Okay, Courtney’s question is up next. It says, “Hi, Money Guy team. Hi, any thoughts on using permanent whole life insurance to save for possible long-term care expenses while avoiding future taxes after fully funding a Roth IRA? What? Wait, how did Roth fit into that? Wait, I was tracking with long-term, and then what she’s saying she already fully funded a Roth IRA. Daniel’s smiling. If you want to, I don’t know if you need to clarify at all, but using permanent whole life insurance, she’s doing… she’s using it to get out of jail. ‘Hey, I funded all my tax-incentivized savings. Yes, I funded all my tax. I’ve done my 401ks, my 403bs, I’ve done the Roths. I’ve got nothing else left where I can really go save money on taxes. But you know what? I got a buddy. It’s a friend of a friend of a friend who knows a friend who has a cousin. They told me there’s this amazing way that I can start building some tax-free dollars. I can actually use life insurance to do it. And guess what else I learned? I learned that with specific types of life insurance policies, with specific types of universal permanent or whole life policies, there’s actually an opportunity at somewhere in the future where I can then take that policy, if I don’t die—yay for not dying!—and I can actually convert it into a different type of policy that has a long-term care benefit. This is what’s happening now. Now, are there glimmers of truth in everything that Courtney just laid out? Yeah, there are pieces of truth in that. The question that I would have you ask, Courtney, that I want you to kind of sit and think through is, ‘All right, is what I’m trying to accomplish, is this the most effective way for me to be able to accomplish that?’ Meaning, if I’m trying to save for financial independence, is saving in an insurance policy really the best way to do that? Or might I be better served saving after all of my tax-incentivized stuff in just a regular after-tax brokerage account?”
If my goal is to protect my family, my loved ones from my premature death, and I want to make sure there’s a death benefit there for them, is permanent universal or whole life insurance the best way to accomplish that? Or might there be a better way to do that through low-cost term insurance? Now, let’s fast forward. If I know that inside of my family genealogy, the cause of death at end of life tends to be long disease, right? So, Alzheimer’s, those types of diseases where it’s likely I’m going to need some sort of skilled nursing care, nursing home, some sort of extended end-of-life care, and it seems that that’s going to be a likely outcome. Is the best way for me to potentially plan for that to be able to build money inside of a whole, permanent, universal-type life insurance policy now and then convert it to some sort of long-term care policy or buy some rider that has a long-term care benefit? Or might I be better served saving my dollars from now until I get into my older age years to either self-fund my future medical expenses because I saved the pot of money so big or just buy a traditional long-term care insurance policy at that time? Essentially, buy the insurance when I need the insurance instead of buying the insurance now when I’m super, super young and giving myself sort of a bailout if I did not die and cash in the life insurance policy. Yeah, I mean, Bo is definitely more of the insurance expert. He actually spent some time selling life insurance, so he knows a little bit more. So, but no, I didn’t mean that as a cut. I mean, it really is a depth of knowledge more so than me. Mine’s more of a philosophical thing because I do think insurance, I’m loaded up with insurance, it’s all term. But I’m not against permanent insurance. I’ve actually referred out permanent insurance for clients. I think the thing I’m sitting here thinking about is, because I couldn’t tell what the ‘why’ where it was honed in on if it was long-term care. Because long-term care is more of a peace of mind subject matter because, you know, for years I used to talk about the donut of people who didn’t have much money. You don’t need to be thinking about long-term care. People have lots of money. You don’t need to be thinking about long-term care because you can self-insure. It’s really the people who are kind of in that $1 to 3 million of assets. You’re worried about future events eating away any ability to pass on assets or even just have assets. So, there was definitely a market for long-term care. But just to give people a quick history lesson, long-term care insurance, like I said, this is where my being around decades and having an experience, I’m now seeing the other side of things.
Long-term care, I think the insurance industry missed the mark. They were selling the heck out of these policies. And now here we are, the graying of America where a lot of these policies are now… have reached the point where they blew up. They didn’t actually work. So, guess what the result has been on the way they structured those original long-term care policies? They’re sending out huge… Because they go to the insurance commissioner and the insurance commissioner goes, ‘Yes, you can adjust these stated premiums because you’re doing it day everybody.’ And we get the… I mean, I think I’ve seen some high as 20% plus. Basically, say if you want to keep your current coverage, you’re going to have to increase your premium payments at this level. And it’s way beyond what they… was stated when the policy was sold to these… And a lot of our retired clients who are on fixed incomes, like, ‘What do I do?’ And we have to do all kind of analysis. So, the solution from the insurance company has now been, ‘Okay, we blew it up. Our actuaries screwed it all up. They didn’t get all the assumptions right. So, let’s do this. Now, let’s go with permanent insurance policies and put these riders for long-term care on top. So now, we get the… we got some cross-pollination there with the cash value and so forth. And it does seem to… I don’t know if it’s been tested yet, but this is what people I trust in the insurance industry have shown me as the new solution. Because the old policies obviously were a failure. But I just don’t know if I completely trust the industry. I’ve experienced the failures for my clients on the old version of long-term care. Now, we’re in long-term care… I don’t know if we’re in 2.0 or 3.0. And they tell me they have this new solution, but it seems a lot more expensive, which probably, because I got burned on the first one. And it just seems hard. So, you have to know yourself, Courtney. And I hate that we… I’m wondering, taking you on a journey through the woods right now. And I don’t mean to. But I just want to make sure you have all the variables. When I’ve talked about this to clients, at the end of the day, it comes down to what gives you peace of mind. For a lot of people, analytically, I can show you all day long, you can self-insure. You can do all kind of other things like Bo talked about. But if you are a person and now you’re reaching middle-age status and you saw your parents struggle and eat away their assets and you took care of them and it just was just such a stressful thing that you’re thinking, ‘Why don’t I just ensure this away, buy this away, this fear away?’ Then I’ve told clients, ‘Look, if it gives you peace of mind, you have enough resources that don’t blow up your retirement plan. We can go and stress test it. Let’s buy and take this stress off of your plate. I’m okay with that. But just make sure you do all the exercises, all the work that goes into figuring out if this insurance product is the best solution for you versus being sold the insurance product just because somebody’s coming with you. Just make sure you do your homework because this is definitely one of those due diligence topics that requires you to measure twice and only cut once versus somebody just scare you to death and then you go buy something and then you have regrets later on. There’s a lot that goes into this. Probably might even be something that you want to consider taking the relationship to the next level. And in the meantime, at least go out to moneyguy.com/resources and find the eight questions you should ask any financial advisor or somebody selling you a financial product to kind of know where their motivation is.
