medical condition versus another.


David Mastroianni, CFP®

Account Executive

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