In this Episode of the Secure Your Retirement Podcast, Radon Stancil and Murs Tariq discuss hybrid long-term care insurance, with a focus on the Equitrust Bridge annuity and how it serves as a powerful tool for retirement planning. They explore the benefits of using hybrid annuities, a strategy that combines retirement income with long-term care coverage, offering a versatile solution for those concerned about managing future healthcare needs. In addition to breaking down how these products work, Radon and Murs also highlight the significant tax benefits they can provide, making them a valuable option for many retirees.

Listen in to learn about the key differences between traditional long-term care insurance and hybrid solutions, why hybrid annuities like the Equitrust Bridge stand out, and how to effectively use these financial products as part of a broader retirement planning strategy. Radon and Murs also offer guidance on the minimal underwriting requirements for these annuities and the options available even for individuals with health concerns.

In this episode, find out:

·      What hybrid long-term care annuities are and how they work.

·      Key features of the Equitrust Bridge annuity and its long-term care rider.

·      The advantages of hybrid solutions over traditional long-term care insurance.

·      How minimal underwriting allows greater accessibility to hybrid long-term care.

·      The substantial tax benefits associated with using annuities for long-term care.

Tweetable Quotes:

·      "This hybrid annuity is designed to give you the long-term care coverage you need, with the added benefit of keeping your money working for you." – Radon Stancil

·      "For those looking to bridge the gap in retirement planning, a hybrid annuity offers tax advantages and peace of mind for long-term care needs." – Murs Tariq

Resources:

If you are in or nearing retirement and want to gain clarity on what questions you should be asking, learn about the biggest retirement myths, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Radon Stancil:

Welcome to this episode of Secure Your Retirement podcast. We are excited to extend the conversation that we started last week around long-term care. And what we tried to lay out last week is to say, hey, there's a lot of options. People are concerned about long-term care, but what they didn't like was this idea of the older, more traditional long-term care insurance, where you would pay a premium. And then the concern would be, I'm going to pay this premium for a long, long time, and then what if I just pass away and I never need it? And I paid all these premiums, because it's expensive, and I never benefited from it. And even with that, it was encouraged that most people get some type of long-term care coverage. But then over the years, not only did people pay those premiums, but the insurance companies themselves had it.

It was in the original contracts that said if they needed to, they could raise the premiums. And many of them raised the premiums really, really high and it changed the environment a lot. So people now, it's like I don't want to go through the traditional side of long-term care. And so, what we talked about last week is that we were going to do a series at least two more podcasts on this topic of long-term care. And we're going to talk about two major different, what we're going to call hybrid policies, that allow you to get some benefit, not just by saying it's long-term care. And so, one was going to be a hybrid annuity, the other's going to be a hybrid life insurance, and today we are going to talk about a hybrid annuity. Now, there are varying types of hybrid annuities, but again, we don't want to make this overly complicated, so we're going to just pick one.

And we have picked one that we think fits the most people who listen to this, conceptually hybrid annuities all work very similar to this one that we're going to go through. We're going to talk about a specific product today, which we don't normally do on this podcast, but this one we're just going to name it and because we're going to kind of go through the specifics, and the reason why we pick this one is that it has an element to it that is guaranteed issue, meaning there is some underwriting that you have to go through, but they have set it up so that everyone can get it. Now you're going to get less coverage and we're going to walk you through that. So we just thought, hey, let's talk about a product that if anybody wanted it, they could get it. Now, if you had a really healthy younger person, let's say in their 50s, early 50s, mid-50s, and their health was excellent, they might look at something that would give them a little bit more benefit, because they could go through the underwriting process without having what we would call limited underwriting.

So with all that said, we are going to be talking about today the EquiTrust Bridge annuity. Now, I am going to share my screen. Now I know that many of you are listening to us on a podcast channel where you do not have a visual. So I do want to tell you if you want to see these visuals, there's a couple ways to do it. Before we start going, I don't want you to feel like you're missing out, that you can go to Spotify, and on Spotify, you can watch the video as well, as well as YouTube. And on our YouTube channel, which is also called Secure Your Retirement, we'll have obviously this as a video format. So just keep that in mind as we go through this. So let's kind of start this off, Murs, and talk about this Bridge policy, what it is and how it works, and maybe some of the little bullet points about it before we go into all the big time details.

Murs Tariq:

Yeah, and it's called Bridge for a reason. I think this product was really designed for that person that maybe desires long-term care coverage, but maybe it's kind of something that they say, "I need some, I don't need a lot," or, "I've got health issues and I'm worried about underwriting," or maybe I want to use it as a tax strategy.

And so, the word bridge is to kind of close that gap, whereas sometimes I've ran into several conversations where they say, "Oh, I just can't get it. I can't qualify." Well, this is now the bridge that's going to help us get the coverage that we need. So there's elements in any investment product and of course in annuities there's a lot of nuances. With this Bridge product, what you're seeing on the screen here, there's a handful of things that you need to understand about how this works and how it provides long-term care coverage.

The first one being is that there's a long-term care rider that is included in this contract, and I want to draw a quick comparison to the previous episode. In the previous episode, we did mention that annuities have riders for income that can have home healthcare doublers, and we specified that that is not long-term care, that is just help with health issues. This today specifically is for long-term care and there's a big difference. There's a big tax advantage there that we'll get into, but this is a long-term care rider that's added onto the chassis of the annuity. And like Radon said, fully guaranteed not to lapse. That means it's always going to be there. Rider benefits are intended to be used for long-term care services. So what that truly means is there's this phrase in this world called two out of the six activities of daily living, where if you cannot perform those, you qualify for long-term care or tapping into your long-term care insurance.

So because there's underwriting involved, although minimal. Because there is underwriting involved, we are actually able to call this a long-term care product. The next one there is rider charges. Typically, when there is a rider, there's an expense there to add a rider in. So there is a rider charge on this particular product, and that's how we get the enhanced benefit for long-term care. The next one is coverage ratio. We're going to go through this on a couple of different slides, but the high level here is that it's a percentage that is based off of the issue, how much you put into it, and also your age. We're going to go through a table here in a minute. And your underwriting class, meaning which category of health are you in as viewed by the insurance company?

So how much goes in, what is your age and what level of underwriting did you qualify for is going to create your coverage ratio. So for example, if I put in $100, which you'd have to put in more, but for example $100, your coverage ratio may be anywhere from 135% to 315% or something like that for long-term care benefits. So that $100 that you put in could be worth as much as $300 for actual long-term care usage. That's really important as we understand what this product is. The next one I want to draw out is the long-

Radon Stancil:

Before we go to that one, I just want to say if you're listening to this, I just don't want you to shut down yet, because you might be thinking, "Well, if I put a dollar in or $100 in, and my benefit is only $100, why would I do that?"

There's going to be a very key reason that we're going to talk about, and it's a huge tax benefit that we're going to talk about. So hang in there with us. There is a reason why a person still might want to utilize this, to be able to get their money at a very tax advantaged way, even if your coverage was only 100%, meaning I'm putting in $100 and my benefit's $100. So hang in there, we're going to tell you why you would still might want to look at this.

Murs Tariq:

Yeah, that's a really good point. And the next one here is the long-term care benefit base that I want to draw attention to, kind of what I just said, how much you put in, and then what your coverage ratio is what your benefit base becomes, and that's the dollars that you get to use for long-term care, provided that you cannot do two out of the six activities of daily living. This rider also includes the fact that you could look at it kind of like an inflation type of deal, where your coverage or your benefit base is going to grow at 2% annually. So the longer you're in it without touching it, it continues to grow at 2%. Kind of like an inflation protection type of deal there. The LTC monthly benefit, so it's payable for up to 60 months or five years, as long as again, you qualify for those two out of six activities a day of living.

Simple way of looking at that. If I have a bucket of money for long-term care, it gets paid out in a monthly way over a five-year window. Vesting schedule. This one's really important and we're going to walk through this in a table, but ultimately just like your 401K matches that you get from the employer and other types of employer-sponsored plans, there's a vesting schedule, in which you don't get all the benefit on day one. You have to be there for a certain period of time. This annuity for the long-term care side of it has a vesting schedule as well that we're going to walk through. So that's the high level. Let's get into the nitty-gritty.

Radon Stancil:

All right, so just want to say this again. We are describing everything that's on the screen for anybody who's just listening, but if you wanted to see all these numbers and charts, you can just again go watch the video version. All right, so there's three classes that you can get into, underwriting classes. One is called preferred, that's the best rating. And then, we've got standard and secure. And again, on this topic, just to hang in here with us, we're going to walk through what the underwriting looks like, so you have a little bit of expectation on that, but what you'll see at the very top here we've laid out for us, remember Murs talked about the ratios. So we got a 55-year-old, a 55-year-old, if they were rated preferred, if they put $100 in or $100,000, let's just use 100,000.

They would have a long-term care benefit of 325,000. If you were secure, meaning you at the lowest underwriting class, you'd put in $100 and have 150,000, 100,000, $150,000 of coverage. Now what does that monthly benefit look like? We're going to get into that detail, but let's look at who might be our more core client for this type of product. And that's going to be somebody who's 70 years of age and older. So let's take a 70-year-old person and say, "How would theirs look?"

Well, if they were preferred, they put $100,000 in and immediately they've got $310,000 of coverage there. The standard is they put 100 in and they'd have $210,000. And then our secure, you put in 100 and you have 135,000. Now let's go all the way down to an 80-year-old. An 80-year-old preferred. You put in 100, you got $300,000, you put in 100,000 at standard, you got $200,000 of coverage and if you put in 100, and you're secure, you would have $125,000. So that just kind of gives you the ratios here so you can understand that coverage. And then we're going to now transition as we continue to look at this and look at some examples, and we're going to look at this from what's the coverage? You want to take them through that, Murs.

Murs Tariq:

Right. So what we're looking at here is actually from an illustration that we got directly from the company and if we were to explore something like this with you, we would get something very similar for you to look at as well. But I want you to know what you're looking at. So what this shows is basically 10 years and it gives us an idea. And what's key on this page is it says guaranteed values. So once your money goes in, this is guaranteed as far as what is going to happen in the policy. You could also look at it as this is the minimum of what this policy can do for you. So what you see on the first line is that this person made for valued client, the issue age is 70, an underwriting class we just went with preferred. That's the highest level of coverage and we showing that they're putting in 100,000 into the policy.

One big clarification here is that we cannot fund this with IRA money. This needs to be funded with non-qualified or non-IRA money. And we can talk about what that is, but just think cash. Cash in the bank or maybe from a brokerage account, or maybe a non-qualified non IRA type of annuity. The selected coverage ratio. So, because this person is 70 and preferred, all you have to do is go back to that prior table, match that up, and it tells you exactly what the ratio is going to be. Right here it's 310%. So the 100,000 that was put in becomes 310,000 as the initial benefit base. That 310,000 is usable for long-term care expenses. Again, two out of the six activities is daily living. That's the recurring theme here. So if we look at the table now at the bottom, you'll see how the next 10 years play out.

You see the 100,000 that goes in, that's called the premium, or if you want to look at it as a deposit into the annuity. This illustration is showing rider charges as well, and that's in the column over there. So that's the fee for the long-term care side of the annuity. And then we have an accumulation value. So because this is an indexed annuity, there is a method as to which it will earn interest. The accumulation value is basically saying, "Well, what if it doesn't really earn anything?" Because this is guaranteed, there is no guaranteed guarantees of earnings on indexes.

So the accumulation value, you see the number there. Cash surrender value. I think this is important for anyone to understand, that if you're dealing in any type of annuity, there are surrender charges, or a period of time in which you have to hold the annuity before you would want to exit in all essence. Otherwise, there's fees involved. Just like if you leave a CD early, there's fees involved there as well. And then there's death benefit. You'll see the death benefit matches up to the accumulation value. That means, which is also important, the 100,000 you put in is going to have value to someone if you leave it behind. Whereas some long-term care policies, especially the older ones where you're just paying the premium in, there is no death benefit value. So you get to retain the asset for your legacy.

Radon Stancil:

Yeah, I was just going to say on this, just if you're looking at the screen, the reason why the accumulation value is negative or is going down is a couple of reasons. One is because of the rider charge. So what this policy has, is that you could take out money and leave the policy in play. So you could take out 10% a year in the first 10 years if you needed it. Obviously you're going to lower your long-term care value. So most people, if they were to use this, they want to just let the money sit in there. What's interesting though is if you look at the accumulation value in year 10, you'll see it's less than the death benefit or surrender value. Why is that? Well, what they're saying is if you stay in the policy, because of this negative here, because in year 10 you've got 85,000 left, we've earned zero interest in this illustration.

I still have my long-term care coverage we're going to go through in a minute. But you'll notice that your death benefit and your surrender value are actually $102,839. And the reason why is what they're saying is you can walk away and get out, and get all your money back, and you get all your 100,000 plus a little bit, and this is our guaranteed number, but I don't have the value there anymore. I don't have the long-term care coverage anymore. So they're basically saying at the end of 10 years, you're guaranteed you can walk away with your money in this product. But we did it for long-term care coverage. So I didn't mean to cut you off there, Murs, but that's what this is illustrating, is this is kind of our worst case scenario. And if you'll notice on the far right column there, year 10, if you at this point were to need long-term care coverage, you would have a long-term care coverage of $6,298 per month for 60 months.

Now think about that. For 60 months I'm going to get that kind of coverage. And then yeah, I got the coverage. If I were to die right now, my beneficiaries get $102,839. That's my worst case scenario. All right, so now let's just go look at the non guaranteed. So what do we mean when we say non guaranteed? Non guaranteed means we're now going to illustrate a return. So this is hypothetical at this point. So they come right out and they tell us it's hypothetical. My big thing, and you might have something, Murs, but my big thing here is, hey, if I just get the average rate of return on this particular product, and I'm able to see how that goes. You'll notice that my long-term care benefit, very similar, didn't change. What changed? Well, my death benefit and my cash value. What you'll see at year 10, I'm projected now to have 154,000 of cash value and death benefit. So yeah, my account grew and that's the big difference here. I can always get access to my cash. Anything you want to add to that, Murs?

Murs Tariq:

Yeah, I would just say you don't go into a long-term care product with the idea that it's going to grow like the stock market, or even just a normal fixed index annuity with no riders. You go into this product for a very specific idea, which is I need a bucket of money for long-term care insurance. And so, that's why you pick your priorities and that's where the value is here. It's not for tremendous growth, it's for long-term care coverage.

Radon Stancil:

So we wanted to talk a little bit about this vesting schedule, just so you understand it. So again, let's just go look here and I'll walk it through for again my audio only. What we're saying is remember our numbers, I put 100,000 in, it's now at the end of year one, it's worth 316,000. So you might say, "Well, what if I need my long-term care right now?"

Well, what they're saying is if you went in year one and you needed it in year one, you're not going to get all of your benefit base for that. Now, so what they're saying is, I'm only vested here for a part of it, so I'm only vested for 142,000, which would give me $2,371 for 60 months. So, not ideal to get in this product and say, "I'm going to start taking it right away." Where my best scenario is that I want to really shoot for is that I can be in the product for at least five years before I need to use it.

If you go down and look at column five or row five, what you'll see is that my benefit base now is 342,000 and my vested schedule is also 342,000, and my monthly benefit is $5,704. So just want to really point this out that, yeah, you could take the benefit early, but you really want to get through that four year, and in your fifth year you're 100% vested, you have 100% access. So obviously they're saying, "Hey, this is a guaranteed issue product. We don't want to have people going in and start taking the benefit right away. And if you do, you can do it, but you're just not going to get as much for your money." So let's kind of go look I guess at the next area here, which is kind of again talking a little bit about this whole vesting schedule.

Murs Tariq:

Yeah. So this one is really just comparing your guaranteed values to your non guaranteed values. So the guaranteed, again, is the, call it the worst-case scenario and then your non guaranteed is with some index crediting along the way. But the main story here is that I agree with Radon, is that if long-term care, it's something that you need to plan for. If it's a concern of yours, you need to plan ahead of time for it, and giving it that five years to sit and fully vest is going to be the biggest bang for anyone's buck in a product like this. And so, it's just showing you once again that on the non guaranteed side, there is credits that are going to come along the way. There's interest that's going to come along the way. But the moral of the story is if you look at column five over on the far right-hand side, it says long-term care vested benefit base grows to about 353,000 by the end of year five.

So it started at 310, but you remember you get 2% growth on it every single year, and then every single year you see it jumping up pretty quickly. That's because more of it has vested over those five years. 20% more is going to vest over those first five years. And then, the bottom line is the very far right, it says long-term care, monthly benefit base. Now this is a monthly number. So after year five, 5,890 is kind of what the projected amount you could take out every single month for 60 months, provided that you qualify. So if you look at what the cost of long-term care is these days, it could range anywhere from three, four, $8,000 a month. And the question you'd have to ask yourself is, "Well, am I covered or do I need to start transferring some of that risk over to something like this?"

Radon Stancil:

All right, now let's talk a little bit about underwriting. And again, we have this posted on the screen here, but I'm going to walk you through it. Remember, there's three underwriting classes. There's preferred, standard and secure. Remember I told you that nobody can get turned down, so here's something to listen to. If I'm going to get secure, meaning I got two reasons. One, I could say I don't even want to go through underwriting, I'm going to get secure. The other one is, if I answer yes to the first three questions out of five questions, I'm going to get secure. So if I can get through those first three, I've got a very good shot of getting preferred or standard. So what are the three? Number one, do you currently live and receive care, or use, or have applied to, or have been advised to reside in a nursing home assisted living facility, or any other residential care facility, home healthcare or adult daycare? Any of those, if I say yes, I'm telling you right now you're going to get secure.

It just sells. If I get a yes on this first question, the second or third I'm going to get secure. Number two, do you currently need any assistance or supervision in performing any of the following activities of daily living, bathing, dressing, eating, walking, moving in or out of a bed or a chair, toileting and/or bowel, bladder control? Say a yes to that, I'm getting secure. The third one, do you currently use a wheelchair, motorized scooter, stair lift or a Hoyer lift, or respirator? If I answer yes to that, I'm going to get secure. I'm not getting turned down, I'm just going to go secure. And then we have two other questions, that if I answer yes... If I said no, no, no to all those, and then I said yes to four and five, I'm still okay, I'm probably going to get maybe a standard or preferred. But the first three are the keys there, okay? And again, if you're interested in looking at this, we can send all this information to you. You want to take them through the underwriting process there?

Murs Tariq:

Yeah, and I think this is a nice thing here is that sometimes the barrier is, well, I got to go through underwriting and that's going to take up time. A nurse is going to come to my house potentially and draw blood, and stuff like that. They've really simplified the process here and it's done over an online video. Think of Zoom call, where you are on one side and then someone from the insurance companies on the other, kind of walking through those questions as well as confirming that you do exist, and showing your government ID to verify that. There's cognitive questions they'll ask, there's a physical assessment they'll ask, but nothing overly overwhelming here. They just want to get a couple of things out of the way as they go through their underwriting process. And so, it's made it, I think the access, because of something like this has made it way more accessible, which is very nice. So the process is very smooth from everything that we know and have heard.

Radon Stancil:

So we kind of started this thing off and I said, hey, what if you get secure thinking, "I'm not getting that much benefit. Why would I want to do this?"

Well, there's a very good tax benefit and it really applies in one significant area and it could be pretty huge. If you have an annuity that is non-qualified, non-IRA, and it is highly appreciated or appreciated. So let's say I had put 100,000 into an annuity. I've had it for a while and now I've got 100, $200,000 of gain into that annuity. Well, you know that the way an annuity works, is they call it LIFO, last in first out, which means the last thing to go into the annuity was your interest. It's the first thing that comes out. So if you had an annuity that was $100,000 when you put it in and now it's worth 200,000, if I pull anything out, I have to pay ordinary tax on that 100,000 of gain.

Murs Tariq:

No, I think to sum it up, the product here and the products that are similar to it, it kind of hits a few different things. One, brings access to long-term care in a smoother, simpler way. And then two, provides some tax strategy that is rather unique and significant, especially given the example Radon just gave. But even if you put in 100,000 of cash and it grows, and you have a benefit of 300,000, that's all tax-free too. Whereas if you grow 100,000 in a brokerage account to 300,000, you're paying some type of taxes to get access to that money to fund your long-term care.

So I think it makes sense for a portion of someone's assets if they have a concern for long-term care and there is money left behind, as far as there is a death benefit. So it doesn't disappear, like the notion around long-term care premiums, sometimes people feel that way. So it's a good tool, it's a tool, one of the many tools in the toolbox when it comes to long-term care. And so, I hope you guys have got something out of it. As always, we are happy to chat with you about this or any other issues you have in your financial life, and we invite the conversation.