You won’t hear about it on any major news networks, but as retirement coach and 33-year veteran of the insurance business Evan Belaga explains in today’s Two-Minute Retirement Solution, there’s been “a great revolution” in the life insurance and long-term care insurance industry that everyone should know about.
Over the next few minutes, Evan reveals exactly what this revolution is and how it’s set to impact your wealth over the short and long term.
Steve McDonald: Hi everybody, I’m Steve McDonald, and this is your Two-Minute Retirement Solution that’s going to be longer than two minutes today because our guest is Evan Belaga. He’s a retirement coach and a 33-year veteran of the insurance business and he’s here to talk about the one thing the numbers indicate none of us want to look at and the one topic almost everybody asked for in our retirement coaching series: long-term care insurance. Welcome, Evan.
Evan Belaga: Welcome. Thank you very much, Steve.
Steve McDonald: It’s my pleasure to have you. You’re in Hawaii, is that correct?
Evan Belaga: I am. I split my time between my home in Washington D.C., and Hawaii.
Steve McDonald: Oh, that’s lovely. Well, let’s start with this. Can you give us a couple of numbers about long-term care – like average daily costs for inpatient; how long the average stay is; the percentage of us that can expect to require that sort of care – those sorts of things.
Evan Belaga: Well, the shocking numbers are – we could just quote on MetLife U.S. News and World Report – just that the semiprivate-room rate in a nursing home is costing $222 a day!
Steve McDonald: And that’s semiprivate?
Evan Belaga: That’s a semiprivate. That’s $81,000 a year. For a private room, the rate jumps to an average of $248 a day – more than $90,000 a year.
Steve McDonald: Wow. How long does the average person expect to have to have care if they do?
Evan Belaga: Well, good question, Steve. Several years ago – probably five to 10 years ago – the average was just under 3.2 years in a formal nursing home. But what’s happening is, we’re all quite aware that we’re living longer and longer. When I started in the business in 1982, it was very fortunate if people lived past the age of 80. Now it’s no surprise; most of us have friends and family that are well into their 90s. People are living much longer with more debilitating, chronic illnesses. And that’s extending our stay in a care facility at one level or another.
Steve McDonald: Yeah, sometimes I wonder if that’s a good thing, living as long as we are. But let me throw a curve to you. Now, I didn’t buy long-term-care insurance when I was 50. I looked into it very seriously. I got a couple of quotes. And the fact was it was just really expensive. And it wasn’t just the expense. If I didn’t use it, my heirs got nothing back, zero. And it was a lot of money – six times the annual cost of my car insurance as I remember. About $120,000 in premiums if I lived to age 85. Now I’m hearing rumors about new plans and new programs that are addressing this issue. Can you talk about it?
Evan Belaga: Sure, I’d love to, Steve. Thanks. Yeah, there’s been a great revolution in the life insurance/long-term-care insurance industry to start combining benefits. The average premium just for a 55-year-old married husband and wife with a stripped-down basic benefit for $200 a day that would pay for up to five years is going to cost in premium close to $4,500 a year. So if they live for 20 years, they’ve spent $90,000 – and a good chance they’d never actually use that benefit between the ages of 55 and 75. The advent of this need seems to come a little later in life. Although, shockingly, up to 45% of the long-term-care claims have come from people under the age of 65. So it’s not just the “old age” problem that we’ve come to expect it to be. Well, what’s happening is they’re starting to combine benefits. So the life insurance companies, some of the more progressive ones, on certain types of policies, allow you to buy a single benefit. Let’s say you buy a $250,000 benefit. In the event that you died, of course that $250,000 would pay tax-free to any family member main beneficiary.
Steve McDonald: So essentially it’s a life insurance policy, correct?
Evan Belaga: That is a life insurance policy. However, they’ve also now created an opportunity, and the IRS has gone along with this, where you can draw out up to the full benefit of the policy in the event that you trigger it using a long-term-care formula. If you cannot do two out of your six activities in your daily living, which is exactly the trigger on a long-term-care policy, you are now entitled to draw up to $10,000 per month, tax-free from this – for example I used a $250,000 death benefit – until you’ve completely used up the benefit, in which case the benefit policy just expires.
Steve McDonald: So you get about 2 1/2 years from $250,000, ballpark, in benefits… or about a little over two years. But the question is, what’s that cost? I mean, how does that compare to just the old-style long-term-care policies?
Evan Belaga: The premium I used for that 55-year-old, if they went, husband and wife, and bought a conventional long-term-care policy that was worth about $360,000 cumulative benefits. If they were able to use them and exhaust them, that premium would be close to $4,500 on just long-term-care premiums. They could accomplish the same thing buying a combination policy for just a slightly larger premium of $5,000 a year. But that would be a guaranteed benefit that would provide $360,000 each in the event they died or in the event they needed to access any of that money for long-term care or disability benefits.
Steve McDonald: And their heirs still get the lump-sum death benefit if they don’t use it?
Evan Belaga: Exactly. So it pays a guaranteed benefit at death.
Steve McDonald: Now that’s something that makes sense!
Evan Belaga: Whatever is not used for long-term care at the death of the insured, the balance gets paid as a tax-free death benefit to the main beneficiary.
Steve McDonald: OK, here’s my last question, because I know my folks are going to be asking this: At what point or how much money does a person have to set aside to not buy a policy, but if they have the cash, how much do they have to set aside to cover themselves? I know there’s got to be a breakeven point somewhere.
Evan Belaga: Yes and no. It does take a number of years to justify the premium on the claim side, which is why the life-insurance component is so attractive because it pays a certain benefit.
Steve McDonald: You get something back.
Evan Belaga: You’re guaranteed because death is 100% certain.
Steve McDonald: Yes, it is.
Evan Belaga: Less than 20% of long-term-care policies ever get actually used. So the other 80% is going away as wasted premium.
Steve McDonald: Right. That was my big objection to the whole thing.
Evan Belaga: And as you can see by the grids that I have posted, the older you are before you buy your long-term-care coverage, the more you’re going to spend for the premium.
A woman is 60% more expensive to buy long-term-care insurance for compared to a man.
Steve McDonald: Is that because they live longer?
Evan Belaga: That’s because they live longer and women tend to take care of the men so the men are fine when they’re married. And if you’re a woman, you typically don’t have a husband later in years because women do live longer, or you’re not really comfortable with your husband taking care of you.
Steve McDonald: OK, let me stop you there. It looks like we’re going to have to have you back. I don’t want to go too long because we lose too many people. But let me ask you, Evan, would you be willing to take emails from our Members with questions on the topic?
Evan Belaga: I’d be happy to. My email address I can give you right now if that would help.
Steve McDonald: It’s all right, you know what, we’ll just run it at the bottom of the screen when this comes out. It’ll be there for those folks to write down. So we’re definitely going to have you back because I think we need to talk about more of this. And unless you have a lot of cash you can afford to pay out for long-term care, inpatient or in-home, this insurance is something that we all have to look at. None of us, I’m sure, want to be a burden to our children with this kind of a financial load. So if you don’t know exactly when you’re going to check out of this race for the most toys – and under what circumstances is the tough part – I’d take a look at long-term-care coverage. Evan, we’ll run your email on the screen now – firstname.lastname@example.org – let me thank you so much. I definitely want to get you back if that’s OK.
Evan Belaga: Thank you so much, Steve. I appreciate the time.
Steve McDonald: It’s my pleasure. And before I go, quick commercial, the IU Conference is in St. Pete this year. If you’ve never attended, it’s one of the best things we do all year and it’s well worth your time. All of The Oxford Club Editors are going to be there, I’ll be there, and lots of other experts from the money business. And I’ve got to be honest with you, meeting our Members and getting to know them at this meeting is one of the best parts of my job. So I hope to see you there. Click on the link below for all the details..
Evan, thank you again. And for everybody here at what is supposed to be a Two-Minute Retirement Solution – but I think you’ll agree with me, it’s worth running over this week – thanks so much for being a part of us and I’ll see you next week.
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