One out of two men and one out of three women will suffer some form of cancer in their lifetime. Unfortunately, we are all aware of the emotional and financial burden a degenerative disease can place on the people we care about most. What if there were steps you can take to protect your loved ones from future hardship?
In this episode of Money Script Monday, Luke explains why adding a long term care rider to your life insurance policy can protect your family from the burden of medical expenses.
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Hello and welcome to another episode of Money Script Monday. My name is Luke Geller and today we're going to talk about the ultimate guide to hybrid long-term care policies.
This subject is an extremely important subject and an extremely relevant subject to not only myself who, I've seen it first hand from people I love, from friends, family, but for you as well because it's so common to see occurrences that have someone in the family with cancer, with some type of degenerative disease.
You've probably seen what it can do from a burden standpoint and just from a stress standpoint to that entire family and probably to yourself as well.
So, I just want to really raise the awareness of that and talk about some of the options and different plans that are available for you.
Today I'm going to cover a couple of different things.
We're going to get into why long-term care is extremely important and the importance of it, what a hybrid long-term care policy is, and then finally if you're looking into getting some of these policies what do you need to look for.
The Importance of Long Term Care
When you look at the importance of long-term care, I can probably pull out a list of 500 of reasons why you would need long-term care.
Statistics that are pushing you towards long-term care, I pulled out five here, so the five that I picked:
One out of two adults are going to suffer a chronic illness in their lifetime.
What chronic illness is, not being able to perform two of the six activities of daily living.
One out of two men and one out of three women will suffer some form of cancer in their lifetime.
Not only that, but when you activate one of these policies, the average disability claim is seven years long.
With the increasing costs of medical expenses, medical bills, it's not a surprise that one out of two households that declare bankruptcy, the reason they're declaring bankruptcy is because of medical payments.
It just says it right there how important it is and how stressful it is if you're in this situation where you need extra money to help pay for different expenses related to some of these sicknesses, illnesses, and diseases how stressful it can be on the family.
I've seen it firsthand and I'm sure you have, too.
Finally, every 40 seconds in the US, someone is having a stroke. It's such a common illness these days and such a common occurrence and you don't even think about it.
When you break that down, it just shows how important having a long-term care policy is.
It's going to be prevalent in your lifetime. Whether you like it or not, it's going to happen.
If you think about it, I'm pretty sure it's mandatory for you to have car insurance, basically mandatory for you to have homeowner’s insurance, most renters have renter’s insurance.
Those are some of your biggest assets, your house, your car, but what about yourself?
You should have insurance on your health and if something were to happen and you would need to pay for some of those medical bills.
That's a huge expense that you might not think about.
What is Hybrid Long Term Care?
What is a hybrid long-term care policy? Now that we talked about the importance of long-term care, what is a hybrid long-term care policy?
I broke it down into two different sections or two different types. The difference is really paying before or paying after.
When you're looking at accelerated benefit riders, living benefit riders, the majority of those are chronic illness riders, critical illness riders, terminal illness, and maybe even critical injury.
Those are probably the big four that would be in there.
Those riders can really be on any type of insurance policy. Same with a long-term care rider, that can be on any type of insurance policy.
You can see these different things on term, whole life, IUL, GUL, universal life, pretty much anything.
They come in all different shapes and sizes and have different benefits to them.
What to look for!
When you're purchasing these, what do you need to look out for?
The first thing, I mentioned it before, is cost. So, the cost of these types of policies.
Let's cover accelerated benefits first. The cost of an accelerated benefit is a little convoluted in the sense that it's a calculation that's made once you turn it on.
It's really cool that you actually don't have to pay for it unless you use it.
Once you need to use one of these accelerated benefits, that's when you get charged and how they charge is basically they take the present value of the future death benefit.
What I mean by that is, say you're a 60-year-old, you need to activate this policy, a terminal illness rider, and your life expectancy was 65.
Let's say $500,000 at age 65, in today's dollars, it's worth $500,000 five years from now, today, it's really only about $410,000, so that's what you can accelerate.
That difference is the cost. They have a calculation for how they determine that future value or the present value of the future death benefit as well.
Now, the cost of a long-term care rider might just be, say you're paying $1,000 a year and then for just the insurance product or just the death benefit, you add a long-term care rider on there and now you're paying $1,200 a year.
That's just a fictitious number that I just threw out, but that's basically how it would work.
So, once you know exactly the cost and how your rider is being charged, that's extremely important because it'll help you determine what type of policy is best for you.
If you are getting an indexed universal life policy where you want cash value build-up, you definitely don't want to add a long-term care rider on there because that's going to eat at some of the cash value of the policy.
However, if you have a term policy or if you a universal life policy that's a little bit cheaper and you want to pay for that benefit now so you don't have to pay for it later, you can do that as well.
It just helps you determine the type of plan that you need. The next thing you want to know is the benefit amount.
When you're talking about a long-term care rider, what's the benefit that's going to be available to you if you, say, turn this on?
Most of the time, you're going to see it either be 2%, 3%, or 4%. Most of the time, actually 2% or 4%.
What that means is that you'll be able to accelerate 2% every single month for long-term care expenses.
What that helps you determine is how long that benefit's going to last.
So, if you're accelerating 2% every single month for a year, that's 24% of your death benefit.
That means you can do that for four years before you run out. All right, so that's extremely important to know.
Now with the accelerated benefit rider, you won't exactly know what your benefit amount is.
However, in the policy, it should tell you exactly what you can accelerate.
Similar to the long-term care rider on a chronic illness rider, you're probably going to see, probably 90% of the time, you'll be able to accelerate 2% of the death benefit every single month.
Like with a terminal illness or a critical illness, it might be different because you're not going to do a monthly benefit, it's going to be maybe 75% of the death benefit is what you can accelerate.
So, you want to know what those benefit amounts are that you can take advantage of.
And then the payout. What I mean by the payout is how can you use this money once you activate it?
There are a few different ways to do it, there's a few different models.
One of the models and probably one of the more common is what's called the reimbursement where you actually pay for everything out of your own pocket and then you take the receipts and you get reimbursed by the insurance carrier.
Another way is an indemnity plan where you actually get paid at the beginning of the month and, say, you're accelerating $5,000 for the month, you'll get that at the beginning of the month, and you can use it for whatever.
Say you need to order groceries online because you can't make it to the store yourself, you can do that and pay for that service out of that $5,000 you get where you might not be able to if you are on the reimbursement model.
Now then you also have the accelerated model, which is very similar to indemnity.
You're accelerating the benefit, you don't need to show receipts for that which is a really awesome way to do it, but you want to know ahead of time.
These are things you want to plan for. You don't want to be going into the policy and not know exactly what's happening and how you're going to be able to take advantage of some of these benefits.
Today we covered a ton of information on long-term care, hybrid long-term care policies and really the ins and outs and what you want to know when you're purchasing them.
At the end of the day, these policies are really strong and really amazing because you're able to accelerate or use that death benefit while you're still alive.
The reason why these policies are extremely valuable and a hybrid policy is becoming more and more popular is because even if you don't utilize the long-term care benefits or accelerated benefit options, as long as the policy is in force, your family is going to benefit from the policy itself through the form of a death benefit.
Again, I cannot stress enough, how much most people get affected by some type of illness, some type of cancer in their family or in their loved ones, and having these policies is a huge benefit to you.
I hope you were able to take something out of today and learn some great information today and we look forward to seeing you next week.