May 2025
This episode is relevant to you if...
• You purchased long-term care insurance years ago and are now receiving notices about major premium increases.
• You help your parents/grandparents manage healthcare and financial decisions, especially around long-term care.
• You are a single person who wants to ensure you have a plan in place for long-term care without burdening family members.
• You are a financial professional looking to increase your knowledge around long-term care planning and insurance so you can better serve your clients.
Watch previous episodes here:
Ep. 135 Trump, the Fed & The Fight Over Interest Rates
Ep. 136 RMDs Explained: How, When & Why They Matter
Hello everyone and thank you for joining us for this episode of THE FINANCIAL COMMUTE. We have a special guest today, Ian Rennick. And for those of you who don't know Ian, he's one of my favorite people inside this organization. But he's also responsible for the majority of the research that goes on behind the scenes for the finance or commute.
And so I'm really excited to have Ian join us. Ian, thank you so much.
Thanks for having me. I think it'll be fun to kind of be on this side of things for once.
Yeah. So we're going to talk about long-term care today. I know that we can have a very long discussion around long term care. But you know,
the main premise of this is we've had a number of clients recently reach out to us because they're getting these annual renewal notices for their long term care insurance that they've owned for a really long time.
Some of these policies don't even exist anymore, but they're getting like eye popping news where their premiums are increasing by 40, 50, or even 60% over the next few years. And they're coming to us asking the question, like, what should I do about it? So let's start there and we'll then we'll go into like a couple of other ways that people can, you know, take care of long term care.
Yeah, sure. We actually had a really good example of this. Come across the desk not too long ago. A newer client, she had gotten this policy while she was, it's still working. Was able to keep it into retirement and covered both her and her husband. And she was paying about $7,200 a year. She gets this notice in the mail that her premiums are going to go up by 60% in the next three years, immediately calls us.
Does this even make sense for me anymore? Should I keep it? Should I get rid of it? Or like, okay, let's let us reach out and see what something comparable would be, to this if you were to get it now. And, we gave them a call. They came back to us and said that, they could get one.
Not anything that was close to what she already had, which was a 6800-a-month benefit lifetime. So this was something that was not going to run out.
Because there was no cap. So the long term care benefit that this couple had was $6,800 per month for life, and it didn't have an end. Did it have an inflation rider, would that number increase over time?
Yeah. So there's two different types of inflation riders actually. There's simple inflation and there's compound inflation. And there is a difference. So simple inflation is kind of just like a fixed percentage on top of the monthly benefit. So think of $100 a day 5%. Keep the numbers easy. You'll get 105 the next year. And then $5 every single year added on top.
Compound's a little bit different where you will get, 5%. So 100 to 105, but then you'll get 5% on that 105. So it'll be 110 and $0.25. Call it. Right. So this one had a simple inflation rider, a 5%, the 6800 month monthly benefit, unlimited. And we went back to, our partners to see what she could get.
The closest thing they could get was a 3% compound, so a little bit better, but almost half, the inflation. And, it was only a benefit period of four years. Wow. The premium on that was almost three times as much as she was paying also. So, a smaller benefit time and almost three times $20,000, she would have had to pay for this.
And that's partially why some of these older policies are kind of like unicorns. They don't really exist anymore. I don't really think unicorns ever existed. But if you come to my house at two girls, everything's a unicorn. But that's why some of these policies, insurance carriers are looking at this saying, wow, we mispriced this back in the day.
Now inflation, cost of care, all of these things are coming down the line. So they're reaching out to people saying, hey, we're going to increase your premiums if you want to keep this coverage. If you don't let us increase your premiums, they're reducing the monthly benefit. Is that what it looks like?
Yeah. If you don't want to increase your premiums, they can either take away some of the benefits that you have or you can obviously get rid of the policy altogether. But looking at what you can get now and what you already have, a lot of the time it does make sense to keep it, but that gut reaction when you get that letter in the mail saying that your premiums are going to increase sometimes maybe even more than 60% if you make a rash decision and maybe you just get rid of it, you know?
Yeah. And so some of the risks with just making a quick decision, like receiving something in the mail, either ignoring it or making a quick decision, like what are the risks associated with that? Because I know that we can be a great resource with our insurance partners to reach out and kind of evaluate and make the best decision for the client.
But what are the risks that people take on by making a quick decision?
You might be giving up something that you can't get again. You know, something that you might need in the future. And so I think that's the number one risks that people are going to going to take. There's also that, that risk of what if you do kind of need that and that financial risk that it might hit you later on.
There's other risks associated. But that's the first one that always somebody talks about. There's also that mental risk of, okay, now I don't have this benefit to help me out going forward. Now I'm the full time caretaker for whoever that might be in your life. You know what kind of tools that taken on you? How much of your life are you giving up now to take care of that person?
Yeah, I mean, you put a stat here saying that according to the US Department of Health and Human Services, approximately 70% of people age 65 and older will require some form of long-term care services during their lifetime. Right. That's an alarming percentage. I don't know how real that is. I mean, some, you know, family dynamics, there are cultural differences.
You know, the kids might take care of the parents or whatever, but after going through something like this, you know, in the past couple of years with my mom, who's battling cancer, I saw the toll that it took on my dad having to be there, you know, for all of the doctor's appointments, all of the surgeries, like it was so bad for my mom.
But it was also very bad for my dad. And so having a dedicated pool of money, if they had it, like a long-term care insurance, they might have felt like, hey, maybe it's okay to to get some care and have a little bit of help. So that way I'm not taking on the burden of this responsibility.
So sometimes it's not financial risk, it's the currency of time. And that's the one thing all of us have a limited amount and probably close to the same amount. And so how are we, you know, using our resources, money in this instance to help ease the time that we have here and the burden that it can incur when others.
Yeah, I think the biggest thing and you kind of nailed it is you can you can't get more time, but you can probably make more money. Right. And so that, that, that time aspect to, to spend with those family members means something. And if you can have that dedicated pool of money to use for, you know, somebody does go through a health event like you just shared that stat that is alarming.
It's eye-popping to people you know.
Well, you have an abundance mindset towards money. So if somebody does not have an abundance mindset towards money and maybe a scarcity mindset, what if I pay for this long term care insurance and I never need to use it so that money's gone? Like, what other policies are out there today that can help people? Yeah.
There's another, policy that people might turn to. It's, a hybrid life insurance policy. And there's kind of two types here. There's one where it's just a normal, regular, life insurance policy, and then you can kind of add a long term rider on to that. So you kind of get the best of both worlds there, where, you still have the dedicated pool of money if you need it.
And maybe a smaller death benefit than if you were to just have a permanent policy. The other side of it would be more of an asset based policy, where you put a lump sum into this policy, let's call it 100 grand for for ease of purposes, you get kind of a leveraged amount toward, long term care benefits.
So that might be 3 or 4 times, so 100 grand. Maybe you get 3 or $400,000 that you can use per year, per your lifetime, on long term care benefits. And, you know, if you don't tend to use all of it or you only use some of it, maybe there's still, an additional death benefit that you can still get.
So, again, the best of both worlds kind of with that policy.
Yeah. So a lot of a lot of insurance providers or people out there looking for long-term care, they're kind of leaning more towards these hybrid policies because it's not they use it or lose it for the traditional long term care. The benefits might still be good, but not as great as those policies from 2025 years ago, but at least eases that.
Hey, in case I don't need to use the money I'm still getting, my state is still getting some money back. So it's not a not a waste.
Yeah. And as we're seeing right now, these long term care insurance policies, now, they're not covering you for very long and they're getting extremely expensive, you know. So a lot more people are turning toward like the hybrid life insurance.
So the average cost typically for somebody that we that we project that would need a long term care need like what what's the amount per year. I know everybody's lifestyle is a little bit different, but like what do we use when we're doing financial planning.
So when I'm planning for a client and I'm adding this into someone's plan, we usually do $120,000 a year. Now that can vary depending on the type of care, the the amount of care that they might need. But we increase that 5%, which is more than the normal inflation rate too, just because these medical costs tend to go way higher than in much faster than normal inflation.
So I've seen costs, you know, for if you need 24 seven around the clock care, it can be upwards of $200,000.
Yeah. We share a client and I think it was I think it was $28,000 a month for 5 or 6 months. Because of the physical therapists around the clock care, they had to move into a new place that didn't have stairs to the rental cost like it was. It was pretty.
High. It's one of the easiest way, I think, to kind of go through your retirement, you know?
And so when you're thinking about, you know, clients that decide to self-fund, that could be a great option. But to me, it's the comfort knowing that I've got a dedicated pool of money that can be used. And this is what it's earmarked for. And so those hybrid policies is where you think that that could come into play.
Yeah, I think that's a really good, option for people. And a lot of people have that mental accounting, you know, aspect in their mind. They like to be like, okay, this is my vacation money here, and this is for groceries. And I keep them in different accounts. You know, this is kind of that third bucket that I know that it's out there and it's for, you know, these long term care, that emergency situation.
I feel like you're making fun of me right now because, you know, about my vacation, my vacation bucket. And so for the clients that are maybe, always looking at, hey, I'm going to self-fund or maybe I, I'm a little bit older. I'm in my 60s now in long term care. Traditional long term care insurance is just too expensive to get in my late 60s, early 70s, being able to kind of work with us or talk to some of our preferred partners on the insurance side that specialize in long term care, they can potentially look at these hybrid policies or even other policies to to go forward.
Absolutely. You don't know what you don't know. And so I think coming to us, being a first, you know, resource and then letting us leverage our partners can be an amazing benefit for our clients.
Yeah. As difficult as it is, I think that clients should have a conversation together about like, hey, what if something were to happen to one of us? How do we want to go about doing this? Do you do you want, you know, one of the spouses or the kids to take on the burden? Do we really want to look at getting help to ease it?
You know, ease the time commitment and the dedication towards that. But at the end of the day, it's worth having a conversation. I know that we can be a great resource for clients and leverage our partners that specialize in long-term care to see whether or not it makes sense for you, because there are a lot of different options out there today that might not be as good optically as the ones from 2025 years ago, but are still really, really good options to have a dedicated pool of money.
Definitely. Yeah. So I think that's the first step for everyone.
And thank you so much. If you guys receive anything in the mail related to your older policies about your premium, your premiums increasing, please reach out to us. Let us do the legwork to evaluate the impact that it has on you, and whether or not it makes sense to continue to pay that higher premium, or what other options there are out in the marketplace.
Thanks for having me.
Information presented herein is for educational purposes only and is not intended to constitute financial, tax or legal advice. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. It should not be assumed that Morton will make recommendations in the future that are consistent with the views expressed herein. This information should not be taken as a representation that the strategies described are suitable or appropriate for any specific person. All investments involve risk, including the loss of capital. You should consult with your finance professional and/or insurance professional to thoroughly review all information and consider all ramifications before making any decisions regarding your insurance coverage and your finances.
