Long-Term Care Planning Most Advisors Miss (And Why It Matters) (Ep. 348)

"Just make sure that you're reaching out and you're doing some sort of planning with the right individual, instead of planning with your traditional financial advisor who doesn't know long-term care — because they don't eat, sleep, and breathe it. I eat, sleep, and breathe life insurance. She eats, sleeps, and breathes long-term care. So it makes a difference. Look, I don't want my primary physician doing heart surgery. I don't want my eye doctor doing heart surgery. So this is a matter of the heart. We want to protect our families, protect everything that we've built for the past 30, 40 years of our working life — and it's not difficult to do. I'll make it really easy."

You told me that story, but you also said all he needed to do was sell one piece of equipment and he could have had enough long-term care that he could have saved the rest.

Yeah, so that would happen when I was in Ohio quite a bit. Remember, I said I worked with financial advisors that were also farmers. So they would just do that. And everybody knows everybody in town, so it worked out. But in Ohio, they had the fracking boom. So they stopped working because they didn't have to. They were getting a lot of money.

So anyway, in the early days when they were dealing with another farmer, they would sell off a piece of old equipment. It would be $100,000 or whatever.

And who doesn't have — farmers, you guys. This is one of my biggest gripes. Get rid of that rusted metal. If we have a junkyard of metal and we're like, we can't afford long-term care — really?

They would sell one old piece of equipment, because we all know what farmers are able to do. Or multiple pieces of equipment, to clean up the yard.

Right. And can we stick that into a long-term care policy? Now, how old is too old, though?

Well, so there are options up to age 87. Of course, the older you get, the less attractive it is. But you can still get lifetime coverage up to 85, as long as they don't already have a long-term care risk. Meaning mom could be 85, get lifetime coverage — and as long as she can pass a cognitive, a short-term memory test.

So what is our requirement for long-term care?

What do you mean?

Underwriting requirements. Like the health exam, the cognitive exam. What are we looking for? Because a lot of people — oh, I already have health conditions. I have diabetes. I can't get it.

Yeah, you can. So it depends on the product. It depends on the way that we go. But that's, again, why I meet with people and ask them questions about their health, because then I'll determine which way we're going.

So I'll just give you an example. We've had people that have diabetes. As long as they're controlled, not a problem. People with heart disease, not a problem. Get them approved all the time. Now, what happens is when you get diabetes and heart disease together — that's when you start to get into the complications of diabetes, maybe some circulatory problems, neuropathy. Those would not get long-term care insurance, but there are still options out there where they cannot be denied.

Past cancers — we have a lot of people that have battled breast cancer, prostate cancer. It really depends on the severity, the staging, how they were treated, how they're doing now. Are they in remission now? But we would do that all through the underwriting process.

So it's basically a, hey, you need to talk to Michelle. Because we have a client — I have a client right now that you're helping with, that we have dementia, but there's still options for you to get some sort of coverage, even though we have recorded dementia.

Right. So it'd be one year before going into a nursing home before it would kick in. But it's a way to still leverage and get the money tax-free. It's not the ideal situation. The ideal situation would have been to buy it 20 years ago. But there's very creative options out there.

So is there ever a time where you can say, absolutely, this is not — there's not an option?

So we're kind of borderline with the one that we're dealing with now. Because of their asset level, and they have plenty of cash. And they just put mom in assisted living. And from what they're telling me, mom is digressing rapidly. So she may just end up passing away.

So a no-go would be, I've got dementia and I know I'm going to have to go into a home within the year. Or you just put me in a home. So there's no option.

Well, if they have dementia and their body is also not healthy, meaning they're probably going to pass away pretty quickly — then I probably wouldn't do anything at all. But if their body is healthy but they're dealing with dementia, they could live a very long time with that. So you could still get them coverage. It's just not your traditional coverage. And it's not going to be as lucrative as what we got for you, because you were 45 and healthy. But there are still planning opportunities, for sure.

The more I talk about this, it's interesting to think that we always think it's for the old people. I'm talking to my clients about it for estate planning purposes. And that's all I ever talk about. I've not ever thought or considered the home care for, I broke a leg, or I have cancer, or I had a baby and I had a stroke afterwards — which is actually quite common.

Unfortunately, you think about, oh, what if I'm in ICU? Like, this is my thoughts — what if I'm in ICU? How are we going to pay our bills, versus if I'm dead? Everybody's good. That's what I mean. It sounds terrible. But death is funny. I see that all the time. I'm like, if I'm dead, I'm good. But if I'm in ICU, we have a problem.

Michelle, I have never actually thought about what if I'm not in ICU, but I need help at home? Like, I've never thought about the recovery piece of Alzheimer's, MS, ALS.

There's a lady I follow whose husband has MS, and he was diagnosed in his 30s and he's in a nursing home. They're probably, I would say, 45-ish, maybe 50. She was on a podcast interview and I was watching a little clip of that. He got super angry and had, like, almost bipolar stuff. It was his MS. And that's a symptom of MS.

And of Huntington's disease. Like Alzheimer's, same thing.

My client was like, she's ready to divorce him. Because he was so angry all the time. And then she couldn't keep him at home, because he would kneel down and forget how to get up. Like, he didn't know how to get back up from that position.

Well, I told you about my childhood pastor. They started noticing some things. He was going outside saying, they're watching me. He was getting spooked. Well, then he's standing in the window with his gun. Like, he was getting a little schizophrenic. And they were like, who's watching you? What are you talking about? And, yeah, there's helicopters that are listening. And they're like, what are you talking about? They thought he was joking, like he was teasing.

Well, then they go — they were mall walkers, and especially in the wintertime in the Midwest, you know how it is. So they would go walk. Well, he would pick fights with complete strangers. This is a pastor. He would go, why are you following me? Like, this aggression. And he was trying to pick fights with his grandsons. And they're like, something is going on.

But then we have a mental health issue in this country, because you can't just commit somebody into a nursing home against their will. So they kind of had to trick him to go to the hospital to find out what was going wrong, because he was going, there's nothing wrong with me.

In order for her — she said in this interview — she had to admit him to the hospital, because the doctors were giving him meds for bipolar and all this other stuff. And because she admitted him, the neurologist and somebody else were talking. And they're like, no — because what happened is, he had an MS diagnosis, and then his MS regressed for 11 years. Or 13 years. And there was zero sign of MS. They just didn't put two and two together, because there was such a time span.

But I've just never thought about that. Like, anything happens to anyone, I'm going to need this long-term care policy. I think, oh, if there's an accident, I can go to the nursing home and use it. But I just have not thought about the cancer piece. It just makes it that much more important to have long-term care for everybody.

So what are your thoughts, then, on — should I have a lifetime policy versus a policy that pays for 33 months or 24 months?

If you have the means and you can pay a little bit more, I always go the lifetime route. Again, remember, if it's a couple situation — if I'm dealing with a single male, now this will throw you for a loop.

So they did a study, a company called AALTCI.org. It's nerd speak for long-term care, basically. But they did a study and they asked the seven largest long-term care companies: tell us your longest male on claim and your longest female on claim. And so they came back with seven different female and male. And it ranged from nine years as the longest to 19 years — from $1.1 million paid out to $2.6 million paid out.

So here's what we got from it. The first thing was, every single one of those people had bought lifetime coverage. That's why they were still on claim. That made sense. Probably the best thing that they ever did in their life was buying that policy, because it paid out millions of dollars.

The second thing we got was, they most likely had a cognitive issue. It could have been a stroke, but that's usually the long need. It's not like I just got old and frail and then I passed away. Usually your brain was not allowing you to take care of yourself, but your body was still living.

But the third thing really blew our minds. Out of the seven companies, five of the seven, the male client needed more than what the female needed. And so here's what we figured out from that. Because we were always like, well, men don't need care as long as ladies. True. However, when it comes to a cognitive issue, they can need care just as long as females, because now it's a brain issue, not a physical difference.

We always think about men die before women. Statistically, that's true. But it's because of their physical shape. So men physically are different than women. But when there's a cognitive issue, they can live just as long as women. So that blew our minds.

So that's why I always recommend the lifetime. Whereas people would typically go, oh, just get like two or three years. Well, remember the Parkinson's guy. He lived a very long time and struggled with that. So I'm a big proponent of lifetime anything. I want lifetime income. If I'm planning for retirement, I don't want to plan for $4,000 in income a month for 10 years. I would rather have $3,500 a month that lasts however long I live.

So I am biased in that way, because I've heard the stories. I've seen it. Men, women, doesn't matter where you live in this country — rural, suburban, doesn't matter. I have seen some really scary situations that shouldn't have happened. That being said, I would take three years over nothing.

Where can we get started to get to the end result, basically? What about businesses? So we talk, obviously, like for farming, we understand the need to save the land and save the farm and do all that kind of stuff. That's pretty self-explanatory in my opinion. But what about businesses? How are you seeing that business owners are using this to either save a business, pass a business on? Because it's a business and it's not physical land.

Right. So a handful of things. We'll talk about two different options that I'm seeing. There's a lot of different planning, but we'll just talk about these two.

So one, we've got, especially with family-owned businesses — maybe what they'll do is, because you can discriminate. You can be selective on who you use with these policies. I don't have to offer it to everybody in the business. So maybe I want to offer it to the officers of the company, which happens to be my sister and my dad, and we're just going to do it for us.

So what you can do, they call it executive bonus. So what I want to do is, I still want to write off for the business, but you can't write off the life insurance, because therefore you would make the benefit taxable.

So what we would do — let me use an example. Let's say we're going to pay 10 grand a year. What I do as the owner, if you are one of my employees, you're my sister and I have you employed — I'm going to pay it to you, $10,000, as employee wages. So I get to write that off as employee wages. You only pay the taxes on that. But really, I'm paying your premium for you. So if you're in a 25% tax bracket, you're going to pay $2,500. So all you're paying is $2,500, but you're really getting a $10,000 premium.

So it works for everybody. The business gets the write-off. The family gets long-term care. But the employee is only paying the taxes on the wages that I paid.

That's a great strategy. Are you seeing business owners buy long-term care to make sure that they're not having to sell the business? Because they got hurt, they had cancer, whatever. Like, we've built a business — it's very much like a farm, right? We spend all of our time building it. We kill ourselves building our business to be successful, being an entrepreneur. But we're not protecting it any better than the farmers are protecting their land. We're not protecting that to say, hey, if we don't die and we do need care, now we're having to sell this business at fire sale prices. And it's worth more.

Or you have a spouse that ends up taking over and you don't want to be in business with that spouse, right? So that's why — I mean, key man insurance and all that stuff has been done for years. Again, it's like I said on the individual side, just buying it individually. If you die, that's easier, because we know what's going to happen. We have key man insurance. We have succession plans in place. Who's going to take over? It's when you don't die, but you need care and you can't contribute to the business because you can't take care of yourself.

So why would I have long-term care over disability? Do you ever get that question? Like, Michelle, I should probably have disability, not long-term care.

Well, you should have both.

I need my money.

So disability insurance, remember that only is —

So I should have both. She sucks at sales. She should have said, no, you need long-term care.

Well, you need both. I mean, just honestly, you do. So disability is replacing the income that you can't make anymore. Remember, if you're living on, you know, $200,000 a year — where do you get that income if you are still working? So it replaces your income. Long-term care pays for someone to take care of you.

So if I have a $10,000 a month income need, because I have bills to pay, I have a mortgage, I have all that — well, I can't allocate $7,500 of that to go to my care. That leaves me with only $2,500. I can't afford my mortgage and my car and my insurance and food and utilities. I still need the $10,000. So your disability pays, it's an income replacement, whereas care income is on top of that to pay for care.

Yeah. Because it's a new bill. Let me just say what everybody's thinking. I'm going to be insurance poor.

But remember, this pays out whether you live or die.

So we've been talking about some life insurance. What do you think about the life insurance policies with the long-term care riders?

Something is better than nothing. So I applaud anybody who buys any of those types of policies. But my first question would be, why did you buy the life insurance policy to begin with? You most likely bought that as a legacy plan. Well, if I burn through that while I'm alive, I just screwed up my legacy plan. So that doesn't make sense.

And some of the infinite banking type policies, they have chronic illness riders on there. And there's a lot of agents out there that will say, oh, your long-term care is taken care of. No — because now I just busted up my banking strategy. Especially if you're doing family planning. That's all gone. And I screwed it up for my spouse.

So how do those long-term care riders work?

So usually it's an acceleration of the death benefit. So if I have — just making up numbers — a $100,000 death benefit. And there's a lot of different loose options out there, because they're not really regulated that well. So I'm just going to tell you one scenario. Maybe they say you have access to 75% of that. So I can get $75,000 out of that policy. There's no lifetime coverage. There's no joint options available. And again, I just blew up my legacy plan, because I burned through my life insurance death benefit that I'd planned to pay my daughter so that my son can get the farm. There's reasons why I did that.

Something is better than nothing. That is always a great plan B. It's better than burning through your entire estate and going on Medicaid. But if you're actually going to do proper planning, that is not the right route to go.

Well, how I look at those is, you're basically using the cash value. So if it's somebody that has — and correct me if I'm wrong — if I have $100,000 death benefit and I'm 85 years old, eventually that policy is going to endow. So your cash value is going to equal death benefit, right? So the closer I get to 100 or 121, the more cash value I have. So I've paid for this long-term care rider. And if I'm only getting 75% of it, where is my cash value at that point? While I'm younger, that would maybe be beneficial. But as I'm older, it's basically the same as saying I'm just going to borrow cash value and pay the nursing home until the cash value is gone.

Basically, that is probably what's happening. Technically, the law is accessing it — it's an acceleration of the death benefit. But you're right. You've already paid so much into it.

But cash value is a portion of the death benefit they allow you to use while you're alive.

That's right.

So I'm like, why are you paying for a rider to access cash value when you could just go borrow it? You have access to it anyway. So why are we paying extra for that option?

Some people think, well, I'm getting two in one.

There's no deals in the life insurance world.

No. And again, I'd rather have that than have nothing. But if I'm doing proper planning, I want lifetime coverage. And look, even though it's a life insurance policy, primary reason is it's my long-term care plan — that if I didn't need it, it didn't get wasted. So secondary is the life insurance. The other way around with those chronic illness riders, life insurance is the first, secondary is the long-term care.

Here's the other thing that you find with these, and this is so frustrating. I'm going to use a technical term. They call it actuarial discounting. So what ends up happening is, some of these life policies — again, if they are not explained well, people don't know this — they can't tell you how much you can have access to for long-term care when you buy it. They can only tell you when you need it. Because what they do is, they will discount based on your age and how long the policy has been in force.

And how do they know how much to charge you for the rider?

Well, be careful of the free ones, because that's when they will get you on the back end. So that's why I'm not a big fan of them. Again, if you have them, thank goodness. Because that's all you could get, or whatever it is.

Okay, but what if I have one? I'm not as nice as you. What if I have one and I can still qualify for my own standalone long-term care policy? Would I be better off to just do that, and look to see what that is, and just cancel that rider?

Yeah. Yeah.

Because why would I want it on there? Because I get that question so much. Does your OneAmerica policy — because that's mainly who I write with — does your OneAmerica policy have a long-term care rider? I'm like, no, OneAmerica doesn't offer that option. But they have a long-term care policy built on a whole life chassis.

Yeah. So you're still kind of getting it, but like you said, the reverse direction.

The reverse direction. So let's say you bought this life insurance policy. It seems to be the new thing — oh, I got a long-term care rider. It's like this sales tactic.

Well, think about it from some insurance companies — their main goal is not long-term care. They need to add a sweetener, because people aren't, you know, especially when you don't —

You don't need a sweetener if you know how to sell your life insurance policy.

Agreed. But there's a lot of agents out there that don't know how to do this and don't set it up properly. So they're going, oh, and by the way, you can use it for long-term care. And by law, you're not allowed to call it long-term care. It's chronic illness. It's a completely different tax code. But they'll call it long-term care.

I've never heard it called chronic illness.

It's chronic illness. Now, they do have life insurance policies with long-term care riders on them. That is absolutely usually an extra charge. But they'll pass off these chronic illness riders like it's a great thing. And again, it's better than nothing, but it's not the right path for everybody.

So here's the other thing that can get you in trouble. They are going to be just cash policies. So whenever you trigger the benefit, they'll just send you cash. So some of these IUL policies — one, you're hoping that the IUL policy doesn't implode, which that's a high probability, right? We won't even go there.

My clients — people listening know, because Mary Jo rants and raves about IULs.

Yes. IULs are really scary, in my opinion.

So if you've got these IUL policies or whatever it may be, and they've got these chronic illness riders on them or these long-term care riders, and they pay a cash benefit — well, the tax rule is, you get up to a per diem rate. So up to $400 a day.

So the way that a per diem rate works, or the way these policies work is — if I'm getting a cash benefit, remember the government wants to limit that because of fraud. And you're getting this money tax-free and they don't know where it's going. So they will give you tax-free up to a per diem rate, a per daily rate. So they say if you have one of these long-term care policies, you will have up to — I think it's this year — $400 and some odd dollars a day. So that's up to $12,000 a month. But if you have $400 a day but you're spending $600 a day because you're in a memory care unit, you're going to have to prove where that money's going.

So what ends up happening is, you've got these large IUL policies — $2 million, whatever it is. And they say, yep, we're just going to give you cash. Let's say you've triggered the benefit and you're going to get, let's say, out of that million dollars, you can pull $750,000 out. But remember, the government is only going to give you up to $144,000. So you owe taxes over and above that $144,000.

You took cash of — I'm making extreme numbers — they gave you $750,000 out of this life insurance policy as an accelerated death benefit out of a chronic illness. You receive $750,000. But the government's only going to give you tax-free up to $144,000. You got a big, fat, you-know-what tax bill. And if you don't have receipts proving that you spent that on care, you owe taxes on that. You didn't get that tax-free. Reps aren't telling people that. Now, again, that's an extreme case, but that's what could happen.

So on these long-term care riders, is it as easy to qualify and file a claim as it is if I have a long-term care policy?

I don't know about that, because basically there are rules. It's contract rules. And so that's where clients get in trouble. But there are a lot of rules to riders. And I don't put a lot of riders on my policies. But there are a lot of rules that people think, oh, well, I paid for that rider — but there's a lot of exclusions for these companies to get out of actually allowing you to use riders.

Well, yes and no. So some of it could be that. But some of that also is, the clients or the client's kids don't understand what those triggers are. They don't understand what those exceptions are.

So here's what happens a lot. Even with one of them — well, look at the client that you and I are working with together. He didn't know that there was a long-term care rider on that policy. I don't know if you —

I don't. I think I forgot to tell you. He emailed me back and said he called the financial advisor. And there is a long-term care rider on mom's policy.

Oh, well, that's good. That's something better than nothing.

Correct. But he didn't know. But had we not had that conversation with him, had you not met with him, he would have not known to check. Because I think it came up in our conversation.

Oh, it may have. Well, and these are the conversations that need to be had, because, again, it's usually the kids calling.

So here's what happens at OneAmerica quite a bit. The kids will call and go, mom's been diagnosed with dementia, so I'm calling on her behalf. Okay — well, has the physician stated that she's failing two of six activities of daily living? No, but she's been diagnosed. Okay, well, nothing gets paid out yet. So then they think the insurance company is difficult.

We're following federal rules. These are federal guidelines. To be a tax-qualified long-term care insurance policy, two out of six activities of daily living. They're not going to give you tax-free money for nothing. So some of it's federal guidelines. Some of it's the insurance company. Some of it's the kids — or even the agent told them, oh, yeah, you just call them up and you get diagnosed with Alzheimer's. Well, the diagnosis itself, you're in a mild phase. That's not going to trigger the benefits.

So it's frustrating if you don't have someone that knows what they're talking about and can help navigate the insurance company. On top of that, you've got insurance companies that are not in the long-term care business and they're slapping on these sweeteners saying they have long-term care, but they don't handle claims in-house. They outsource that.

OneAmerica keeps their claims in-house, because they not only have offered these for almost 40 years, since the late 80s, but they are paying the claims — they have to deliver on those promises. So they have in-house people that will hand-hold families through the entire process, because they know it's kind of scary and it's kind of hard. Kids are calling. But you've got insurance companies that go, oh, you got to call this other company, they handle all the claims. They don't care. So this other company doesn't care if you get your benefits or not. They're just processing the information. So, again, you got to ask about that part.

We had a situation, and this broke my heart. So the daughter talked mom into getting a long-term care policy. And so mom does. She's like, hey, look, it's just you and me. We need to make sure that you have this in place. It was an annuity, so she couldn't qualify for the life insurance option. So she got the annuity with lifetime coverage.

The daughter died first. Mom goes into a facility. She's got dementia. So you've got attorneys that are looking through her stuff. They had no idea. They just thought it was a normal annuity. They sold everything off first to pay for her care and didn't even tap into that. They had no clue.

Can you talk about the annuity long-term care? What does that mean? Because now you brought it up, so now nobody's going to know what that is.

Yeah. So they call them hybrid policies. So life insurance with long-term care, or annuities with long-term care.

So it started with life insurance. And so the government passed a tax law to recognize certain life insurance policies. It was the HIPAA law of 1996. So that's what gave us the 7702B tax law. That's getting technical with folks. But nonetheless, it recognized certain life insurance policies to be used for long-term care. It's just a small provision.

It's just showing Michelle's geeky level.

Oh, I do a lot of reading. So that gave us that tax blessing. It was wonderful. Like, we all want tax blessings. We get tax deferral in our life policies, tax-free at death. And now there's a third tax benefit — I can use it while I'm alive tax-free. I love a tax blessing.

So 10 years later, the government passed another tax law called the Pension Protection Act, in 2006. And what they did was, those same tax rules for life insurance, they just extended them to annuities. Because there's a lot of people out there that bought annuities. And annuities are great, especially in the right situations. And really what people were buying annuities for was for a future income stream, because you can annuitize them and turn it into an income stream that maybe you don't outlive.

And we saw a rise in annuity sales because of the declining interest rate environment. So here's what would happen. I have a CD. And the last time I bought the CD, it was paying me 5%. But I go to renew it, and they go, oh, it's 3%. And they're like, do you have anything paying something better? Well, we have this annuity right here, and it's paying 4%, and it's tax deferred — whereas a CD, you pay taxes on your earnings every year. So they're like, okay, well, I don't need this money right now. I'll roll it over to this annuity where I can get that compounding interest. So it's better than my CD.

So these people were buying these in droves, because we've been in a declining interest rate environment for 20-plus years. So they bought this annuity in their 50s. They didn't need it. And it's tax deferred. So now over that 20-year period, I've got a lot of taxable growth in that contract.

So what a lot of people have done — and the reason why I bought the annuity is completely different than why I'm going to use it. So now what people are doing is, they are using another tax law. It's tax code 1035 exchange. I can move it from one annuity to a new annuity without paying taxes on it. But any of that money that I withdraw, I owe taxes on that interest that I haven't paid taxes on.

So that new tax law, that Pension Protection Act, recognized specially filed annuities for long-term care. So in that scenario, let's say I bought an annuity for 100 grand, and over 20 years — I'm just making up numbers — it grew another 100. I owe taxes on that 100 if I pull that out. So now I can move that $200,000 without paying taxes, just paperwork, over to a new annuity that is Pension Protection Act compliant. That taxable growth, if I use it for long-term care, is all tax-free.

So we have somebody sitting on an annuity. Do they still have to qualify health-wise for the policy?

But it's easier.

But we can avoid taxes. Because we talked about this earlier and you said there's not a way to do it.

Not on retirement money. Not on qualified money.

Okay, qualified money.

So we could take that annuity, 1035 it into an annuity long-term care product. So that has to be after-tax. They call it non-qualified. IRAs are qualified money, meaning all of it's taxable. But these particular annuities — meaning I put after-tax dollars in it and the growth I haven't paid taxes on — that's non-qualified. So the government recognized non-qualified annuities that can be tax-free. But if you rolled an IRA, it's still taxable. That's the difference.

So if I'm sitting on an annuity and I don't want to pay tax on that, I don't want to take that annuity out to buy the long-term care policy. I just use that annuity and I can avoid some taxes.

Correct. So what we see, there's three types of people that buy the annuity, they don't buy the life insurance. Number one is, they're too old to get the life insurance, because the annuities can go higher — that's the one that can go up to age 87. That's the first reason.

The second reason is, they have health that they can't qualify for the life insurance. So with annuities, there's not a mortality risk to the policy, but there is a morbidity risk, meaning they could pay quite a bit more for long-term care. So they're going to make sure that you're not already needing long-term care. But you can have health risks that could cause you to pass away.

Here's what they're looking for. Can you walk, talk, eat, dress, and bathe yourself? Do you already have a cognitive issue? Can you pass a memory test? So they're not going to take anybody that's in a wheelchair, a walker, already has an ALS, MS, Alzheimer's, Parkinson's, dementia diagnosis. But everybody else has got a pretty good shot at getting it. And you can still add lifetime coverage to this. So there's still going to be some limitations, and it depends on the situation.

So the first reason is too old. The second reason is, I have health conditions and I can't qualify for life insurance. The third reason is, you can be young and healthy — you can be your age and completely healthy — but you already have an annuity that has a ton of taxable growth in it. All you got to do is 1035 exchange it, and now it's all tax-free. Everybody else tends to go to life insurance.

So what about self-insuring?

My favorite topic. So we get a lot — and I kind of talked about it earlier, so this might sound a little repetitive. There are investment pros out there that will tell a client, you have plenty of money, you don't need to buy insurance. But they don't realize the ripple effect of that.

They tell them never to buy life insurance.

Here's what I say. If you have enough money that you could self-pay for Alzheimer's, that means you have enough money you can self-pay for cancer. So drop all your health insurance. You don't need it. And then I go, I'm kidding. Please don't do that. Point made.

Here's why I say that. If you are willing to just stroke a million-dollar check every year that you're battling cancer, then you can do that for Alzheimer's. It's just a different ailment. You still don't pay retail price for that. You know why? Because health insurance is — I'm going to pay, you know, $500 a month for health insurance, but if I have something catastrophic happen, it's going to pay for it.

So a couple of years ago, I had two surgeries back-to-back. It was $300,000. Could I have paid it? Yeah, but it would have been really bad. I would have had to cash in some stuff. I would have had to sell some real estate. But I had a high deductible plan. So I had a $7,000 deductible. Did I want to pay a $7,000 deductible? No. But it was better than paying $300,000.

But it's your catastrophic plan.

It's the catastrophic plan. The long-term care is the catastrophic plan.

So I don't care how much money you have. A lot of people think I can self-insure. Well, okay — because I said that a little bit too. Like, okay, we've got this policy for infinite banking. You've got a million dollars of cash value, or a half a million dollars of cash value. That can be used towards the nursing home. But it's only one of you. It's not both of you. And depending on the circumstance and the situation, you might say that that's fine. But it's the ripple effect of that.

Well, so I put out a video two days ago on LinkedIn and my Facebook page, and I actually went through the numbers. And I've had a lot of investment pros going, oh my gosh, I did not think about that.

It's a good video. You guys should go to — it's not on your website?

It is on my website now. In my video library. So you could go to careincomeplanning.com, or it's careincomeplanning on Facebook. And on LinkedIn, it's just Michelle Prather.

So basically what I do is I go through three scenarios. I look at the S&P 500 from the year 2000 to 2025 — so that's 25 years — and I use the exact returns every year. And we know those go up and down. We've all heard about sequence of return risk, all that good stuff.

So basically I show, if someone had $500,000 at the beginning of 2000, at the end of 2025, if nothing bad happened, everything went according to plan — but life doesn't play that way — you would have had $3.3 million. Because you've got 25 years of that compounding growth, up and down, whatever. Started at 500, ending with 3.3 million. Some people might say, oh, I've got plenty of money, that'll pay for a nursing home.

So the second column, I show what actually happened if they had a catastrophic event like Alzheimer's. Over a 10-year pay, they would have pulled out — let's say back in 2014, they started in 2014 and they pulled out, and those costs increase every year — $1.3 million. Their ending balance was $639,000. So think about where they could have been: $3.3 million versus $600,000.

Did it cost $1.3 million, or did it cost $2.6 million? They pulled out $1.3 million to pay the nursing home, but it cost them $2.6 million, because they lost the compounding growth on that. That doesn't even include all the taxes they paid on that.

So just showing that — now, if they had a care income plan in place that paid that $1.3 million, just repositioning a one-time $100,000, they would have ended up with $2.6 million. It's not 3.3, because they lost the compounding on that $100,000, but it's still a way better outcome than all of your money gone.

So again, the ripple effect. I'm losing compounding interest on my money, or the opportunity cost. I'm losing federal taxes, state and local taxes. And then just the ripple effect on that. What happens to my spouse's retirement lifestyle? The peace that that is providing. And then you're timing it with the market.

What I liked about that video, because I watched it last night, was the financial advisors aren't talking about that. Like, your typical financial advisor, they're not talking about that. They're not talking about long-term care. They're not talking about required minimum distributions. How many people don't know what RMDs are? Insane. They're not talking about life insurance. They're talking about how much can we get you to save by X amount. And the accountant isn't doing a good job of saying, hey, what are we going to be looking at for taxes? All of these professionals need to be working together, so that — it's cause and effect. If I do this, what happens then?

And the reason is — and again, I'm probably nicer than you, like you said earlier — I don't think that they're doing it —

She's new. Give me time.

I don't believe that investment pros are being bad. I think that they're ignorant. I think they believe that growth solves everything, and it doesn't. They chase rates of return. It's cash flow.

And I'll tell you why. So let me give you this example. I'm going to show you this math. Easy math. This is how I work.

So I had a situation, two 60-year-olds. They had one time moved $150,000 and they got their long-term care taken care of. $150,000 creates long-term care income for each person — $91,000 a year each.

So my question to them was, if I invested that $150,000 in the market, how much return, guaranteed year-over-year rate, would I have to get on that 150 to generate 91? So we'll divide that by 150. They would have to earn 61% year-over-year guaranteed to generate the $91,000.

I mean, again, I'm repeating, so it really sinks in. I would have to put my $150,000 in an account somewhere earning 61% year-over-year guaranteed to generate $91,000. And that one's taxable. Mine's not.

So let's do the opposite. Let's say that people go, oh, 5%. Let's say 7%, let me be generous. 7% year-over-year guaranteed is something that they can come up with. If you go to a tax advisor or a financial advisor today, they're going to tell you 7% is a given. So let's just go with that. Let's be nice, because that's market average right now.

You would have to set aside $1.3 million earning 7% to generate $91,000 a year. Double that if both of you need it. So again, the math doesn't math. I would much rather set aside $150,000 to get this versus setting aside $1.3 million.

And that's today's prices. You're not even figuring in inflation. And again, double that if both need it. But inflation of the cost of nursing homes — that is today's price of a nursing home, at $91,000. That is not the price of a nursing home 20 to 30 years from now. Those are just going to continue to go up.

Again, it's another way of kicking the can down the road, because we'll deal with that later. And then they're calling in, they're hemorrhaging dollars, and now you're selling off. Because you can't time your illness with the market. What if the market's down that year? You're screwed. You're really in trouble. Because now you got to do 100% and then some just to get back. And that's not going to happen.

So again, I believe that they think, well, I can out-earn that. Because here's what happens — and clients do it too sometimes. They'll look at the cash value and they'll go, I can earn so much more. It's not about that.

And I'll tell you, here's an example that I use. Let's use those same numbers. $150,000 generates $91,000. So let's say I'm going to sell you a rental property. Everybody understands rental properties, right? You rented in college, or you have a rental property. So I'm going to sell you a house here in North Dakota, and you're going to have it as a rental property. And the whole purpose of that is the rental income that it creates. So I'm going to sell you this property and it's going to create $91,000 a year. Is that a good deal? Is that a good house?

You want two of those, right?

Yep.

Do you care what the market value is?

No.

Why?

Because I want cash flow. Because you bought it for that reason.

So it doesn't matter what the market value is. It's the cash flow. Here's the best part about this deal. If you die, I guarantee your family's going to get a death benefit of $180,000. They don't even have to list it on the market. Just boom, check's out. And they don't have to pay taxes on it.

So I use that analogy to show, it's all about why you're buying it. It's not about the market value, because you're not selling that. That property is creating an income stream that cannot be replicated anywhere else. That cash flow is protecting everything else that I'm doing. Period.

Everything else that you have worked your life to build has to be protected one way, shape, or form.

But a lot of investment guys — and some of them are not even managing the asset anymore, they're just gathering it and they have a third party that's managing it — but because our market has been so high, and it's really been a good 10 years or more, they're thinking, I can out-earn every problem. You can't out-earn this one. If this is devastating, it's really bad. And then again, the ripple effect of that. The taxes, the Medicare premium skyrocketing, state and local.

It's the noise of just chase the rate of return, chase the rate of return, instead of chase cash flow. We should be chasing cash flow for everything. During retirement and care. And instead, we're just chasing a rate of return.

Well, and they think that's the answer. Accumulation of money.

Accumulation of money is not going to be the answer.

So I always say that everybody in our world has been taught — just consumers, clients, just easy language — we understand income, expenses, cash flow, and rate. So we oftentimes will believe that this growth will take care of cash flow and expenses. And that's not necessarily the case. Again, I just proved I would have to set aside $1.3 million to get the same thing I could do for $150,000.

I don't know. Mic drop.

We have been at this a long time. My timer ran out. I think we're close to three hours.

Oh, I'm just going to start it. We keep going.

I think the moral of all of this is, don't rule out the long-term care piece. But you have to have the conversation. You need to schedule your appointment with Michelle. You need to have that conversation — because just like me, how do you know when you should get started with infinite banking? Well, I don't know. What are your finances? What are the end results? And it might not be right now.

So what do they do to schedule their appointment, and how do you handle that?

Yeah. So they can go to my website, careincomeplanning.com.

Oh, she got it right.

And there is a link that just says schedule a quick 30 minutes with me, and it'll notify me and we'll get together and we'll just have a discussion. Again, it's worth the 30 minutes just to find out if this is right for you, because young, older, regardless of what type of money someone has. Now, if they're already needing care, we do have some options, but I would also give you some guidance on where we need to go from there, and get you in touch with an elder law attorney.

But will you look at people's long-term care policies if they have questions?

Absolutely. And sometimes I will recommend that they keep them, because they're really good. Sometimes I tell them you need to supplement — like, we need to add another stack to that, to beef that up, especially for what they're trying to accomplish. But just have a discussion.

And they can email you?

Yeah, they can email. Well, and that's the easiest way.

What's your email?

info@careincomeplanning.com.

Okay. So if I have a question on my existing policy, I can email you and ask you a quick question on that? Instead of scheduling a 30-minute phone call, it'd be email first?

Yeah. If they just have a quick question, absolutely. You guys have heard me for the last however long, so you know I'm detailed. I'm going to give you a lot of information. I'll make it easy. But sometimes I might say, hey, it's too much to type in an email, let's just have a quick call so it'll make sense to you. But that's what I would say — that's the best way to start, is just to have this conversation.

That pastor that I grew up with, he said one time, you can't open this book, read it, shut it, and pretend like you didn't read what you just read. So anybody that has watched this — now you know. You are aware. So now you're making a conscious decision to do something about it, or to not do something about it. So now you're at that accountability part. So that's why I say just have a conversation.

It could be timing. Timing is always everything. I've had so many clients I've talked to three years ago and they call me up and go, hey, my mom's in need now. It's time. We need to do something about it.

So just getting a price on it — it is not going to cost you anything to have the 30-minute conversation. If you are looking at, hey, should we have life insurance? Should we have long-term care? She's not going to steer you wrong one way or another.

So if you're a client of mine and you're wondering, Mary Jo, should I be talking to Michelle? Yeah. Have that conversation with her. Just let her know that you're a client. And she's going to say, you know, maybe you should have more life insurance before we have to worry about long-term care. So she is not going to be a salesman either. It is going to be a teaching opportunity.

So go follow her on Facebook. Follow her on LinkedIn. One of the two platforms. She has funny videos. She actually makes long-term care very funny. So follow her there.

And then just make sure that you're reaching out and you're doing some sort of planning with the right individual, instead of planning with your traditional financial advisor who doesn't know long-term care. Because they don't eat, sleep, and breathe it. I eat, sleep, and breathe life insurance. She eats, sleeps, and breathes long-term care. So it makes a difference, because there is so much to know.

She even said to me earlier, she's like, I'm questioning what I know — because after 28 years, she's learning a lot of stuff that she didn't know. So how, after 28 years of spending time in long-term care, how do you go to an advisor and go, oh yeah, you do everything, I'm sure you know it all? Like, the master of none — sometimes you want to make sure that certain things are done correctly.

Look, I don't want my primary physician doing heart surgery. I don't want my eye doctor doing heart surgery. So this is a matter of the heart. We want to protect our families, protect everything that we've built for the past 30, 40 years of our working life. And it's not difficult to do. I'll make it really easy.

We'll try to put the link below. But thank you guys for hanging in there. I very much appreciate it. Any final words from you that we forgot?

I never have final words.

Okay.

I can keep going.

Wait — she has a plane to catch. This is true.

So let me know if you guys have comments, questions, concerns. You know the drill. maryjo@withoutthebank.com. Otherwise, if you have IBC stuff, grab your book. Get your book. Get your bundle. And then schedule your appointment with John or I, and we are happy to help. You guys have a fantastic rest of your day.

Thanks for listening to the Farming Without the Bank podcast. We hope today's episode has inspired you to take control of your finances in new ways. Don't forget to check out our website, farmingwithoutthebank.com, and engage with us on our Facebook page, Farming Without the Bank. Join us next week as we smash more financial myths and empower you to accomplish your financial goals. We'll see you next week.