Explaining Hybrid Long-Term Care Policies with Jim Better of Essential Plans of Insurance
In this B2B Synergy episode, we focus on hybrid long-term care insurance policies with Jim from Essential Plans of Insurance. Jim explains the concept of hybrid policies, which combine long-term care and life insurance, ensuring a payout whether custodial care is used or not. He provides an overview of the benefits, tax deductions, and the underwriting process for these policies. We also discuss the latest developments in the industry, including new policies that offer cash benefits and zero waiting periods for home care. This episode is essential for those considering long-term care insurance and understanding its benefits and options.
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Alan Armijo: Welcome to B2B Synergy, the Power Partners USA podcast, your exclusive guide to discovering the potential of B2B partnerships. I'm Alan Armijo, owner of Power Partners USA, business to Business Introduction and Referral Service. Our members are B2B professionals who team up to provide each other repeat referral business or collaboration.
Today's episode shines a light on Jim, better owner of essential plans of insurance. Jim has participated in two previous B2B Synergy podcast episodes. Jim actually is our very first B2B Synergy podcast interview where we had a comprehensive discussion of long-term care insurance.
Jim Better:
Alan Armijo: Today we're gonna talk specifically about hybrid insurance plans available for long-term care expenses.
So, Jim, how are you doing today?
Jim Better: I'm doing well, Alan. Thank you for the opportunity to be able to, create this podcast with you.
Alan Armijo: Good. Welcome back. let's get started. by definition. A hybrid [00:01:00] has the qualities of two different things. please give us an overview of hybrid long-term care insurance policies. specifically what is a hybrid long-term care policy?
Jim Better: in the early two thousands, right. state life insurance, also known as One America patented a unique formula for the services to be covered by, custodial care. they called it a hybrid policy because it covered two things.
It was both a long-term care insurance coverage and it also covered,life insurance. So it was a combination. the good thing about it is, unlike most of the insurance plans that we have, such as home or auto and so on, hybrid policies are guaranteed to pay off. That is, if you need long-term care or custodial services, it will cover those expenses.
If you croak and never need,custodial care, then it pays off like a life insurance policy. And for, the life insurance companies that are in the business. And these contracts also build up cash value. [00:02:00] So as they say in the promotion, whether you live, die, or quit, the policy is gonna pay off.
Alan Armijo: So it sounds to me like this is a better option because it sounds like other long-term care policies are just for the custodial, right.
Jim Better: Yeah, you know, I bought my policy, almost 30 years ago now. Wow. and at the time, only the traditional contracts were available.
And the traditional contracts do one thing. They just pay for custodial care. and if I were to do it over again, would I prefer to have a hybrid policy? I'm pretty sure I would take that because of the guaranteed nature of the payout.
Alan Armijo: So does that mean that if you buy. Any policy, you're locked in to that policy.
Well, yeah. The, anytime an applicant is approved of coverage, they proof of coverage on that day. if they say, well, okay, I'm gonna start small and I'll need another one in five years, fine. But you'll have to pass medical evidence of [00:03:00] insurability at that point. there's no, increase in the coverage with the exception of, an inflation
Jim Better: With the inflation rider, it increases both the benefit pool such as, you know, $200,000, 300,000, and the monthly benefit, which might be, I don't know, 5,000, 7,500, $10,000 a month. The inflation rider keeps those elements continued to increase, to keep pace with the cost of medical care and custodial care.
Is that, that increases every year. That might be 3%, 4%, 5%, depending on who you talked to.
Alan Armijo: Okay, so you really have to kind of know the outcome of what your policy does when you purchase it because,
I've been paying more attention to in-home care, and, long-term care in the sense of. People in a assisted living home, you know, if they have it, it sounds like sometimes there's a daily max, so they might have to have some out of pocket. Is that true? So it sounds like you have to know what your policy's really gonna do for [00:04:00] you.
Jim Better: You know, back when 20 years ago, 10 years, 15 years ago,people were able to buy lifetime benefits because the insurance companies didn't know how to underwrite these contracts. They had no idea what a 10 year Parkinson's case would cost. So they covered lifetime coverage.
but now that they have enough data, and of course we know insurance companies run on data,they realize, okay, we can't afford,to cover a lifetime benefit unless we increase the price. so prices have gone up,pretty substantially over the years.
Alan Armijo: because of the better underwriting. Um, amount per day like, like knowing what it's gonna pay out.
Jim Better: Yeah. so today whether you're looking at a traditional policy or a hybrid contract? Really looking at, okay, how much can I afford to cover?
Can I afford to cover one year of care or two years of care, or three years of care, I mean, you don't really, the crystal balls don't work and tell us how long we're gonna need custodial care at [00:05:00] home. so really to keep contracts affordable, that's where the purchaser has to decide, okay, I've got enough money that's,I can afford to get three years of coverage.
and if it goes beyond that, okay, then it's a crap shoot. Then maybe I look at Medi-Cal, maybe the facility I'm in says, okay, you can stay here because,you've been with us for three years or four years, whatever it may be. and so it's no longer a matter of buying a lifetime coverage. It's much like the reverse of
A home or auto insurance policy or even a health insurance policy,where you are purchasing,an amount of coverage and you pay the deductible. You know, if you've got a health insurance plan, you pay the $5,000 deductible, then the insurance company kicks in or your home or your auto insurance, maybe you've got a $1,500 deductible.
You pay the first 1500. Long-term care flips it. the insurance company is gonna pay the first a hundred thousand, 200,000, $300,000. and then after that, then you're kind of on your own for either out of pocket [00:06:00] family services,or government services.
Alan Armijo: So in terms of hybrid, all that applies I assume, but you, you also have, what, can you explain the, the other elements of a hybrid?
Jim Better: Well, the, the hybrid, one of the important parts, and that's one of the questions that you had as well, is the tax benefits mm-hmm. Of, of these contracts. in 1989 when,The National Association, current Insurance Commissioners got together and said, Hey, look, this, this, this industry is outta control.
They're writing these contracts that are so rich and the insurance companies are gonna go broke. and so they, they said, okay, we're gonna create tax qualified plants. And tax qualified means that, you know, all benefits that are paid out for our long-term care our custodial care contracts. I keep doing.
Long term care too. I'm trying to get my self condition to call it what it really is. but the,so the, the tax qualified plans say that the benefits that have [00:07:00] paid out are tax free. and because the government is concerned about people taking care of themselves, there are elements where the premiums are tax deductible.
Now one thing that, that I stress to my clients is that when you have a hybrid policy and the benefits are gonna be, a tax deductible and the premiums a tax deductible, but only for the portion of the hybrid policy that deals with long-term care or for custodial care.
Alan Armijo: and not the life insurance part.
Jim Better: Not the life insurance part. Okay, that's not tax deductible.the younger people are the lower the cost of the life insurance component on the custodial care policy. the older people are, the life insurance cost is higher, so the tax deductibility is lower, comparatively speaking between a 70-year-old and 50-year-old.
but even accountants,the ones I've spoken to need to be reminded that when people take a tax deduction for their long-term care expense policy, [00:08:00] that only the portion that relates to custodial care is deductible, not the life insurance part.
Alan Armijo: So just, just to rehash here,The summary of a hybrid policy,is The component of two things and, it's the custodial part and the life insurance part,
Jim Better: right? That's, that. Those are the two important elements. Okay.
Alan Armijo: And it's tax deductible.
Jim Better: When I say tax deductible, I mean, if an individual, is purchasing a contract,for themselves and their spouse,the cost of the premium has to exceed the 7.5% medical deduction.
on the 10 40,anything over the, is tax deductible, anything below that and the tax deductibility includes the premiums that you pay for health insurance, deductibles, you pay for health insurance premiums, onco, stable care policy,those all add into the seven point a half percent.
What product is
Alan Armijo: what product is that? Is that all of them or?
Jim Better: That's all of them, you know, and you get a [00:09:00] deduction on your 10 40 for your expenses for health insurance, okay? And for out of pocket expenses. and you can add in the premiums for a long-term care policy.
Alan Armijo: Okay? But even if you're a business,using this,you're saying it's deductible, but after 7.5%, even for businesses.
Jim Better: No, not for businesses. Just for individuals. Okay. There's people purchase it on their own. then that's, it's, the seven and a half percent applies. if a business applies for it, whether it's S corp, LLC partnership, the owners of the company can deduct the premium for themselves and their spouses.
in so far as, as the hybrid policy, the custodial care part,c corporations allow that deductibility to apply to anybody in the company, or everybody in the company.
Alan Armijo:
Jim Better: We, what we see is, companies that are structured as a, as a C corporation, have a unique advantage that they can deduct the premiums for the custodial part of a hybrid [00:10:00] policy for themselves, their spouses, and all of their employees.
so it's a unique advantage for C corporations.
Alan Armijo: do you have clients, like corporate clients that are doing that?
Jim Better: Yes. And most often what they do is they've got, you know, the president, the vice president, the treasurer,maybe a few other people in the high end,high price help that they award and use it as a part of the golden handcuffs to maintain those, keep those employees on by purchasing the premiums for the policies for those employees, not for everybody.
They could. But can employees,
Alan Armijo: can the employees take it with them if they leave? Or it has to with the company?
Jim Better: No, these are all written as individual policies, so that if the employee leaves they can take it with 'em and assume the premium's on their own.
Alan Armijo: Right, right. So, when you sit down with clients and you talk to 'em about any of the, the policies,is it pretty extensive interview just to kind of.
You know, beyond the [00:11:00] medical part, you know, just, I'm talking about like the, the amount that the policy is gonna pay out when it pays out.you have to make that crystal clear to people.
Jim Better: Yes. and when we do the annual review, we have to keep reminding them because when people walk away three months later, they say, Hey, I've got a long-term care policy.
Well, what's in it? Well, I don't really remember, but I've got one. And it's a beauty. Oh, my guys said it's a good one. So I believe them. So every year we have to go through it and say, okay, your total benefit, your total coverage for this custodial part of this policy now is,300,000 bucks. And the insurance company will cover those expenses up to $5,000 a month or 7,500 or whatever, the original contract was.
Alan Armijo: Okay. All right. And anything else we need to cover as far as, hybrid policies?
Jim Better: Yeah, there's some interesting developments. You know, we live in a world of, in this country, still, where competition matters and we're seeing, insurance companies [00:12:00] becoming more competitive and developing, some unique features.
for example, nationwide, the first of this year rolled out a product where, they're gonna cover, they're gonna pay the expenses on a cash basis. if you have a, custodial care nurse come in and say, you know, help you with the activities that they're living,you can pay them out of pocket.
'cause the insurance company is gonna send you that $5,000 check or that $7,500 check, every month. as long as you've still sat, you're still qualify as needing the services and so it's a cash basis and that, that's important because, in the beginning of a long-term care event, there's a lot of nickel dime expenses.
You know, I need some more drugs. Somebody's gonna get us food. There's a lot of, small expenses 'cause people don't go from happy, healthy to nursing home. People wanna stay at home. And it's a, a set of conditions that gradually take hold and diminish the capacity for people to be able to function, with their basic [00:13:00] activities of daily living.
so being able to have that cash upfront is, important to people at the beginning of a custodial care event.another company, one America for example,has recently rolled out, like last month,a zero day wait for home care. Now what that means is that all these insurance policies, say that there's a waiting period before the insurance company will begin to cover expenses.
You know, maybe it's 30 days, maybe it's 60, maybe it's 90. Most often it's 90. And that's really an old underwriting,metric that they used. but that first 90 days for those contracts, can get expensive. and what, America has come out and says, look, if you're at home, there's no cost for waiting period.
we will cover those expenses,from day one for home care.and once you reach the regular waiting period, time of 90 days or 60, whatever it is, was in the contract, then it'll begin to cover facility care. It doesn't cover [00:14:00] facility care in the beginning. When it does cover, it is a real advantage for people is that,there's no waiting period before they'll cover expenses for home care, and we know everybody wants to, be at home.
They be in comfortable surrounding, they want to be with people that they know. They want everything to stay the same so they can deal with whatever their disability is.
these are the two latest developments this year.
what's gonna come down the road. you know, one America may say, okay, look, we won't make this a reimbursement expense. We'll make it a cashed expense. So they just send the money out, the monthly benefit out so that those early expenses can be covered.on an immediate basis and not have to wait.
One of the provisos with the cash policies is that, the IRS is gonna tax,the income from that over and above a basic amount of $420 per day. If a policy holder has home expenses or facility care expenses that exceed $420 a day, then that [00:15:00] amount is gonna be,taxable.
what's beyond the $420.
Alan Armijo: so that's it for hybrid policies, right?
Jim Better: Yeah. You know, but one of the overriding factors is what drives people to invest in these types of contracts. generally it's two things. One,people will recognize that this is a very expensive part of life because they've had a, their, they're, uh, uh, sandwich generation people.
They got a parent, they're putting into care and they have their own children. And they realize what a burden it is financially. So they wanna take care of business and they become motivated to purchase a long-term care policy. and the other is the state preservation. people save money.
You've got 4 0 1 ks, you've got IRAs, you've got other investments, CDs, who knows? You got all this stuff. You got these little pockets of money that you're building up and you're not saving that money. 'cause I wanna be able to pay my nursing home care. This money is being got a specific purpose. maybe it's to help the children out.
Maybe it's to give the grandchildren, maybe to take a lavish [00:16:00] vacation. Who knows what it's for, but the money isn't being saved to pay for long-term care expenses or custodial care or any of those things. It's got other, purposes. So what these contracts do, it frees up that money. It says, okay, you don't have to worry about,saving $300,000 of your nest egg to cover long-term care expenses.
the insurance office is gonna take care of that.
Alan Armijo: Sure, sure. That's great. Greg, thanks for covering those two reasons why it's important to have, this custodial care. let's talk about, you know, how you do business in the sense of.you know, the more I learn about this, the more I talk to other people, I said like, you know, the financial advisors say, well, we, we sell long-term care insurance.
And I'm like, why is the financial, I, I, I see why financial advisors is, is selling it. you know, because of the last reason you gave was the, estate, protection, right. having the money there. you more on the insurance side, you sell other insurances versus like financial planning. So like I, I, I would think, [00:17:00] are you, are you seeing that financial advisors are as well versed on it as you.
Jim Better: but I'm gonna give you a straight answer on that. I don't know how they can keep up with the changes that have taken place in the industry. if they've got two other things that they're doing at the same time, you know, if you don't like what I got in this pocket, I got something in this pocket for you.
You know, we made a decision a long time ago. That this is such an important element to people that, we were gonna specialize in it. And, to be a valuable service to our clients and to their families because it's really, it's a family matter.
You know, when you think about it, when an older person needs,home care or needs to go to assisted living, that's a crisis. Families are disrupted. and the families in the beginning wanna jump in. They wanna take care and they wanna help out. But that gets old, because they have the lives of their own to lead.
and what these insurance policies are designed to do is to,mute the,disruption that a custodial care event creates,by providing [00:18:00] the money for it. It's an emotional issue. it always will be, but it doesn't have to be a financial disaster.
Alan Armijo: Okay. So, you know, in, in our updates in our news, you know, I've been working with, Arlene Moran who owns Option One Care, who provides, in-home care services.
so I'm learning more of the ins and outs of, you know, what assisted living facilities do,skilled nursing facilities.the need for, you know, people helping people stay in their home. But, in terms of, you know, she obviously takes that insurance,but who. You know, I think, you know, in those situations, that's not your client, that's not the referral because they already need the service.
They're not gonna be able to get it. Is it, would it mean that the referral would come from, say the, the children, like you said, the sandwich, seeing that, that, you know, to avoid these extensive [00:19:00] costs that they may or may not be able to pay at this point. You know, do they have that? Is that kind of the.
The, the best referral for you?
Jim Better: yes. those are the people who are most likely to wanna engage in the conversation. There are other people, other categories, if you will, and they to pigeonhole people. But,single parents are another group of people that are more interested in engaging the conversation than maybe some others.
'cause they don't want to become a burden to their children. another,category, if you will, of people that are interested in the conversation are,couples that have a big age difference. You know, a six or eight or a 10 year age difference. normally we know that's the guy is older than the woman.
statistically he's gonna need long-term care, custodial care, long before,his wife.and if he needs it and doesn't have the protection, he could use up all the money in his care. So by having a, long-term care policy in place,it goes back to the [00:20:00] preservation of the assets that are in place for the usage of the surviving,custodial partner,
Alan Armijo: So, community partner. In, in running these circles in skilled nursing facilities and having lunch with, case managers and stuff like that are, are they, they would know the status of, of, the families, right? Like, you know, do you get referrals that way?
Jim Better: Yes, they come from many sources.
estate planning attorneys are a good resource. people who are in the caregiving business,companies like,visiting Angels and,home instead those organizations are good source of referrals as well.
And, you know, somebody says, well, who is a good prospect for you? The reality is, anybody who could fog a mirror is a prospect. now that said,they don't sell these things over the counter.people have to qualify for 'em. They have to qualify for 'em medically. and our practice has always been instead of wasting people's time by looking at numbers [00:21:00] and what's affordable how much, what's my total benefit and monthly, what's my inflation?
We look at, okay, what kind of medical information do we need to get a pre-approval on before we even apply for coverage? And that's important, especially for people who are not yet retired, is that if you, apply for an insurance policy and you get declined, that becomes a red flag in your medical records.
And if down the road you want to do another financial transaction, that's gonna pop up as a red flag. So we do the best we can to,pre-qualify people by gathering as much medical information as possible,and have the insurance company say, yes, this is a risk that we're willing to accept.
and that by doing that we avoid the,the likelihood of it ended up being a red flag in the Medical Information Bureau.
Alan Armijo: Okay. All right. Is there anything else that, you'd like to add, before we close out?
Jim Better: Well, the only thing I that, I would to add.
Jim Better: people are reluctant to admit [00:22:00] that they may get all that may need, these may need, home care or assisted living or long-term care, and willing to say, okay, well, we'll just wait and see what happens. the people that I'm most interested in talking to, and they'll say, yes, this is, I recognize the problem and I wanna find a solution.
Alan Armijo: Okay, well, it's good to know that, keep my ears open for those conversations or prospects for you. the same time, if you know anybody that needs, in-home care services, just gimme a call. I've been working closely with Arlene in that, in that area. On top of that, I want to let everybody know that, our show notes will, will have links to Jim's previous, his previous two interviews where, we talk, you know, in, in total about long-term care and, and its relationship also to estate planning.
so Jim, thank you for your time today. It was a great conversation. Thank you for your, time and Power Partners and we look forward to continue,collaboration with you.
Jim Better: Thank you, Alan. Me too. We'll talk soon. [00:23:00] Okay.
Alan Armijo: Bye-bye.
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Alan Armijo: Welcome to B2B Synergy, the Power Partners USA podcast, your exclusive guide to discovering the potential of B2B partnerships. I'm Alan Armijo, owner of Power Partners USA, business to Business Introduction and Referral Service. Our members are B2B professionals who team up to provide each other repeat referral business or collaboration.
Today's episode shines a light on Jim, better owner of essential plans of insurance. Jim has participated in two previous B2B Synergy podcast episodes. Jim actually is our very first B2B Synergy podcast interview where we had a comprehensive discussion of long-term care insurance.
Jim Better:
Alan Armijo: Today we're gonna talk specifically about hybrid insurance plans available for long-term care expenses.
So, Jim, how are you doing today?
Jim Better: I'm doing well, Alan. Thank you for the opportunity to be able to, create this podcast with you.
Alan Armijo: Good. Welcome back. let's get started. by definition. A hybrid [00:01:00] has the qualities of two different things. please give us an overview of hybrid long-term care insurance policies. specifically what is a hybrid long-term care policy?
Jim Better: in the early two thousands, right. state life insurance, also known as One America patented a unique formula for the services to be covered by, custodial care. they called it a hybrid policy because it covered two things.
It was both a long-term care insurance coverage and it also covered,life insurance. So it was a combination. the good thing about it is, unlike most of the insurance plans that we have, such as home or auto and so on, hybrid policies are guaranteed to pay off. That is, if you need long-term care or custodial services, it will cover those expenses.
If you croak and never need,custodial care, then it pays off like a life insurance policy. And for, the life insurance companies that are in the business. And these contracts also build up cash value. [00:02:00] So as they say in the promotion, whether you live, die, or quit, the policy is gonna pay off.
Alan Armijo: So it sounds to me like this is a better option because it sounds like other long-term care policies are just for the custodial, right.
Jim Better: Yeah, you know, I bought my policy, almost 30 years ago now. Wow. and at the time, only the traditional contracts were available.
And the traditional contracts do one thing. They just pay for custodial care. and if I were to do it over again, would I prefer to have a hybrid policy? I'm pretty sure I would take that because of the guaranteed nature of the payout.
Alan Armijo: So does that mean that if you buy. Any policy, you're locked in to that policy.
Well, yeah. The, anytime an applicant is approved of coverage, they proof of coverage on that day. if they say, well, okay, I'm gonna start small and I'll need another one in five years, fine. But you'll have to pass medical evidence of [00:03:00] insurability at that point. there's no, increase in the coverage with the exception of, an inflation
Jim Better: With the inflation rider, it increases both the benefit pool such as, you know, $200,000, 300,000, and the monthly benefit, which might be, I don't know, 5,000, 7,500, $10,000 a month. The inflation rider keeps those elements continued to increase, to keep pace with the cost of medical care and custodial care.
Is that, that increases every year. That might be 3%, 4%, 5%, depending on who you talked to.
Alan Armijo: Okay, so you really have to kind of know the outcome of what your policy does when you purchase it because,
I've been paying more attention to in-home care, and, long-term care in the sense of. People in a assisted living home, you know, if they have it, it sounds like sometimes there's a daily max, so they might have to have some out of pocket. Is that true? So it sounds like you have to know what your policy's really gonna do for [00:04:00] you.
Jim Better: You know, back when 20 years ago, 10 years, 15 years ago,people were able to buy lifetime benefits because the insurance companies didn't know how to underwrite these contracts. They had no idea what a 10 year Parkinson's case would cost. So they covered lifetime coverage.
but now that they have enough data, and of course we know insurance companies run on data,they realize, okay, we can't afford,to cover a lifetime benefit unless we increase the price. so prices have gone up,pretty substantially over the years.
Alan Armijo: because of the better underwriting. Um, amount per day like, like knowing what it's gonna pay out.
Jim Better: Yeah. so today whether you're looking at a traditional policy or a hybrid contract? Really looking at, okay, how much can I afford to cover?
Can I afford to cover one year of care or two years of care, or three years of care, I mean, you don't really, the crystal balls don't work and tell us how long we're gonna need custodial care at [00:05:00] home. so really to keep contracts affordable, that's where the purchaser has to decide, okay, I've got enough money that's,I can afford to get three years of coverage.
and if it goes beyond that, okay, then it's a crap shoot. Then maybe I look at Medi-Cal, maybe the facility I'm in says, okay, you can stay here because,you've been with us for three years or four years, whatever it may be. and so it's no longer a matter of buying a lifetime coverage. It's much like the reverse of
A home or auto insurance policy or even a health insurance policy,where you are purchasing,an amount of coverage and you pay the deductible. You know, if you've got a health insurance plan, you pay the $5,000 deductible, then the insurance company kicks in or your home or your auto insurance, maybe you've got a $1,500 deductible.
You pay the first 1500. Long-term care flips it. the insurance company is gonna pay the first a hundred thousand, 200,000, $300,000. and then after that, then you're kind of on your own for either out of pocket [00:06:00] family services,or government services.
Alan Armijo: So in terms of hybrid, all that applies I assume, but you, you also have, what, can you explain the, the other elements of a hybrid?
Jim Better: Well, the, the hybrid, one of the important parts, and that's one of the questions that you had as well, is the tax benefits mm-hmm. Of, of these contracts. in 1989 when,The National Association, current Insurance Commissioners got together and said, Hey, look, this, this, this industry is outta control.
They're writing these contracts that are so rich and the insurance companies are gonna go broke. and so they, they said, okay, we're gonna create tax qualified plants. And tax qualified means that, you know, all benefits that are paid out for our long-term care our custodial care contracts. I keep doing.
Long term care too. I'm trying to get my self condition to call it what it really is. but the,so the, the tax qualified plans say that the benefits that have [00:07:00] paid out are tax free. and because the government is concerned about people taking care of themselves, there are elements where the premiums are tax deductible.
Now one thing that, that I stress to my clients is that when you have a hybrid policy and the benefits are gonna be, a tax deductible and the premiums a tax deductible, but only for the portion of the hybrid policy that deals with long-term care or for custodial care.
Alan Armijo: and not the life insurance part.
Jim Better: Not the life insurance part. Okay, that's not tax deductible.the younger people are the lower the cost of the life insurance component on the custodial care policy. the older people are, the life insurance cost is higher, so the tax deductibility is lower, comparatively speaking between a 70-year-old and 50-year-old.
but even accountants,the ones I've spoken to need to be reminded that when people take a tax deduction for their long-term care expense policy, [00:08:00] that only the portion that relates to custodial care is deductible, not the life insurance part.
Alan Armijo: So just, just to rehash here,The summary of a hybrid policy,is The component of two things and, it's the custodial part and the life insurance part,
Jim Better: right? That's, that. Those are the two important elements. Okay.
Alan Armijo: And it's tax deductible.
Jim Better: When I say tax deductible, I mean, if an individual, is purchasing a contract,for themselves and their spouse,the cost of the premium has to exceed the 7.5% medical deduction.
on the 10 40,anything over the, is tax deductible, anything below that and the tax deductibility includes the premiums that you pay for health insurance, deductibles, you pay for health insurance premiums, onco, stable care policy,those all add into the seven point a half percent.
What product is
Alan Armijo: what product is that? Is that all of them or?
Jim Better: That's all of them, you know, and you get a [00:09:00] deduction on your 10 40 for your expenses for health insurance, okay? And for out of pocket expenses. and you can add in the premiums for a long-term care policy.
Alan Armijo: Okay? But even if you're a business,using this,you're saying it's deductible, but after 7.5%, even for businesses.
Jim Better: No, not for businesses. Just for individuals. Okay. There's people purchase it on their own. then that's, it's, the seven and a half percent applies. if a business applies for it, whether it's S corp, LLC partnership, the owners of the company can deduct the premium for themselves and their spouses.
in so far as, as the hybrid policy, the custodial care part,c corporations allow that deductibility to apply to anybody in the company, or everybody in the company.
Alan Armijo:
Jim Better: We, what we see is, companies that are structured as a, as a C corporation, have a unique advantage that they can deduct the premiums for the custodial part of a hybrid [00:10:00] policy for themselves, their spouses, and all of their employees.
so it's a unique advantage for C corporations.
Alan Armijo: do you have clients, like corporate clients that are doing that?
Jim Better: Yes. And most often what they do is they've got, you know, the president, the vice president, the treasurer,maybe a few other people in the high end,high price help that they award and use it as a part of the golden handcuffs to maintain those, keep those employees on by purchasing the premiums for the policies for those employees, not for everybody.
They could. But can employees,
Alan Armijo: can the employees take it with them if they leave? Or it has to with the company?
Jim Better: No, these are all written as individual policies, so that if the employee leaves they can take it with 'em and assume the premium's on their own.
Alan Armijo: Right, right. So, when you sit down with clients and you talk to 'em about any of the, the policies,is it pretty extensive interview just to kind of.
You know, beyond the [00:11:00] medical part, you know, just, I'm talking about like the, the amount that the policy is gonna pay out when it pays out.you have to make that crystal clear to people.
Jim Better: Yes. and when we do the annual review, we have to keep reminding them because when people walk away three months later, they say, Hey, I've got a long-term care policy.
Well, what's in it? Well, I don't really remember, but I've got one. And it's a beauty. Oh, my guys said it's a good one. So I believe them. So every year we have to go through it and say, okay, your total benefit, your total coverage for this custodial part of this policy now is,300,000 bucks. And the insurance company will cover those expenses up to $5,000 a month or 7,500 or whatever, the original contract was.
Alan Armijo: Okay. All right. And anything else we need to cover as far as, hybrid policies?
Jim Better: Yeah, there's some interesting developments. You know, we live in a world of, in this country, still, where competition matters and we're seeing, insurance companies [00:12:00] becoming more competitive and developing, some unique features.
for example, nationwide, the first of this year rolled out a product where, they're gonna cover, they're gonna pay the expenses on a cash basis. if you have a, custodial care nurse come in and say, you know, help you with the activities that they're living,you can pay them out of pocket.
'cause the insurance company is gonna send you that $5,000 check or that $7,500 check, every month. as long as you've still sat, you're still qualify as needing the services and so it's a cash basis and that, that's important because, in the beginning of a long-term care event, there's a lot of nickel dime expenses.
You know, I need some more drugs. Somebody's gonna get us food. There's a lot of, small expenses 'cause people don't go from happy, healthy to nursing home. People wanna stay at home. And it's a, a set of conditions that gradually take hold and diminish the capacity for people to be able to function, with their basic [00:13:00] activities of daily living.
so being able to have that cash upfront is, important to people at the beginning of a custodial care event.another company, one America for example,has recently rolled out, like last month,a zero day wait for home care. Now what that means is that all these insurance policies, say that there's a waiting period before the insurance company will begin to cover expenses.
You know, maybe it's 30 days, maybe it's 60, maybe it's 90. Most often it's 90. And that's really an old underwriting,metric that they used. but that first 90 days for those contracts, can get expensive. and what, America has come out and says, look, if you're at home, there's no cost for waiting period.
we will cover those expenses,from day one for home care.and once you reach the regular waiting period, time of 90 days or 60, whatever it is, was in the contract, then it'll begin to cover facility care. It doesn't cover [00:14:00] facility care in the beginning. When it does cover, it is a real advantage for people is that,there's no waiting period before they'll cover expenses for home care, and we know everybody wants to, be at home.
They be in comfortable surrounding, they want to be with people that they know. They want everything to stay the same so they can deal with whatever their disability is.
these are the two latest developments this year.
what's gonna come down the road. you know, one America may say, okay, look, we won't make this a reimbursement expense. We'll make it a cashed expense. So they just send the money out, the monthly benefit out so that those early expenses can be covered.on an immediate basis and not have to wait.
One of the provisos with the cash policies is that, the IRS is gonna tax,the income from that over and above a basic amount of $420 per day. If a policy holder has home expenses or facility care expenses that exceed $420 a day, then that [00:15:00] amount is gonna be,taxable.
what's beyond the $420.
Alan Armijo: so that's it for hybrid policies, right?
Jim Better: Yeah. You know, but one of the overriding factors is what drives people to invest in these types of contracts. generally it's two things. One,people will recognize that this is a very expensive part of life because they've had a, their, they're, uh, uh, sandwich generation people.
They got a parent, they're putting into care and they have their own children. And they realize what a burden it is financially. So they wanna take care of business and they become motivated to purchase a long-term care policy. and the other is the state preservation. people save money.
You've got 4 0 1 ks, you've got IRAs, you've got other investments, CDs, who knows? You got all this stuff. You got these little pockets of money that you're building up and you're not saving that money. 'cause I wanna be able to pay my nursing home care. This money is being got a specific purpose. maybe it's to help the children out.
Maybe it's to give the grandchildren, maybe to take a lavish [00:16:00] vacation. Who knows what it's for, but the money isn't being saved to pay for long-term care expenses or custodial care or any of those things. It's got other, purposes. So what these contracts do, it frees up that money. It says, okay, you don't have to worry about,saving $300,000 of your nest egg to cover long-term care expenses.
the insurance office is gonna take care of that.
Alan Armijo: Sure, sure. That's great. Greg, thanks for covering those two reasons why it's important to have, this custodial care. let's talk about, you know, how you do business in the sense of.you know, the more I learn about this, the more I talk to other people, I said like, you know, the financial advisors say, well, we, we sell long-term care insurance.
And I'm like, why is the financial, I, I, I see why financial advisors is, is selling it. you know, because of the last reason you gave was the, estate, protection, right. having the money there. you more on the insurance side, you sell other insurances versus like financial planning. So like I, I, I would think, [00:17:00] are you, are you seeing that financial advisors are as well versed on it as you.
Jim Better: but I'm gonna give you a straight answer on that. I don't know how they can keep up with the changes that have taken place in the industry. if they've got two other things that they're doing at the same time, you know, if you don't like what I got in this pocket, I got something in this pocket for you.
You know, we made a decision a long time ago. That this is such an important element to people that, we were gonna specialize in it. And, to be a valuable service to our clients and to their families because it's really, it's a family matter.
You know, when you think about it, when an older person needs,home care or needs to go to assisted living, that's a crisis. Families are disrupted. and the families in the beginning wanna jump in. They wanna take care and they wanna help out. But that gets old, because they have the lives of their own to lead.
and what these insurance policies are designed to do is to,mute the,disruption that a custodial care event creates,by providing [00:18:00] the money for it. It's an emotional issue. it always will be, but it doesn't have to be a financial disaster.
Alan Armijo: Okay. So, you know, in, in our updates in our news, you know, I've been working with, Arlene Moran who owns Option One Care, who provides, in-home care services.
so I'm learning more of the ins and outs of, you know, what assisted living facilities do,skilled nursing facilities.the need for, you know, people helping people stay in their home. But, in terms of, you know, she obviously takes that insurance,but who. You know, I think, you know, in those situations, that's not your client, that's not the referral because they already need the service.
They're not gonna be able to get it. Is it, would it mean that the referral would come from, say the, the children, like you said, the sandwich, seeing that, that, you know, to avoid these extensive [00:19:00] costs that they may or may not be able to pay at this point. You know, do they have that? Is that kind of the.
The, the best referral for you?
Jim Better: yes. those are the people who are most likely to wanna engage in the conversation. There are other people, other categories, if you will, and they to pigeonhole people. But,single parents are another group of people that are more interested in engaging the conversation than maybe some others.
'cause they don't want to become a burden to their children. another,category, if you will, of people that are interested in the conversation are,couples that have a big age difference. You know, a six or eight or a 10 year age difference. normally we know that's the guy is older than the woman.
statistically he's gonna need long-term care, custodial care, long before,his wife.and if he needs it and doesn't have the protection, he could use up all the money in his care. So by having a, long-term care policy in place,it goes back to the [00:20:00] preservation of the assets that are in place for the usage of the surviving,custodial partner,
Alan Armijo: So, community partner. In, in running these circles in skilled nursing facilities and having lunch with, case managers and stuff like that are, are they, they would know the status of, of, the families, right? Like, you know, do you get referrals that way?
Jim Better: Yes, they come from many sources.
estate planning attorneys are a good resource. people who are in the caregiving business,companies like,visiting Angels and,home instead those organizations are good source of referrals as well.
And, you know, somebody says, well, who is a good prospect for you? The reality is, anybody who could fog a mirror is a prospect. now that said,they don't sell these things over the counter.people have to qualify for 'em. They have to qualify for 'em medically. and our practice has always been instead of wasting people's time by looking at numbers [00:21:00] and what's affordable how much, what's my total benefit and monthly, what's my inflation?
We look at, okay, what kind of medical information do we need to get a pre-approval on before we even apply for coverage? And that's important, especially for people who are not yet retired, is that if you, apply for an insurance policy and you get declined, that becomes a red flag in your medical records.
And if down the road you want to do another financial transaction, that's gonna pop up as a red flag. So we do the best we can to,pre-qualify people by gathering as much medical information as possible,and have the insurance company say, yes, this is a risk that we're willing to accept.
and that by doing that we avoid the,the likelihood of it ended up being a red flag in the Medical Information Bureau.
Alan Armijo: Okay. All right. Is there anything else that, you'd like to add, before we close out?
Jim Better: Well, the only thing I that, I would to add.
Jim Better: people are reluctant to admit [00:22:00] that they may get all that may need, these may need, home care or assisted living or long-term care, and willing to say, okay, well, we'll just wait and see what happens. the people that I'm most interested in talking to, and they'll say, yes, this is, I recognize the problem and I wanna find a solution.
Alan Armijo: Okay, well, it's good to know that, keep my ears open for those conversations or prospects for you. the same time, if you know anybody that needs, in-home care services, just gimme a call. I've been working closely with Arlene in that, in that area. On top of that, I want to let everybody know that, our show notes will, will have links to Jim's previous, his previous two interviews where, we talk, you know, in, in total about long-term care and, and its relationship also to estate planning.
so Jim, thank you for your time today. It was a great conversation. Thank you for your, time and Power Partners and we look forward to continue,collaboration with you.
Jim Better: Thank you, Alan. Me too. We'll talk soon. [00:23:00] Okay.
Alan Armijo: Bye-bye.