RJS 5-10-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craigshillig here and this is Safe Money.
I'm here every Saturday to talk with our listeners about
financial strategies we use to manage and protect assets safely.
I've been an insurance agent for over twenty four years.
During that time, I've learned a few insurance strategies, like
using annuities as safe money harbors, or using cash value

(00:23):
life insurance to supplement retirement income. Just a reminder, you
can call our office at five six three three three
two two two zero zero if you'd like to enroll
into one of my virtual Medicare community meetings. I give
those via zoom. I give two every month, or you
can email me at Craig at Craigshillig dot com and

(00:48):
that's cr Aig at cr Aig scchi l lig dot com.
Today I want to talk. I want to continue my
talk about maybeing Disability Awareness Month. I'm going to talk

(01:08):
about long term care and chronic conditions. I'll discuss the
chronic conditioned rider that you can purchase from pen Mutual
if you buy one of their whole life contracts. When
we're talking about long term care, everybody always thinks of
a nursing home. They have the picture in their mind

(01:29):
of someone in a wheelchair inside a nursing home. Well,
a long term care plan actually keeps you out of
the nursing home. If you don't have a plan, then yes,
you will go to the nursing home. If you have
a plan to address your long term care needs, you
have more choices like home healthcare, assisted care, intermediate care, etc.

(01:57):
There are many services out there that can help you
plan for this type of care. Typically, you have three
ways to pay for long term care expenses. You can
use your money, you can use insurance company money, or
you can use some type of hybrid insurance contract through
an annuity or a life insurance contract. Insurance company money

(02:21):
is always cheaper. And please remember Medicare pays absolutely nothing
for long term care expenses. Okay, Medicare only pays for
one hundred days of skilled care. And when we're talking
about long term care, that deals with custodial care. Custodial

(02:41):
care deals with the activities of daily living, and I'll
get into some of that in a little bit all
right now. Ten years ago, the best way to ensure
the long term care need was with a standalone long
term care insurance contract. Fast forward to today, it's more
to ensure this risk using a writer on a life

(03:03):
or an annuity contract. There's several different companies that offer
this type of coverage, but you do have to go
seek it out. It's not included in every type of contract.
And please understand, I'm not saying that a standalone long
term care contract isn't a good thing. I'm not saying
that at all. I own a long term care insurance

(03:26):
contract on myself. The consumer market dictates what is popular,
and the market is saying that standalone contracts today are
just way too expensive. It's more affordable and less of
a sting to the household budget by getting a writer
on a life or an annuity insurance contract. Standalone long

(03:49):
term care contracts today are expensive, and the premiums keep
going up due to claims being paid by insurers right now,
plus the stigma of if I never use my long
term care contract, what do I get back from those
premiums I've paid? That question comes up all the time,

(04:10):
But isn't that inherently what insurance is actually for. It's
always better to be prepared. Many permanent life insurance policies
come with a built in feature called the Chronic Illness
Accelerated Benefit Writer, which lets you access a portion of
your policy death benefit in the event you suffer a

(04:32):
chronic illness or severe cognitive impairment. Now, different companies may
have a different name of that writer, and some companies
may have they may have a long term care writer.
Pen Mutual has a CIAB writer Chronic Illness Accelerated Benefit
that's built into some of their contracts. Some other companies

(04:55):
may have a long term care writer that you can
add on. Just something to think about, but as we
get into this, you'll learn more why this is kind
of beneficial to you. The Chronic Illness Accelerated Benefit Writer
under Pen Mutual is included at no upfront cost on

(05:20):
their life insurance contracts and requires no additional underwriting. While
using the writer will reduce your policy death benefit and
cash values, it's a valuable feature intended to help you
and your family reduce the financial impacts of a chronic illness.
What exactly is a chronic illness or chronic condition. It's

(05:43):
important to note that chronic illness can happen at any
age and can result from an illness or a sudden accident. Specifically,
a condition is considered a chronic illness if for a
period of at least excuse me, ninety consecutive days, the

(06:03):
insured is unable to perform at least two of the
following daily activities. The ADLs is what we call them
daily activities are bathing, dressing, eating, transferring, continence, and or toileting.
The other condition requires a substantial supervision by another person

(06:28):
to avoid injury or harm due to a severe cognitive
impairment i e. This means maybe you came down with
a diagnosis of Alzheimer's, Parkinson's dementia, or some other type
of form of dementia. When can I use this writer?

(06:50):
You're able to use the writer when a US licensed
healthcare practitioner has certified in the last twelve months the
insured has been chronically ill. The healthcare practitioner must also
certify that continuous care in an eligible facility or at
home is expected to be required for the remainder of

(07:12):
the insurance life. How can a chronic conditioned writer help?
Unlike long term care insurance, there's no restrictions on how
the writer's accelerated benefits can be used. For example, the
writer can be used to help with medical expenses, pay
for a care taker or housekeeper, or cover the costs

(07:34):
of a needed home renovation. And you can choose a
lump sum, annual payment, semi annual payment, quarterly, or a
monthly budgeted payout, depending on what works best for your situation.
The Chronic Illness Accelerated Benefit Writer, which is automatically included

(07:55):
with eligible newly issued permanent life policies, offers an acceleration
of the death benefit that can provide policy holders and
their families with a financial safety net if the insured
becomes chronically ill. The money can be accessed income tax
free in most cases. Some of the key advantages are

(08:18):
it's automatically included on most issued permanent life policies without
additional underwriting or cost At issue. Eligible policies can have
up to ten million underwriting amount all policies combined with
up to a five million available for acceleration availability in
all states for issue ages ages twenty to eighty five.

(08:42):
The ability to illustrate multiple years of benefits showing how
a Chronic Illness Accelerated Benefit writer impacts policy values over time.
There is no waiting period. It's available without underwriting on
term conversions to a new permanent life policy for a
period of five years. For term policies issued on or

(09:03):
before May one of twenty twenty four, the writer can
help families protect savings by delaying the need to spend
down assets to cover the costs associated with a chronic illness.
It may be used for nursing or in home health care,
to pay extraordinary medical expenses, or for other needs such

(09:27):
as modifying a home to accommodate the needs of a
chronically illed insured. There's no additional underwriting and no cost
for the writer at policy issue if the client never
needs the benefit. There's never a cost for this additional retirement,
asset protection and peace of mind. That's why I like

(09:48):
pen Mutual. What is a chronic illness? Chronic illness is
defined as the insured being unable to perform two of
the six recognized activities a daily living known as ADLs
without substantial assistance for a period of at least ninety
consecutive days, or the insured having a severe cognitive impairment

(10:12):
that requires continuous care in an eligible facility or at home.
To protect the insured from threats to health and safety
for a period of at least ninety consecutive days. To
access the writer's benefits, the condition must be expected to
be permanent and must be certified by a US licensed

(10:32):
health provider. The practitioner cannot be a relative of the
insured or the policy holder. So let's talk about some
of the ADLs. So we'll talk about bathing. It's the
ability to wash one's sell or get in and out
of the tubber shower without substantial assistance. Continence the ability

(10:56):
to maintain bladder control, vowel function, or pertional hygiene necessary
with this condition. The ability to dress. That's the ability
to take off or put on items of clothing and
or any artificial devices such as braces that may be necessary.
Eating the ability to feed oneself or through intravenious delivery.

(11:20):
Toileting is the ability to give it to or from
an on and off the toilet. Transferring the ability to
move into or out of a bed, chair or wheelchair. Now,
please understand, under those six ADLs, if you lose the
ability of one, another one normally will follow shortly. So

(11:45):
how this rider compares to long term care insurance. The
Chronic Illness Accelerated Benefit rider requires a US LICE license
healthcare practitioner to certify the continuous care in an eligible
facility or at home is expected to be required for
the remainder of the insurance life when the insured has

(12:05):
a chronic illness, whereas long term care insurance does not
generally have this requirement. Additionally, the writer does not restrict
how the policyholder can use the accelerated benefit payments, whereas
long term care insurance will generally require proof of expenses
incurred ie kind of like a reimbursement. The chronic illness

(12:28):
and terminal illness writers operate independently, and insured can qualify
for a chronic illness benefit without having been diagnosed is
having a terminal illness. If the insured would qualify for both,
either writer benefit could be elected. All long term care
or chronic illness benefits should be coordinated so that the

(12:51):
IRS daily per DM amount paid to a policyholder by
pen Mutual does not exceed what is allowed by IRS
for a tax free acceleration of the death benefit. So
let's talk about benefits and taxes. Minimum accelerated benefit payment

(13:13):
would be forty eight hundred a year or four hundred
dollars a month. The maximum accelerated benefit payment per a
twelve month period or lesser of the current year IRS
per diem amount, which is twenty twenty four percent of
the death benefit at the time, including the Accelerated Permanent

(13:34):
paid up Editions writer, Enhanced Permanent paid up Editions writer,
Flexible protection writer, and supplemental writer, so that's predicated on
which contract you're on. Two hundred and forty thousand dollars
is the current per deem amount, which is for to
ten a day of benefit or one thousand, excuse me,

(13:57):
one hundred and forty nine thousand, six hundred and fifty
per calendar year for twenty twenty four. Using claim benefit guidelines,
there's no waiting period for submitting a claim for this
writer benefit. If a claim is made, your pen mutual
will only pay a lump sum amount of the per
diem amount for the number of days remaining in the

(14:19):
calendar year. The writer may not be exercised on eligible
survivorship policies until after the first death, meaning one of
the two needs to be dead before you can exercise it.
There's a maximum amount that can be claimed in a
twelve month period from the time the healthcare professional certifies

(14:40):
that the insured has met the requirement. The certification cannot
be backdated prior to the beginning of the calendar year,
but can be backdated to the end of a ninety
day qualification period if the insured has continued to be
primarily or chronically ill. There's also monthly systematic payment of

(15:02):
accelerated benefit amount will avoid submitting a new required claim
in January the following year for any benefit remaining in
the maximum amount that can be claimed in a twelve
month period. Benefits can be received on a monthly, semi annually,
or quarterly basis, or as a lump sum one time
annual payments. An outstanding loan repayment, which is required by

(15:27):
the chronic illness accelerated benefit payment, may limit or eliminate
the accelerated benefit payment entirely, So if you have an
outstanding loan on the policy that may limit how much
you can tap from this rider, you would want to
pay the loan back first. In most cases, a benefit

(15:48):
can be available each policy year's, subject to company approval
and state variations. A new certification must be completed and
improved each policy year for which a benefit request is made.
The amount of total death benefit must not be reduced
be low fifty thousand dollars regardless of the age of
the insured. Pen Mutual does not provide tax guidance, and

(16:13):
the policy holders should consult a qualified tax professional with
regard to their situation. The ability limits and conditions to
the receipt of a tax free portion of the death
benefit are described in IRS Section one oh one g
Coordination of accelerated benefit payments impact of a writer benefit

(16:38):
payment premium payments. PEN Mutual will work to coordinate benefits
to help ensure accelerated benefit payments known as ABP, so
that they will be tax free. Ultimately, the policyholder and
their tax advisor must determine whether or not the ABP
accelerated benefits payments under the rider will be tax free.

(17:02):
If other benefits exist, we will reduce the accelerated amount
we pay to help the policy order report the benefit
as an income tax redistribution of their death benefit. Unlike
partial wood draws or surrenders a result in a dollar
for dollar reduction of policy value, the Chronic Illness Accelerated

(17:23):
Benefit Rider impacts the policy in the following ways. The
death benefit is reduced based on the amount of claim,
interest in or immortality factors. The death benefit is reduced
by more than the benefit paid. Because the riter gives
part of the death benefit before death, the interest factor

(17:43):
on the calculation can change on a yearly basis since
it's tied to Moody's Corporate Bond Index. The specified or
face amount will be proportionally reduced based on the percentage
decrease in the death benefit. Whole life cash value dividends
and paid up editions are reduced proportionally based on the

(18:05):
percentage decrease in the death benefit. The accelerated benefit is
reduced proportionally by any outstanding loan. It's possible a reduction
may mean no accelerated benefit would be available. Again, make
sure you don't have a current loan against the policy. Premiums,

(18:27):
no lab premiums, and monthly deductions will be reduced going
forward due to the reduction and death benefit. For policies
that offer banding, if the face amount or specified amount
drops the policy through the lower band, that will also
impact the premium required after the reduction. If a whole

(18:47):
life policy is paid up, or if lifetime no lapse
premiums have already been paid, no additional premium is needed
or required. After an accelerated benefit payment is received. The
payments can't be returned to restore the value the policy.
Meeting the requirements for a chronic illness does not waive
required premiums. Premiums must continue to be paid to keep

(19:11):
the policy in force. A certification of a chronic illness
must be completed and signed by a US licensed healthcare
practitioner not related to the policy holder or insured. The
healthcare practitioner must certify within the last twelve months of
the insured has been chronically ill and is expected to

(19:32):
remain that way for the remainder of their life. The
healthcare practitioner can be a licensed physician or a registered
nurse or a licensed social worker. If the insured is
certified is chronically ill and expected to remain that way
for life, that does not mean there is no opportunity

(19:52):
for recovery. When a benefit is needed, the policy holder
must submit a complete claim form and chronic illness certification.
The policy holder will also need to advise how much
of the benefit they need up to the maximum annual
limit and not less than the minimum amount required the
frequency of accelerated benefit payments, whether the insured is any

(20:15):
long term care benefit from state or federal programs such
as Medicare or medicaid that could also apply, or any
private or workplace long term care policies or other life
insurance policies that have a chronic built in rider, including

(20:36):
any additional pen mutual policies or policies issued by other
life insurance companies. The chronic illness accelerated benefit riders available
with both level and increased death benefits. The writers automatically
included on eligible policies for all pen mutuals currently marketed
permanent life insurance products. You can also buy a term

(21:00):
track now convert it to a whole life contract down
the road, and that writer would be included on that contract.
Eligible amounts include a flexible protection writer, accelerated permanent paid
up editions, writer enhance permanent paid up editions writer on

(21:22):
whole life and supplemental term or on universal or variable
universal life products, but no other term writers. One of
the best ways or a good back pocket idea for
this by a paid up policy that has one of
these writers. Pick an amount that fits in your budget.

(21:44):
I mean, if you're young, buy a ten or a
twelve year paid up policy. I mean, I don't care
if it's you know, call it a couple thousand dollars
a year. If you can put two or three grand
a year for ten years and then the policy's paid up,
have this built in, you would have an asset there.

(22:05):
Call it thirty grand, call it you know that could
multiply to a couple hundred grand over a twenty or
thirty year period that you can use against a long
term care need down the road. Now, remember this is
life insurance. Again. If we're doing it on a life
insurance contract, so if you die, it's still going to

(22:27):
pay out a death benefit. That's fine. But if you're alive,
you could use that money freeing clarity, tax free. That's
not going to harbor or injure your other assets out
there to pay for this type of care until you
know what's going on. If it's a short term period.

(22:47):
Now most of these deals aren't. If you get diagnosed
with a long term care expense, whether it be a
chronic condition or something like that, that's usually not going
to go away. You're not going to heal from. But
I've had some cases where young people say, you're in
a bad accident, you have hip surgery, maybe you're out

(23:09):
of work for nine months or twelve months. I've had
some under forty year olds qualify for their long term
care insurance at age thirty eight. They had a policy,
it paid a benefit. One of them was on coverage
for oh sixteen months. They didn't expect for that to happen,

(23:31):
but they were there. They had the policy, the policy paid,
they met the definition of the contract. Those benefits are
paid free, clear tax free, so keep that in mind. Now,
this is not a replacement for long term care insurance. Again,
but this is just another strategy you could use in

(23:51):
order to hedge that pending future expense. Don't forget. I
gave monthly virtual meetings regards Medicare for two different companies
every month. In one meeting, I cover Medicare supplement plan
with a standalone drug plan. That meeting is usually a
sponsored by Wellmark. My other meeting, United Healthcare is generally

(24:14):
the sponsor for that virtual meeting, I focus on Medicare
advantage plans known as Medicare Parts C, and I cover
the four pieces of Medicare. In both of those meetings.
You can call our office at five six three three
three two two two zero zero for the zoom meeting

(24:35):
codes and additional dates and times. You're also welcome to
email me at Craig at Craigshilly dot com and that's
my name, cr Aig at cr AI G S C
h I l LIG dot com and I'd be happy

(24:55):
to send you the virtual virtual zoom link meeting codes.
This is Craig Chillig with safe money