Round Two with Dan Sullivan: Insurance Planning for the Next Life Stage

Dan Sullivan is back, and this time we're talking about a different phase of life.

In this follow-up to Episode 16, Tom Kaminski welcomes back Dan Sullivan, Managing Director at First Element Insurance Planners, to shift the conversation from young families to the sandwich generation's other pressure point: aging parents, and eventually, themselves. This episode is a practical, no-pressure primer on long-term care insurance: what it is, who actually needs it, and how to think it through without turning it into a scary decision.

Tom and Dan cover:

• What long-term care actually means, and the difference between skilled care and custodial (chronic) care
• Why long-term care costs are rising faster than general inflation, and what's driving the shortage of caregivers
• Using tools like CareScout's Cost of Care Survey to benchmark what care might cost in your area
• How to figure out if you have an income and savings gap that insurance should fill, versus self-insuring
• The two main types of LTC policies: traditional standalone coverage vs. hybrid life insurance/annuity policies with an LTC rider
• Dan's "live, die, quit" framework for understanding what a hybrid policy actually pays out and when
• How benefits get triggered (needing help with 2 of 6 activities of daily living, or a cognitive impairment) and the difference between reimbursement and indemnity payouts
• Why the honest answer to "does everyone need long-term care insurance?" is no, but everyone needs a plan

Resources mentioned:

• CareScout Cost of Care Survey: carescout.com/cost-of-care
• First Element Insurance Planners: firstelementinsurance.com
• Catch up on Dan's first appearance, Episode 16: Risk Management for Growing Families

Disclosure: Tom is a fee-only financial planner. He is not licensed to sell insurance and receives no referral fees, commissions, or compensation of any kind from Dan Sullivan, First Element Insurance Planners, or any insurance brokerage.

This episode is for informational purposes only and is not tax, legal, or investment advice. Please consult qualified professionals before making any financial decisions.

Transcript

SPEAKER_00 0:32

Hello and welcome back to the Sandwich Bread Podcast. I am your host, Tom Kaminsky, and these are conversations about life and money for the sandwich generation. Very excited to have back on the episode round two, Dan Sullivan of First Element Insurance Planners. Welcome, Dan.

SPEAKER_01 0:47

Thank you, Tom. Great to be here.

SPEAKER_00 0:48

Yeah. And for those of you that didn't uh catch our prior episode, maybe start by going back and listening to that. In the prior episode, we talked a little bit about insurance strategies for young families. So we covered life insurance in a level of detail and then long-term disability insurance, then property casualty, umbrella to umbrella insurance as well. And uh great conversation, really geared toward young families. So you are newly married or married for a few years and have your first one or two children, and your your insurance and your risk needs shift pretty dramatically during that phase of time. And so we really tried to tailor that episode to speak to those folks in that phase of life. So take a few minutes, listen to that, get to know Dan, and then come back for round two, which is today. We're gonna dig dig in a little bit to long-term care. But before we do that, Dan, we want to learn or refresh a little bit about you. So Dan, you've been in the insurance industry now for I guess about 15 years. Wow. The years they pile up quickly, don't they?

SPEAKER_01 1:45

That's right. That's right. Yeah. First as a uh a litigation attorney litigating cases in the world of insurance and uh now with first element as managing director.

SPEAKER_00 1:54

Awesome. And give us a quick refresh on first element insurance planners.

SPEAKER_01 1:59

Absolutely. So we are an insurance firm that partners with fee-only financial planners to help them help their clients with insurance planning, recognizing that there are a lot of advisors out there who have clients that have insurance needs. They want those insurance needs to be handled in an objective and professional way. And so that's what we work with our financial planner partners to uh to provide to their clients.

SPEAKER_00 2:23

Great. Yeah. And for me as a fee only financial planner, I am not licensed to sell insurance, but I do comprehensive financial planning for all of my clients. And insurance is a very important part of that. But since I do not sell the life insurance policies myself, I need to look out to the marketplace for brokers and third-party partners to step in and fill that need when uh policy is appropriate. I I'll develop policies for my clients. I'll reach out to First Element and introduce my clients when they don't have a broker already of their own. We'll work with them to put together uh solutions for my clients to fill those needs. Welcome back, Dan. All right. So for this episode, uh, we're gonna be talking about long-term care and long-term care insurance. I think this episode speaks to both the sandwich generation folks, our primary listeners, and uh potentially their their parents. So the uh folks that are in their 50s, 60s, 70s, and uh moving into the phase of life where long-term care may be more in play. We're gonna talk about different components of long-term care. I think for the sake of this conversation, though, let's start high-level, Dan. What is long-term care at just at a high level before we get into the insurance component of it? Um, and then let's talk a little bit about cost trends, because that's obviously after understanding what it is, the next question naturally is what is this thing gonna cost me? Share with us uh your definition of long-term care.

SPEAKER_01 3:40

Sure. When we talk about long-term care, uh, really you can think of two different types of care. There's skilled care, and then there's chronic care. So skilled care, you think of, you know, when you go to the doctor's office, the hospital, and you're getting care from somebody in a white coat. That's generally skilled care. When we're talking about chronic care, we're talking about helping people do the things that they need to do in their normal daily life. In the industry, they call it the activities of daily living. So think about how we got to this podcast today. We got up, we moved around our homes, we fed ourselves, used the facilities, took a shower, dressed, all those types of things. When you can no longer do those things, you need somebody to help you with them in your normal life. That's what long-term care is.

SPEAKER_00 4:20

Awesome. Okay, very helpful. Now let's talk costs. Very important component of this is, and because it's also changing pretty rapidly in the wrong direction. Let's talk about costs. What are some cost trends you see from your chair with regard to long-term care?

SPEAKER_01 4:37

Yeah, and talking about the care itself, the the cost is only going up. The the last statistics that I saw were that it's going up at a rate faster than inflation. If inflation is two to three percent, um, you know, the the cost of long-term care, uh, different types of care is uh five percent or even higher. So the the the cost of care is going up. That's in part due to the fact that we have a shortage of caregivers in the United States, and that problem is only expected to get worse.

SPEAKER_00 5:08

And at the same time, that the demand is growing, right, as more folks age and need retirement and long-term care solutions.

SPEAKER_01 5:14

Yes, we're getting close to more and more baby boomers that generation needing care. And so that is that's where we're headed.

SPEAKER_00 5:22

I try to keep up with studies and I I use planning assumptions in my software, and you know, I have to do my best as a fiduciary to project these costs reasonably. And to Dan's point, over the last several decades, we've seen it outpace inflation, but particularly acute in the last five to ten years, really since COVID, we've seen those costs really seldom be under 5% a year inflated. I'm really more like six, seven percent. And so, yeah, there's a big need for caregivers and there's increasing demand at the same time. So this is a very important conversation for our listeners that might be entering retirement years and for kids of those individuals. You know, you might be in your 30s and 40s and your parents are aging. If there's not a plan in place, the plan is to move into your home potentially. Maybe everyone's open open and having a positive dialogue around this. But if you're not, I think it's really productive for all for all parties involved to understand the state of affairs for long-term care.

SPEAKER_01 6:20

Yeah, the the reality is that not everybody needs a long-term care insurance policy, but everybody should have a plan because you're right. The default plan, if you don't have one, it tends to be family caregiving. And that's not really mitigating the cost of care, it's just passing it on to other family members or the next generation. The physical and financial toll of providing care to a family member is significant. So it's something to keep in mind and make sure that you have a plan in place.

SPEAKER_00 6:49

Well put. Yeah. Okay. And so a little resource to share with the audience when you're asking yourself, where do I begin to try to assume, make assumptions around my own long-term care costs? A tool I often use, in my understanding with Dan, is because his team will use this as well, is a tool called Care Scout produced by Genworth. They pull in uh a substantial amount of data from across the country to try to project, based on your zip code, what long-term care costs might look like. So it's called Care Scout. I'll I'll use it as sort of a baseline, a starting point to assume costs. Now, take Kansas City, for example. I think we're actually in an interesting area to use because we are sort of middle of the road for costs across the country. Rural areas tend to be lower cost, big cities, New York, San Francisco, Chicago tend to be quite a bit higher. So I think we're actually a pretty good average place to be for skilled care facilities. We'll see these costs at 10 to 15,000 a year and uh, or excuse me, 10 to 15,000 a month. And so, right, that's just kind of setting the stage for, you know, if you're in New York City, it could be many, many, many, many, many times higher than that. And if you're in a rural area, it could be, could be quite a bit lower for skilled care. But again, I kind of encourage families to start using that tool, but take it a step further. If you really are engaged with this process and wanting to get a reasonable expectation of what your care costs could be, reach out to a few facilities in your area and ask what the real costs would be because there could be some variability there, it could be much higher.

SPEAKER_01 8:17

Yeah, I I would encourage the same thing because I think if you looked up the few facilities that you think are this is representative of what I would want for myself or a family member, I think what you'll find is that the cost is actually higher than what you'll see on Care Scout. But you're right, we do use that cost of care tool and it's been a valuable tool.

SPEAKER_00 8:39

And once you have an understanding of costs, let's talk about how you'll pay for this. For the sake of this conversation, because this is Dan's area of expertise, we're going to talk about insurance. But for folks that aren't sure whether or not they need insurance, you know, it's once you know the cost of the type of aging plan you want for yourself, understand what your income sources are, whether it's social security, pension, and then if you have savings in the form of investments, understand the income and what you can draw from your portfolio to cover these costs. So, Dan, maybe start us high level, help us understand what long-term care insurance is, and then we can get into strategies around procuring a policy.

SPEAKER_01 9:15

When it comes to long-term care insurance, there are a number of different policies that can provide that. Conceptually, when we're looking at you know what what a long-term care coverage provides is a pool of money that when a person is on claim, they can draw from at a specified monthly benefit amount per month to cover that care until such time as the pool of money is exhausted. And so that's the idea is that if you have care that's $10,000 a month, some portion of that or all of that is covered by a long-term care benefit that draws from a uh a pool of long-term care policies.

SPEAKER_00 9:52

Got it. And when should folks, you know, are there optimal years to start looking at procuring a policy, a long-term care policy?

SPEAKER_01 10:00

We recommend individuals start to look at this at age 50. Now they might not buy a long-term care insurance policy at age 50, but that's a good time to start looking at it and understanding what the risks are, what the costs are, what are the different ways that long-term care can be paid for, so that if they decide within five to seven years, yes, I do want to buy a long-term care insurance policy, they're still young, healthy, insurable, and still sort of in that sweet spot of buying a policy and getting significant leverage on the premium dollars they're putting into it as far as the uh long-term care benefit goes.

SPEAKER_00 10:37

And if somebody is in their maybe mid to late 60s or in their 70s, do you see the economics of procuring a long-term care policy? Do you ever see that working well?

SPEAKER_01 10:47

So they definitely change from somebody who's in their early to mid-50s on the one hand versus somebody in their late 60s or 70s on the other. It can still make sense. And I I would still recommend anybody who is interested in the topic to find out what the different options are. What we generally see is once somebody gets into their late 60s, the the leverage that they're getting on the premium dollars they're putting into the plan is far lower than it was when they were in their 50s. Once you get to age 70, you also are more likely to have underwriting concerns. So by age 70, nearly half of applicants for long-term care insurance are declined due to different health concerns.

SPEAKER_00 11:28

Yeah, and let me let me kind of frame this for some of the listeners. If you are in your 30s or 40s, um, and you're working with me, for example, what I'll usually do is have a discussion with you around what your preferred aging process is. And it could be somewhat brief when you're younger, because if you're 33, you're not thinking a lot about end-of-life care. So we I always have a financial planning assumption in every plan I build around long-term care expenses. And often if you're younger and you're higher income, my plan is for you to self-insure. And so we will save, we will build retirement assets, we will build taxable assets, we'll build your net worth and income sources to meet your long-term care needs. However, as time goes on and your financial picture gets more and more clear, as Dan said, you know, as we're nearing that age 50 threshold, I will re-review the assumptions and the aging plans with our clients and say, are we financially in a place where it feels like we can self-continue to self-insure? And if the answer is yes, then it can be that simple. But we will look at and explore long-term care policies if I feel like there's a gap there. So if you're a listener in your 40s and 30s, you know, and you're a client of mine and we haven't really gotten deep on long-term care insurance, it's because our plan is likely to self-insure. If you're worried about your parents and they might be in their 70s or 60s, I think the first step, the first takeaway is have a dialogue with them around long-term care. What are their aging plans for themselves? What would they like? I think often people want to age at home. So let's build a budget. We've talked about facilities in this conversation, but build a budget for aging at home and be open with your children around if you have long-term care insurance, share what those policies look like with them. If they are your power of attorney and they are going to be responsible for you as you age, share those plans with them. So the sweet spot for getting a policy might be your ease to 60s, as Dan said. But if you're in your 30s and 40s, understand the self-insurance process if that's the plan. And if you're in in your set, understand what your aging plans are and your financial picture and communicate that with your kids. I think those are the big takeaways for folks that kind of fall outside of the that age bracket.

SPEAKER_01 13:37

Sure.

SPEAKER_00 13:38

Excellent. Could you share a little bit about different types of long-term care insurance?

SPEAKER_01 13:41

Well, there are two main types of long-term care insurance. One are traditional policies or sometimes called standalone long-term care insurance policies. They're similar to like your home and auto insurance, where you pay a premium. If you have a claim, then you start receiving your benefit, and there's really nothing else involved in that plan. Contrast that to what are often called hybrid plans or link benefit plans or uh asset-based plans, there are a bunch of different types of names for them. But generally, what you have is either a life insurance policy or an annuity that has a long-term care writer. Now, I hate describing it that way because for people who have experience with life insurance, you think of a rider as like you know, something you tack on to the policy. That's not how these work. People who are buying hybrid plans are doing so because of the rich long-term care benefit, not because there's a life insurance benefit there. But those are generally the two types. Hybrid policies have become much more common, much more popular in recent years because of the fact that they can come with guarantees. So guaranteed premiums, fixed premiums, uh guaranteed benefits, and then also the possibility for short pay durations. One of the big frustrations, often with traditional long-term care plans, is the substantial and frequent rate increases that current policyholders are experiencing, and potential new policyholders see that and are not wanting to get into that.

SPEAKER_00 15:13

Got it. And so with those hybrid quote unquote hybrid plans, it's a life insurance policy. So you've got um, and is it a term structure where it's over for a term period of time, or is it like a permanent structure or all of the above depending on how it's designed?

SPEAKER_01 15:29

Yeah, so it is a permanent life insurance policy, so either whole life or universal life. And uh the there are a number of different specific policy types. The ones that we typically recommend are fully guaranteed as far as the the death benefit goes. So as long as the premiums are all made, the death benefit is guaranteed, the long-term care benefits are guaranteed, and then there's also a guaranteed essentially return of premium option so that if you had the in case of fire break glass type of situation in your life, you would be able to surrender the policy, get some or all of your premium dollars back, and then redeploy those as needed. But it is a it would be a permanent policy with the long-term care benefit as a component and typically the largest component.

SPEAKER_00 16:17

Okay, great. Yeah, and like Dan said, some complexity there and and lots of different options there. So but but it I guess optionality kind of hopefully if you've got a good console around your insurance gives you flexibility to try to shape the policy more specifically to your needs. So yeah. Excellent.

SPEAKER_01 16:34

Yeah, and and to try to make it simpler, we think of the benefits in terms of live, die, quit. So if you live and you need long-term care, there's a robust pool of benefit there to meet your long-term care needs. If you die without ever having needing care, then there's a death benefit that goes to your beneficiaries. And like I said, if you need to quit, then you can get some or all of your premium dollars back. So dialing in each of those things is yeah, something that professionals can help you with. But that's uh that's generally how they got it.

SPEAKER_00 17:03

And when it comes to use, actually tapping into the policy, could you walk us through how benefits get triggered?

SPEAKER_01 17:10

The the benefits in a long-term care policy are triggered when one of two things happen. First, when the insured can no longer do two of the six what are called activities of daily living. Those are eating, bathing, toileting, transferring, meaning going from like a bed to a chair, dressing, and then continence. Uh, or bladder and bowel function. Once you can no longer do two of those things yourself and have your physician attest to that, then you would qualify for a claim. Or if you have a cognitive impairment that's severe enough that you can no longer take care of yourself, and that's attested to by the physician, then that would also trigger.

SPEAKER_00 17:49

Okay. So you trigger two of the six ADLs, then what happens next? How do those benefits get paid? I understand there's a reimbursement process versus indemnity. Can you help us understand those differences? Sure.

SPEAKER_01 18:02

So the there are generally two types of plans in this area as well. So reimbursement plans are what they sound like. If you go on claim and you incur long-term care expenses, you can submit those receipts to the insurance carrier for reimbursement of that care up to your monthly benefit amount. With indemnity plans, by contrast, you would go on claim and the insurance carrier would simply pay out your monthly benefit amount each month.

SPEAKER_00 18:31

And I'll I can speak to this question a little bit from the financial planning perspective. Do you see folks try to fully insure their long-term care costs, or or how do you often see folks approach that?

SPEAKER_01 18:41

Yeah, so some do. And really it depends on what makes the individual comfortable in terms of paying premium now and having benefit later. But what we typically find is that there are clients who recognize the value of having a long-term care policy. They just they're not comfortable with the premiums that would be required for a policy that meets what they perceive to be 100% of what they're probably going to need. Funding 75% of what they think that total need is going to be, uh, or 60% as you know, what we're transferring to the insurance company can make a lot of sense, resulting in a premium that's comfortable, but also in still a significant benefit, but understanding that at some point the portfolio might have to take over and take care of the rest of the care need.

SPEAKER_00 19:29

Yeah. And that's where I often see uh with almost any type of insurance with my clients where we land is you understand you know what's covered by your employer, um, and then what's covered by an independent insurance policy, and then what's covered by Social Security or pension or your portfolio. It's sort of a marrying of all these weapons that you have. You got a lot of tools you can use and just understanding how they kind of blend together to meet the need. So, Dan, in your view, does everyone need long-term care insurance? Andor what should be the big takeaway from this conversation?

SPEAKER_01 20:01

Sure. No, I I don't think everyone necessarily needs long-term care insurance, but everybody does need a plan. The reality is that most people are going to need long-term care services at some point. And so knowing how that's going to be funded is critical. I think it is a good idea to look at insurance options if that's a potential solution. But at the end of the day, it's going to be for some people and for for other people, it's not going to uh to fit the plan.

SPEAKER_00 20:25

Well put I think the number one thing is dialogue, open communication and plan. And that's whether you're talking to your spouse or a partner about your plans or with your your kids or your parents. So I think that's the number one goal is an open line of communication. And that's that's the first step to understanding if there's a need that needs to be filled with insurance or or something else. So well, Dan, thanks for coming on.

SPEAKER_01 20:48

It's my pleasure. Thank you, Tom. I appreciate it.

SPEAKER_00 20:50

You bet. All right. Well, thanks again, everyone, for tuning in today. And uh, we'll catch you again in a couple weeks for our next episode of the Sandwich Bread Podcast. Take care.