Chris Orestis is the Co-founder and CEO at Life Care Funding. This episode is about new state laws that are threatening insurers.
Orestis explains what seniors can do instead of abandoning their life policies to go on to Medicaid. He provides options for middle-class people who are not wealthy enough to pay for long-term care, and not poor enough to qualify for Medicaid.
Visit Life Care Funding at www.lifecarefunding.com
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Start of Interview with Chris Orestis
Jason Hartman: It’s my pleasure to welcome Chris Orestis to the show. He is the cofounder and CEO of Life Care Funding and there is a big crisis that you may or may not be aware of in this country (there are so many big crises nowadays – I hate to say that and I hate to giggle when I say that, but this is definitely one of them). Time will pass whether we prepare or not. So let’s talk about how we can prepare and how we can explore all our options as we age, as our parents age, as our grandparents even age. And that’s what we’ve got Chris here to talk about. Chris, welcome. How are you?
Chris Orestis: Great. Thank you for having me on the show today.
Jason Hartman: My pleasure. You’re coming to us from Portland, Maine – a beautiful place. I was there a couple years ago and I was at a restaurant right on one of the waterways there, and I was talking to the people next to me about George and Barbara Bush who lived near there, I got up to go to the restroom and when I came back they told me they had just passed by in their boat. I didn’t believe them, and I missed it, but then everybody in the restaurant concurred, so it wasn’t a joke. I just missed it, so oh well.
Chris Orestis: Yeah, you will from time to time see them, and other people particularly. Summer in Maine is just such a great time and great place to be.
Jason Hartman: Yeah, it’s very beautiful. I think Stephen King lives up there too, right?
Chris Orestis: Yeah, up the road from Portland and Bangor, Maine is where he lives and he does all his work right out of there.
Jason Hartman: Fantastic. Well, tell us about the crisis here, this long term care crisis. And let’s talk about some of the state laws that are threatening insurers. This is a big deal.
Chris Orestis: Yeah it is. Bringing up the point of a crisis is actually very appropriate in today’s situation. Because you have so many baby boomers in particular that now that they’re turning 65, and quite frankly they’re turning 65 now at a pace of at least ten thousand baby boomers a day.
Jason Hartman: Unbelievable.
Chris Orestis: And obviously when you turn 65 you qualify for Medicare and Social Security. So an already overburdened public safety net in the form of Medicare, Social Security and Medicaid is being further pressured by baby boomers that are aging, seniors that are living longer, and the very expensive proposition of how are you going to pay for long term care services? Whether it’s home health care, assisted living, nursing home care, it’s an expensive proposition. People are unprepared, they’re uninformed – it’s a topic that most people ignore. It’s just not a pleasant topic to sit down and talk with your loved one, with your parents, with your siblings, with your spouse. What are we going to do when it’s time to go into a nursing home? How are we going to handle it? It’s just not a conversation people want to have right now.
Jason Hartman: Chris, it is so expensive. My grandmother who passed away a couple years ago had Alzheimer’s and she was under long term care for many years – just an incredibly expensive thing.
Chris Orestis: It is. You could easily spend a hundred thousand dollars a year in assisted living or nursing home care or even home care. Depending on the level of care that is required, it can be very expensive. And too few people in this country have bought long term care insurance and quite frankly, even for those that have bought it, the coverage is limited, rates are going up, benefits are going down for long term care insurance. And just recently this summer the long term care commission, that was a bipartisan commission appointed to analyze what are we going to do about this crisis we’re talking about, recently met in Washington DC. They came forward with two major findings: one, that Medicare and Medicaid alone would not be able to keep up with providing the care that people need, and that alternative private market solutions were going to be necessary to fill in the gap not only for Medicare and Medicaid, but for a very challenged market place when it comes to long term care insurance, which people thought a decade or so ago was going to be the silver bullet, but it hasn’t lived up to what people had hoped.
Jason Hartman: So what your company does, is you basically buy out one’s life insurance policy if they have one, and give them the money to pay for long term care, or do you pay the care provider direct? Those are some of the mechanics of it, but conceptually you’re buying out their life insurance policy.
Chris Orestis: Yeah, right. It’s like that. It’s a person that has a life insurance policy and it can be of any sort. It can be a term life policy, universal life, whole life, group life, it really doesn’t matter. If you own a life insurance policy, it’s your personal property. It’s no different than owning a home, stocks, anything else. Life insurance policies are recognized as personal property of assets. So a person can sell that policy and get some portion of the death benefit today as a living benefit.
What our company specializes in and quite frankly what we pioneered in this country, is using that approach to get a significant sum of money out of a life insurance policy, and locking that money in an irrevocable FDIC insured account, a specific benefit account that’s used only to pay for long term care services. It protects the money, it makes sure that money is being spent on long term care so that it isn’t misappropriated somehow or used for other purposes. And it delays the need for somebody to have to go onto Medicaid because they’re private pay – they get to choose the form of care they want and stay off of Medicaid for as long as possible.
Jason Hartman: So what does someone get for their life insurance? Take us through your average deal. How much insurance, if someone has life insurance, which that’s a whole different discussion, what’s the typical or the average amount of insurance that they have?
Chris Orestis: This is really something that really serves the middle class market the most – people that aren’t rich enough that they could just cut a check for any kind of care that they want or so poor that they just automatically go onto Medicaid, so we see middle class families with a policy between 50 thousand, 100 thousand, 200 thousand, maybe 300 thousand range. Somewhere in there, on average of about 100 or so thousand dollars of death benefit. And to convert that into a long term care benefit by selling the death benefit. The average range that somebody could get is 40, 50 cents on the dollar, a low of 20% to a high of say 60% or even greater. On average 40, mid 40% range for their life insurance policy, death benefit.
So obviously, simple math: you have a $100,000 life insurance policy – instead of throwing that away by stopping premium payments or taking some small amount of cash surrender value, by this discussion you could potentially walk away with 45 thousand dollars locked up in an account, protecting that money in a Medicaid qualified manner, that you then could use to choose the form of long term care that you want to pay for.
Jason Hartman: So, what is that discount rate again? Just say that a little more clearly, the policy amount is how much and the benefit or the purchase price, I guess, the sales price is how much?
Chris Orestis: Sure. Let’s say the average that we see is a policy size of about 100 thousand with an average purchase price of about 45%. So we’ve seen low in the range of 20%, high in the range of 60%, maybe a little more. It averages out to be about 45%.
Jason Hartman: Okay, so that’s what I want to ask you. Because this is similar to someone buying a note or a mortgage. Mortgages and notes are traded on the secondary market privately, of course we know they’re done publically, and that’s what our last financial crisis was largely about. The world-wide financial crisis. So there’s always a discount applied because you have the present value of money, which is more valuable to have it all today usually depending on whether the environment is inflationary or deflationary, than it would be to have it in the future.
But what influences those discount amounts? You said 20-60% is the typical purchase price because it depends on the age of the person (I would assume), maybe their general health and their condition – I don’t know if you can take that into account. You probably can, I assume.
Chris Orestis: That actually is very much what is taken into account. It’s mostly their need for care, their health status, their need for care. And then what type of life insurance policy, also what are the premium payments?
Jason Hartman: Right. Because when you buy that policy you’ve got to pay the premiums, right?
Chris Orestis: That’s right. That person is no longer responsible for making premium payments – it’s no longer an asset that counts against them for Medicaid eligibility. They’ve taken it out of their name – they’ve sold it. So the premium payments are being paid by somebody else going forward and they’re just taking the benefit of the full present day value of the benefit when they sell it.
Jason Hartman: So take us through the rest of that deal. So you’ve got this 100 thousand dollar policy, a 45 thousand dollar purchase price, and how old might that person be, and how long might those premiums be, and how long might you, the new owner of the policy, have to pay those premiums? Because that’ll help people understand the discount.
Chris Orestis: For most people that would be looking at this kind of a situation, because really, again, it’s really all driven by a need to pay for long term care. So the average age for a person who’s going into long term care tends to be in their 80s. Average life expectancy is usually in a long term care situation across the country 5 years or less. And so this kind of benefit depending on the size of the policy and what they got for it could last them anywhere from 1-3 years or even more. It depends on whether they’re using that benefit 100% to cover their monthly expenses, or are they combining it with some other savings, some other potential money. So they’re extending the longevity of the benefit over a time frame of years to stay either at home or into an assisted living community or potentially some form of higher level or skilled nursing care.
Jason Hartman: Right. And so when you buy that policy you’re figuring that you’ll have to pay on average for five years, pay the premiums right?
Chris Orestis: No, that is not an average. That would be the outside. The average would probably be somewhere in the 2-3 year range I would think.
Jason Hartman: Okay, sounds good. I’m curious – how do you get your funding to do it? Does your company go around and solicit investors and then you’re basically acting as a broker sort of thing, or how does that work?
Chris Orestis: No, actually we retain an interest in the policy after it’s purchased. And we are actually an investor in the transaction across the board for everybody that we work with.
Jason Hartman: Okay, but you’re not the only investor necessarily. There are other investors? You’ve got to have capital to keep buying policies, right?
Chris Orestis: Right. For our company we work with a very reliable, stable, and publically traded capital source.
Jason Hartman: Great. Sounds good. Well what else should people know about this? I guess the other question that I had is when you buy the policy, that 45 thousand dollar check in this example, it’s just paid to the owner of the policy and then they pay for their care, right? Are there mechanics in there, in the middle?
Chris Orestis: Yeah what happens is, is there’s a closing. The ownership of the policy is transferred, and so there’s a closing process that’s not unlike actually the sale of the home. There’s paper work to be filled out. You’re transferring the ownership from the original owner to the buyer. And so as a part of that process the funds actually are in an escrow account – they’re held in escrow. When the transaction is finalized and the transfer of ownership is confirmed, the funds are released from escrow and go into this protected irrevocable account at the direction of the consumer who’s enrolling in the program, as part of the paperwork they’re directing that the money be released from escrow at closing, go into the irrevocable account and then a monthly payment schedule is established in advance for the care that they need.
Now that payment schedule can be altered over the course of time. People’s care needs can change. You might start out needing 2 thousand a month for home care and 6 months later you’ve got to move into a more expensive assisted living community where now you need 5 thousand a month, where you can change the benefit to match your changing need. Because that account is in your name, it’s irrevocable. You can’t take the money out and go on a world cruise. It has to be used for care, but it’s still in your name and it’s there to serve your long term care needs.
Jason Hartman: Why does it have to be used for care? Who governs that or who requires that?
Chris Orestis: That is for a couple of reasons. One: if someone just wanted to sell their life insurance policy for a lump sum, there is a market out there where you can do that. This is a different transaction. It’s designed specifically to help people pay for long term care. So if somebody were to look at this transaction and say well, I don’t want long term care – I want a lump sum, they would be themselves disqualified from use of the program because it’s not going to meet their needs. It’s not a lump sum offer – it is moving the money into an account that is set up to pay for their care. So if somebody doesn’t need the care, then this is not the program for them.
Jason Hartman: Okay, good. Tell us more.
Chris Orestis: From a regulatory standpoint it conforms to the regulatory standards that are applied to the secondary market for life insurance policies for transactions such as viaticals or life settlements. So it’s a very well regulated transaction state by state. The account also conforms to bank and trust regulations so that money is protected, it’s FDIC insured and guaranteed for the consumer. And then because that money is held in that account and administered for care, there’s no worry that in the future if that account is spent through that someone that person would not be able to qualify for Medicaid.
It actually is a Medicaid qualified spin down of those proceeds, but it’s delaying their need to go onto Medicaid because it’s keeping them private paid for as long as possible, which obviously has the benefit for the consumer of giving them choice and financial freedom in decisions they’re making about long term care, but also its saving tax payer money. Because if you’re able to keep somebody off of Medicaid for any period of time, you’re saving tax payer dollars. States have been very active now across the country in supporting this specific type of transaction as a way to help families stay off of Medicaid and save tax payer dollars, and give families more choice and control in their long term care decisions.
Jason Hartman: Sure. I would assume that your industry is a pretty specialized industry and that not many people do this type of thing. There’s not many other competitors or companies out there, if you will, doing this type of thing, right?
Chris Orestis: We’re not the only company that does this, but we are the market leader in this industry. This is an innovation in the market that we brought forward. We’ve been in business since 2007. So we were the first company to come forward and say if you took people’s legal right to sell their life insurance policies and combined it with a controlled way to protect the money and use it for long term care, that would be a unique financial transaction that would meet a specific need that is obviously been growing exponentially in this country by the day.
Jason Hartman: Right.
Chris Orestis: The long term care industry. Nursing homes, assisted living companies, home health care companies embrace this form of payment because they’ve seen so many people whose needlessly thrown away life insurance policies because they didn’t know this was something they could do, and run out of financial options only to find out later that when they had a life insurance policy, it was a solution that very quickly – there are no fees involved in the transaction. It can be done in about 45 days from start to finish. And then the money is in the account and monthly payments start automatically.
There are so many people who are struggling with the cost of care, who’d like to stay home, don’t want to go onto Medicaid and yet they don’t know that this is something they can do. They throw a life insurance policy in the trash and they lose control of their situation. Now they’re a ward of the state. They’re below the poverty line. To get onto Medicaid you have to be below the poverty line. You’re a ward of the state and now the state decides where you go – they put you in a room with somebody else you’ve never met before. You’re sharing a room and that’s it.
Jason Hartman: No fun. It is really rather obscene the kind of profits some of these insurance companies are making. Most people buy life insurance and then they just stop paying for it at some point. And they let the policy lapse. What happens in that case? How much are they losing and how much is the insurance company benefiting when that happens?
Chris Orestis: There’s a shocking statistic. Over 80% of life insurance policies taken out will not pay a death benefit. Because the owner will eventually, as you say, just stop paying the premiums or a term life policy that will run its course and expire, or there might be some cash surrender value, so they take that cash surrender value and walk with it.
Jason Hartman: But it’s nothing compared to what they’ve paid in, right?
Chris Orestis: Right. Absolutely. We’ve talked to families who have been paying premiums for decades with life insurance policies and they’re about to throw them away until they learn that this is an option that they can use and turn that policy into a long term care benefit instead of throwing it in the trash. Now they do walk away from the policy. The insurance company doesn’t owe them anything. You can pay premium payments for 30 years. You miss your next premium payment, and the policy lapses, the insurance company doesn’t owe you a thing.
Jason Hartman: Unbelievable. Insurance companies profit from using actuarial tables, as we all know. And part of the actuarial is that they just know that at some point people will run into financial hardship and not be able to pay the policy any longer, or they’ll just get sick of paying for it or they’ll forget to make the payment, or something will happen that causes them to lose all of that benefit that they’ve accumulated for so many years. I’ve got to tell you, I know you’re on the other end of it but I think life insurance is kind of a rip off.
Chris Orestis: Well I’ll say this. Life insurance policies are actually providing very important financial protection for families. If you buy a life insurance policy today for a 100 thousand dollar death benefit and you die 30 years later, your family is getting 100 thousand dollars guaranteed, no questions asked. It’s a very powerful financial institution.
Jason Hartman: I’ve got you. I’m just being devil’s advocate here for a moment so please just bear with me. But if you just invested money, say you were a good investor and you bought a few rental properties. Those would have done so much better than a life insurance policy because one of the things, and I have had these pitches (I’ve been pitched on life insurance about a zillion times by financial planners) and they sit down and they show you these tables of how much you get.
But the one gaping hole in all of that is that they don’t want you to understand inflation and how it destroys the value of the dollar. So those payouts may look big now, but in ten, twenty, thirty years they’re nothing. You don’t have legitimate inflation protection. Whereas with an asset, hopefully if you’re a good investor, that asset is going to offer much better inflation protection.
Chris Orestis: The thing about insurance, just the flip side of that is, for a stable premium payment you have bought a specific death benefit for a specific reason. We always say to people don’t buy life insurance as an investment – buy it as a specific tool. It’s a death benefit – get the most death benefit that you can to cover the time period that you need to cover for the least amount of money that you possibly would spend on premium. That’s the way you should be looking at life insurance. It’s a tool to fill a specific need.
Now, the added benefit that people don’t understand is, that if you own that life insurance policy and your needs change, your family is grown up, you don’t have to protect young children in case of your passing, but now you’re a senior, you need long term care, you’re still sitting on that life insurance policy, it can be converted into something that pays for your long term care. And there’s a huge lack of understanding out there among policy holders that this is something they can do.
Jason Hartman: So I think the term life for usually a young couple with a kid or two, just starting out, that they don’t have any assets yet, that really does make sense. Because you’ve got to have some protection for those children. But these financial advisors running around and selling these whole life and universal life policies, I just think they’re a lame deal. And what’s great is that your program works with term life, right?
Chris Orestis: Right. It works with term life and every form of life insurance. And then when somebody converts their policy to the long term care benefit, not only is it every type of life insurance but it’s any form of long term care. So there are long term care insurance policies out there that are very restrictive. They won’t pay for a number of things. You can choose the form of care, and you choose the amount that you would pay out towards that care on a monthly basis up to the total amount of benefit that you have in your account.
Jason Hartman: That’s a good point because long term care insurance companies, like any insurance company, they’re always looking for any holes in the policy where they can get out and not have to pay out. They love collecting the premiums. But when it comes time to pay, they look for every way not to pay or to pay less than you thought you were entitled to. So that’s a great point.
Chris Orestis: And so what we’re doing at Life Care Funding… and we’re easy to find. Our company, you can find us online at LifeCareFunding.com, we have a lot of information that we put out on our website. There’s a lot of information out there online, Google you can find a lot of good information about this. What we encourage families is two things: do your homework, prepare yourself and your loved ones for what you need to confront with long term care, and if you have a life insurance policy, don’t throw it away because it’s an asset you’re going to able to use to pay for long term care.
Jason Hartman: Yeah. Especially don’t throw it away after you’ve been paying in all those years. Get something out of it.
Chris Orestis: Exactly.
Jason Hartman: Great point, Chris. One last thing for you. I assume there are some unscrupulous companies in your industry like there are in every industry. Maybe can you give a couple of tips, because this is not a super mainstream thing yet. I think it will grow in popularity. I’m sure you do too, especially with the demographics and so forth. But maybe just leave the listeners with a couple free tips on how to protect themselves when doing a deal like this. Say they go to LifeCareFunding.com, they look around, they find a couple of other companies, how do they know that they’re getting a decent deal and not getting burned when they sell their policy?
Chris Orestis: Certainly if you want to shop around there are options out there. Like our company for example if you’re at our website, you’ll see we’re a member of the better business bureau. You’ll see that there’s a lot of articles that have been written about our company. You’ll see that we’ve been invited on numerous occasions to testify at state legislatures to help inform them about what’s going on with this kind of a way to help pay for long term care. Also we encourage people get out there and do a little Googling. Do a little research, do a little homework.
If you’re looking at a company like Life Care Funding, see what’s been written about them. What are people saying about them? Is there positive, negative or even nothing. Sometimes a company just throws up a website but there’s nothing out there to read about them other than what’s on their website. So you want to see that a company is mature, that it’s part of the mainstream, and things like being a member of the better business bureau is a good thing as well.
Jason Hartman: Alright. Well the website is LifeCareFunding. Chris, thank you so much for joining us today.
Chris Orestis: Thank you for having me on.
Narrator: Thank you for joining us today for the Holistic Survival Show. Protecting the people, places and profits you care about in uncertain times. Be sure to listen to our Creating Wealth Show, which focuses on exploiting the financial and wealth creation opportunities in today’s economy. Learn more at www.JasonHartman.com or search Jason Hartman on iTunes. This show is produced by the Hartman Media Company, offering very general guidelines and information. Opinions of guests are their own, and none of the content should be considered individual advice. If you require personalized advice, please consult an appropriate professional. Information deemed reliable, but not guaranteed.
Transcribed by Ralph
Guest: Chris Orestis
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