Join David McKnight and I to discuss his book "The Guru Gap"!

[LostDollar]

I don't think David McKnight brings up the asset protection that could be offered for long term care risk by a Partnership LTC insurance policy for those with enough money to pay the premiums.

That seems to me to be a more efficacious solution than hoping that four years of life insurance withdrawals will be an adequate solution for a LTC need.

Also, when I mentioned to my insurance agent that I had done that with a small policy but they would not pay out the entire policy face under that rider, the agent told me Life Insurance Companies have to do that in order for the policy to be a Life Insurance Policy. If that is true, How then can David McKnight talk about being able to withdraw the entire policy face in four years under a policy LTC provision?

 

[DHK]

Partnership LTC is all but gone, particularly in California where this state pioneered it. There used to be several companies that offered Partnership LTC in California. The latest one that agents could sell... was Genworth - which is now trying to get their ratings back up to an acceptable level, but I haven't been following them in some time. The other large one was CalPERS - available to state employees only and not sold by agents.

Today there are none.
https://www.dhcs.ca.gov/individuals/rureadyca/Pages/home.aspx

In fact, California is exploring more of a mandatory LTC program for those who don't have any kind of LTC, like what Washington state has done.
[EXTERNAL LINK] - Long-Term Care

LTC is going from "get to" purchase LTC decision to a "forced to" purchase LTC decision.

Let's clarify: most "long term care" riders on life insurance (particularly IUL that McKnight is most fond of) is not a true long term care policy (7702b). They are a chronic illness rider (101g) and doesn't have the same tax qualification status.

They both pay for LTC expenses, but they aren't the same thing.

As for McKnight's assertion that you can withdraw 100% of your policy's value in a 4-year time frame... that *may* be an exageration. I'm not sure. Sometimes when he talks about IUL, he references two of his favorite companies (I think Allianz is one of them).

Accelerated Death Benefit riders (101g) for chronic illness do NOT have their own defined schedule of payments. Rather thay are often paid out based on remaining life expectancy - especially for critical illness (heart attack, stroke, or qualifying cancer diagnosis).

A stand-alone LTC policy has a defined schedule of benefits and therefore has more predictability and certainty with those policies than only relying on a rider on a life policy.

 

[LostDollar]

Partnership LTC is all but gone, particularly in California where this state pioneered it. There used to be several companies that offered Partnership LTC in California. The latest one that agents could sell... was Genworth - which is now trying to get their ratings back up to an acceptable level, but I haven't been following them in some time. The other large one was CalPERS - available to state employees only and not sold by agents.

Today there are none.
https://www.dhcs.ca.gov/individuals/rureadyca/Pages/home.aspx

In fact, California is exploring more of a mandatory LTC program for those who don't have any kind of LTC, like what Washington state has done.
[EXTERNAL LINK] - Long-Term Care

LTC is going from "get to" purchase LTC decision to a "forced to" purchase LTC decision.

Let's clarify: most "long term care" riders on life insurance (particularly IUL that McKnight is most fond of) is not a true long term care policy (7702b). They are a chronic illness rider (101g) and doesn't have the same tax qualification status.

They both pay for LTC expenses, but they aren't the same thing.

As for McKnight's assertion that you can withdraw 100% of your policy's value in a 4-year time frame... that *may* be an exageration. I'm not sure. Sometimes when he talks about IUL, he references two of his favorite companies (I think Allianz is one of them).

Accelerated Death Benefit riders (101g) for chronic illness do NOT have their own defined schedule of payments. Rather thay are often paid out based on remaining life expectancy - especially for critical illness (heart attack, stroke, or qualifying cancer diagnosis).

A stand-alone LTC policy has a defined schedule of benefits and therefore has more predictability and certainty with those policies than only relying on a rider on a life policy.

If I am remembering right, the whole life policy I purchased for my wife with a confinement option did have a defined benefit payout procedure.

 

[LostDollar]

Partnership LTC is all but gone, particularly in California where this state pioneered it. There used to be several companies that offered Partnership LTC in California. The latest one that agents could sell... was Genworth - which is now trying to get their ratings back up to an acceptable level, but I haven't been following them in some time. The other large one was CalPERS - available to state employees only and not sold by agents.

Today there are none.
https://www.dhcs.ca.gov/individuals/rureadyca/Pages/home.aspx

In fact, California is exploring more of a mandatory LTC program for those who don't have any kind of LTC, like what Washington state has done.
[EXTERNAL LINK] - Long-Term Care

LTC is going from "get to" purchase LTC decision to a "forced to" purchase LTC decision.

Let's clarify: most "long term care" riders on life insurance (particularly IUL that McKnight is most fond of) is not a true long term care policy (7702b). They are a chronic illness rider (101g) and doesn't have the same tax qualification status.

They both pay for LTC expenses, but they aren't the same thing.

As for McKnight's assertion that you can withdraw 100% of your policy's value in a 4-year time frame... that *may* be an exageration. I'm not sure. Sometimes when he talks about IUL, he references two of his favorite companies (I think Allianz is one of them).

Accelerated Death Benefit riders (101g) for chronic illness do NOT have their own defined schedule of payments. Rather thay are often paid out based on remaining life expectancy - especially for critical illness (heart attack, stroke, or qualifying cancer diagnosis).

A stand-alone LTC policy has a defined schedule of benefits and therefore has more predictability and certainty with those policies than only relying on a rider on a life policy.

Thanks for the comments about the partnership policies. I really wanted to buy one of those several years ago, but could not afford the premiums. I may also have been too old, can't remember for sure on that one.

 

[Allen Trent]

Also, when I mentioned to my insurance agent that I had done that with a small policy but they would not pay out the entire policy face under that rider, the agent told me Life Insurance Companies have to do that in order for the policy to be a Life Insurance Policy. If that is true, How then can David McKnight talk about being able to withdraw the entire policy face in four years under a policy LTC provision?

Could be just semantics.

If I have a 250k life policy with a 4% monthly chronic illness rider for "long term care" expenses, it would mean I could draw anywhere from 0 to 10k per month (4% ×250k = $10k per month). This means if I filed max claim each month it would be done paying chronic illness claim in 25 months. However, even though I would have accelerated 100% of my 250k life policy under chronic illness, some policies have a small residual death benefit left of say 1,000 or 5,000 even though you would think there is 0 left.

If the policy had 2% chronic illness acceleration rider, it would allow me to claim max of 5k per month & at max claim it would deplete the benefit after 50 months.

However, all that said, i
I truly believe most people will not file these claims if they have other assets like IRAs or Annuities. Why would I deplete a life policy that will be tax free when I die and has so much leverage if I could pull money from my IRA that has huge tax bill when I due or NQ annuity has tax bill on gains.

Every situation will be different, but I like the chronic illness rider as it gives the client peace of mind that they have a plan if that is ever needed. But I hope their agent, family & tax person make best decisions on which money to tap into first if they have other adequate assets.

Lastly, the other possible confusion/semantics is that there are 2 main types of chronic illness riders.

1 might be called Chronic illness access rider. It may be added at no added premium cost & no underwriting. However, at claim time, it could be underwriting to see what the impacted life expectancy is of the person & the claim discounted for how early the person is accelerating their death benefit & thus shrinking death benefit more that claim paid. Examples. A person age 85 at claim time won't be accelerating much sooner than life expectancy, so a 100k claim may only decrease death benefit by 110k. But a 50 year old paralyzed, but healthy, might file a 100k claim & have their death benefit reduced by 200k as the added cost of receiving claim 20-25 years before carrier would have paid the life claim.

2nd main rider is the one that is underwritten before it can be added, you pay added cost or premium each year & at claim time their is no discounts of the claim. The amount you claim (2% , 4% monthly) is dollar for dollar acceleration of life insurance face, not a 1
$1.10 or $2 discount like the "free" and no underwriting rider version

 

[scagnt83]

1. The living benefits never pay out the entire face amount. Its always a number that is 99% or less. Usually 95% or less.

2. Most of the free riders put a lien against the policy and charge interest/fees/etc. So a 90% benefit might only end up providing an 85% benefit.

 

[LostDollar]

Could be just semantics.

If I have a 250k life policy with a 4% monthly chronic illness rider for "long term care" expenses, it would mean I could draw anywhere from 0 to 10k per month (4% ×250k = $10k per month). This means if I filed max claim each month it would be done paying chronic illness claim in 25 months. However, even though I would have accelerated 100% of my 250k life policy under chronic illness, some policies have a small residual death benefit left of say 1,000 or 5,000 even though you would think there is 0 left.

If the policy had 2% chronic illness acceleration rider, it would allow me to claim max of 5k per month & at max claim it would deplete the benefit after 50 months.

However, all that said, i
I truly believe most people will not file these claims if they have other assets like IRAs or Annuities. Why would I deplete a life policy that will be tax free when I die and has so much leverage if I could pull money from my IRA that has huge tax bill when I due or NQ annuity has tax bill on gains.

Every situation will be different, but I like the chronic illness rider as it gives the client peace of mind that they have a plan if that is ever needed. But I hope their agent, family & tax person make best decisions on which money to tap into first if they have other adequate assets.

Lastly, the other possible confusion/semantics is that there are 2 main types of chronic illness riders.

1 might be called Chronic illness access rider. It may be added at no added premium cost & no underwriting. However, at claim time, it could be underwriting to see what the impacted life expectancy is of the person & the claim discounted for how early the person is accelerating their death benefit & thus shrinking death benefit more that claim paid. Examples. A person age 85 at claim time won't be accelerating much sooner than life expectancy, so a 100k claim may only decrease death benefit by 110k. But a 50 year old paralyzed, but healthy, might file a 100k claim & have their death benefit reduced by 200k as the added cost of receiving claim 20-25 years before carrier would have paid the life claim.

2nd main rider is the one that is underwritten before it can be added, you pay added cost or premium each year & at claim time their is no discounts of the claim. The amount you claim (2% , 4% monthly) is dollar for dollar acceleration of life insurance face, not a 1
$1.10 or $2 discount like the "free" and no underwriting rider version

since I don't understand IUL's, i am not in a position to discuss semantics.

What i can tell you is:

On page 131 of the guru gap, in a case study, McKnight is recommending a couple each purchase an IUL with a $400K death benefit. "Were they to need long-term care, the insurance company would send them 25% of that death benefit per year, every year, for four years for the purpose of paying for it." There is a footnote saying the insurance company discount the amount based on age when benefit is received.

As a total novice here, that sounds to me like he is saying the insurance company will pay 100% of the death benefit over 4 years. And that is a very specific part of his overall retirement plan for that scenario.

 

[LostDollar]

1. The living benefits never pay out the entire face amount. Its always a number that is 99% or less. Usually 95% or less.

2. Most of the free riders put a lien against the policy and charge interest/fees/etc. So a 90% benefit might only end up providing an 85% benefit.

I am not an an insurance agent. All I can say is "read page 131 of the Guru Gap.

 

[Allen Trent]

since I don't understand IUL's, i am not in a position to discuss semantics.

What i can tell you is:

On page 131 of the guru gap, in a case study, McKnight is recommending a couple each purchase an IUL with a $400K death benefit. "Were they to need long-term care, the insurance company would send them 25% of that death benefit per year, every year, for four years for the purpose of paying for it." There is a footnote saying the insurance company discount the amount based on age when benefit is received.

As a total novice here, that sounds to me like he is saying the insurance company will pay 100% of the death benefit over 4 years. And that is a very specific part of his overall retirement plan for that scenario.

That sounds like the non underwritten, no annual cost version of Chronic illness that underwrites/estimates the life expectancy at claim time & then discounts the the death benefit greater than the actual claim amount requested

 

[LostDollar]

1. The living benefits never pay out the entire face amount. Its always a number that is 99% or less. Usually 95% or less.

That is consistent with what I remember about the Whole Life policy I bought (not sure if I should mention carrier name). The face amount is like peeing into the wind in the face of LTC costs, but I made an effort with the resources I had. I think they kept 20% for death benefit which I figured could work as a death benefit in the event of a medicaid situation.