posted on August 3rd 2021 in Financial Planning with 0 Comments /

If you’re under age 50, it may be difficult to imagine your health condition and medical needs decades into the future. However, when analyzing the need and benefits of long-term care insurance, perhaps it’s easier to recall a personal experience with a parent or grandparent who needed long-term medical assistance later in life. The financial and emotional costs of not having a long-term care insurance policy can be devastating to families that must develop a plan and spend personal assets on professional medical assistance to care for their loved ones. On The John Chapman Show, John welcomes Marc Glickman, the CEO of Buddy Ins., which provides consumers access to long-term care planning options and specialists. 

Stream the full episode to hear John and Marc explain:

  • How time can work in your favor when you purchase a policy early.
  • Why benefits such as Medicare and Medicaid don’t support long-term care situations.
  • The tax-savings business owners and entrepreneurs can benefit from using a long-term care policy.

In general, individuals qualify for long-term care when they’re no longer able to perform routine daily activities independently or experience cognitive impairments that are expected to last 90 days or longer. Since plan premiums are determined by age, health, and other factors, Marc recommends establishing a policy as soon as possible while still in good health to meet the health criteria faster, gain better value, and leverage the built-in cost of living inflation terms. John and Marc discuss how the relatively unknown coverage can offer peace of mind, flexible options tailored to individual needs, and tax benefits for business owners.

Long-term care insurance policies offer unique options and can be complex, so we encourage you to consult with a specialist to build this type of coverage into your holistic financial plan.

Audio Transcription

Speaker 1: (00:02)

Welcome to The John Chapman Show, where we talk about retirement readiness strategies to help you grow and preserve your wealth so that you get the most from life with the money you do have. Are you on track? John is an employee of Worthpointe, LLC. All opinions expressed by John and podcast guests are solely their own opinion and do not necessarily reflect the opinion of Worthpointe. This podcast should not be relied upon for investment decisions and is for informational purposes only. 

John: (00:33)

Hi everyone and welcome back to The John Chapman Show. I’m John Chapman. And today I’ve got back a special guest of mine, Marc Glickman, who’s the CEO and founder of Buddy Ins. We’re going to talk about long-term care insurance. And for those that might not have heard, Marc and I have an episode from last year, March 2020—it’s episode 39 on my podcast. And that goes through a much broader overview of long-term care insurance, but I wanted to invite Marc back on the podcast to be a little bit more specific about some of the ins and outs of long-term care insurance as it applies to business owners and entrepreneurs, especially those that are, let’s say, age 50 and over specifically, because there’s a little unknown tax strategy that’s just a sweetener on top in addition to why it’s so important to get long-term care insurance. So with that as an introduction, Marc, welcome back.

John: (01:22)

And can you just share with people a little bit more about your background and how you got started in this business? 

Marc:

Absolutely. And thanks for having me back on. It hasn’t been that long since March 2020, but the world was very different back then. It’s been a whirlwind this past year. So my background is I’m an actuary. I actually worked for the insurance companies to help them design their plans. And I kind of saw from the inside what a lot of the top specialist agents in the industry were doing and the value that they could offer their clients and the value of the products themselves. And so we started a network and a platform of long-term care specialists. And we’re going to talk a little bit about this business, our concept, which again, isn’t that well known in the general world, but inside of our long-term care specialist world, it’s a really great way to add additional value on top of the long-term care plan you’re already planning to do.

John: (02:10)

So let’s talk just again briefly about why long-term care insurance is so important because it’s still not a very well understood piece of insurance, although it’s extremely important. So just talk to us a little bit about why long-term care is something that people need to consider. 

Marc

Yeah. I think it’s an epidemic today, right? We’re seeing it all around us. Family members are needing care. I personally had all four of my grandparents that needed care and there’s 44 million family caregivers out there. And really the bottom line is there isn’t necessarily a built-in funding mechanism for paying for that care by the government because Medicare does not cover long-term care. And Medicaid only covers you once you exhaust most of your assets, right? So people that are either in the middle or higher net worth find that it can have a devastating impact on their family, either stepping in and providing care or potentially spending their assets and doing professional care, but not necessarily having a legacy or ruining their overall financial plan.

John: (03:09)

And remind us, too, about some of the key triggers for this, because long-term care has a specific definition. So this happens to people that are, let’s say, maybe in their late seventies or eighties or even nineties. The tipping point that the insurance company looks at, you know, someone’s situation say, okay, this is considered long-term care.

Marc:

Yeah. Great, great question. And you know, it can happen at any age, but the definition is that it’s care that’s needed when you cannot perform at least two of your six what they call activities of daily living, the things that you need to take care of yourself, whether it’s eating bathing, showering, those types of things. And it’s expected to last at least 90 days. So at least three months you’re expected to need this care. That’s how you qualify the other major trigger.

Marc: (03:53)

And it’s becoming more important today with severe cognitive impairment. So think of Alzheimer’s disease and just the fact that we don’t really have a cure or a delay to that condition, it’s becoming more and more prevalent in society and John, to your point, that can happen earlier in age, but also that tends to happen later at age because other conditions have actually been cured, but your brain is an organ that deteriorates, too. And you need care when you’re 80 or 90 years old, that’s when it can have a big impact. There’s a huge challenge for this because really the audience that I want to be able to speak to is possibly as young as maybe in their forties. So definitely their forties or fifties, and maybe as old as their sixties. And it’s hard for us to even conceptualize for ourselves about what our life is going to be like when we’re 80 and really we’re trying to plan for something like that.

Marc: (04:40)

So instead I want to make sure the audience thinks about the family they have, maybe it’s a parent or a grandparent that you’ve seen go through their older retirement years and maybe all the way up until the time they passed away. And for me, this is extra relevant because unfortunately my grandfather passed away about two weeks ago and he was 90 years old. He lived a tremendous life. He was a great leader in our family, but I got to see my grandfather Frank, as he was declining with his health and how quickly his health declined in the later months of his life and what that meant for my mom and her siblings in terms of the amount of care. And I just can’t tell you how many countless hours my family spent at my grandparent’s house, doing little things, you know, all these things that they had no idea that they were going to need to spend time on, but that they did.

Marc: (05:28)

And all of the expenses that are sort of fringe expenses on the outside that you just don’t think about ahead of time. And so it’s a scenario I think is really important that we can do our best to take care of our families for the 40, 50, 60 year olds and be thinking about long-term care insurance and where that fits in because having a care policy to be able to pull on when you aren’t able to get out of bed or brush your teeth or put on your clothes and to be able to take some of the pressure off of your family when they’re caring for you, when you’re older, that’s what this is so important about. So I hope you can feel some of my passion, because I just think it’s really under-talked about, but it’s so important.

John: (06:11)

Yeah. So maybe we can talk more in detail now, Marc, about what are some of the options that the insurance companies make available to us? Talk to us a little bit about how someone actually goes about purchasing a piece of insurance like this and just how do they all put that together. 

Marc:

Yeah. I think most people start thinking about it when they’re between 50 and 70 years old, so that the planning process can start anytime. So I know a lot of people in their thirties or forties that are thinking about this because of the issues that you’ve mentioned, personal family members that have had this happen to them and kind of having the experience of this, not wanting to have that happen to their kids or to other people that might care for them. So the process generally involves first understanding what that plan is, what you want your wishes to be at those later ages.

Marc: (06:54)

Do you want to stay at home or do you want to move into more of a community environment? And so, again, as you start thinking about those, even if it’s 40 years from now, you want to have flexibility and options and ultimately dignity. And so that’s when you start to maybe explore the options, then of course it’s financial, right? This is a funding mechanism and you should think of it that way. How much does it cost to pay for an insurance policy? And is it something that I can afford given my other normal expenses, living expenses, my retirement plans? And so it becomes a part of the holistic planning process to say, okay, if I’m in a good position to fund this plan, it’s often a good time to buy it early because of the insurance companies’ underwriting requirements. They’re going to look at making sure that you qualify, because if you wait until you need the care, then you won’t be able to buy the insurance.

Marc: (07:43)

It’s like trying to buy homeowners insurance when your house is on fire; you’re not going to be able to do that. So the sooner you plan, the better value you can get from the policies. And the more likely it is you’re going to qualify for your best options. And today there’s a whole variety of different options for people in different phases of life. But the sooner you plan, the more options you have, which is why generally speaking, we try to encourage people to at least start the conversation, even if they’re not planning to buy insurance. 

John:

And so, big picture, what is the health underwriting and process like? How long should someone expect for that to take or how invasive or not is it? 

Marc: (08:21)

You know, it’s interesting that even though there is a filter there and people are concerned about people getting declined, it actually is not an invasive process. So what the insurance company is doing is because of all the digitized records, now they’re looking at your prescriptions, which are all digitized. They’re going to look at your medical records in some cases, and they may do an interview with you, but they actually aren’t going to do a lot of invasive stuff. Generally speaking, they don’t take blood or anything like that like you might see with life insurance. So the process is actually pretty good from a client perspective. In fact, there’s one company now that has a product where you can get an answer within 24 hours hours, although most of the companies that are more diligent with the underwriting are going to probably take about four to eight weeks. Yeah. But it’s mostly because they’re waiting for the doctor’s office to send them the medical records.

Marc: (09:04)

Not because they’re doing anything with the client. So one of the important takeaways, though, is that age and your health situation can make a substantial impact on the monthly premiums or how expensive the cost of insurance is. That’s part of why it’s so important to maybe start earlier than you might expect you to have to, to think about this again for maybe a 40 or 50 year old. Because when you’re thinking about this at age 68, the cost of your care might be more expensive to be able to ensure that, right? Or another way of saying the same thing is that the sooner you plan, the more time you have for your benefits to grow; a lot of major options have built in cost of living inflation into them, so either 3% or maybe even 5% annual increases. If you think about buying that at age 40 and needing care at age 85, compounded over 40 years, as an actuary, I can tell you that’s seven times what he originally put into it.

Marc: (09:59)

So you can buy a smaller benefit and still have a lot more when it’s more likely you’re going to use the policy. And that’s really the effect of buying it younger as you get more leverage insurance leverage how much you put into it. 

John:

So, Marc, can we switch gears into talking about a specific example? I know you’ve got some really high-tech tools on Excel spreadsheets, and it’d be fun for the audience to be able to see that. And I think one of the things I want to be able to call attention to is just, again, what we’re planning for is a life event, let’s say at age 80 or something like that, right? Where if you can no longer get out of bed or put on your clothes and you need to hire somebody to help you with that, or maybe you’re living in some type of community or assisted living, I don’t know the right terms, but paying for those services. It’s that event that this is going to essentially pay money out to, right? So what triggering event is at the backend? 

Marc: (10:45)

Yeah. You need to get care and you can get it in a lot of different environments. Again, you’re generally getting it from a professional caregiver to someone who’s coming into your home, or if you need to go into an assisted living facility, or even at the end of life, if you need to go into the nursing home, but keep in mind that today, people don’t go into nursing homes like they used to 30 years ago. Generally speaking, 90% of people are getting care in the home or assisted living today; it’s only at the end of life when you need round the clock medical equipment where they go into the other environments.

John: (11:26)

Part of the reason why I brought that up, though, is because it’s part of the plan. That’s how you craft the structure of long-term care insurance, right? It’s talking about how many dollars per day for how many years or something like that is available to them as a benefit on the backend. Right? So talk to us about the typical structure of how that money might be received or paid out. 

Marc:

Great, very good point. So there is a particular long-term care insurance policy, and this is a traditional policy. Although we think hybrid policy the same way, which are also popular, where you have a life insurance product with a long-term care rider. So we won’t get into the differences today on those two types of policies. But the way that they both generally work is you’re buying an initial daily benefit amount or monthly benefit amount.

Marc: (12:08)

So this is $150 today or $4,500 a month approximately today. But because of inflation, it increases at 3% compounded. If this person who buys at 56 needs care at age 80, which is what we’re doing here, they’ll have about $363 a day at age 80. And if you think about how long this policy will pay out, which is a five-year policy, it will actually add up to quite a lot of money, about $590,000 pool of benefit that they’ll get if they need the services, the home healthcare, the assisted living, or the nursing home services. Now you’ll notice that there’s actually two people on this policy. This is actually what’s called the joint policy. So think husband and wife buying it together, 56 years old in relatively good health. They’re each going to get five years.

John: (13:02)

And in this case, there’s a special feature on this one that we just happen to like this particular rider, which has an additional five-year pool of benefits. So if they exceed five years, they have another pool of benefits that can cover either or both of them. So adding up all the potential protection at age 80, they might have $1.8 million of protection. And the premium they’re paying is $363 a month. And when you add that up until age 80, at which point the premium would get waived on this policy, it would add up to 104,000. So yes, you’re making a major financial commitment to this over time, but the insurance leverage is what’s key here and it’s about 17.8 times what you put into it. And that’s what this diagram is showing. 

John:

So that makes me think, you know, what’s in it for the insurance company to be able to offer potentially somebody who signs up for this?

Marc: (13:51)

It appears to be kind of a great deal, because oftentimes the question is, well, shouldn’t I just self-insure; I’ll forgo the premiums and save this in my investment account. And I’ll just go that way, because maybe I have more flexibility or something like that, but we probably won’t get that amount of leverage or growth in just an investment account. So why is that type of insurance leverage even available to them? I’ll do a little bit more, which is, if we were to assume that we wanted to self-fund this cause a lot of people want to look at that context. Let’s say we could earn 7% over the next 24 years and an investment without thinking about taxes on the investment side, this is what the equivalent would be. If you paid $363 into an investment account at 7% compounding over 24 years, you can see that the insurance does provide a lot of leverage relative to self-funding, but what’s the catch, right?

Marc: (14:45)

You’re asking why does this look too good to be true? What’s the catch here? Well, the insurance company knows that not everybody is going to use their policy, right? It’s probably likely that about half of people will need long-term care. That’s the percentage of people that will need long-term care that lasts at least 90 days. And this has a 90-day waiting period, or the deductible is a lot lower. And the number of people then that will actually need care for five years or longer is a lower percentage. So the actuaries, people like me that used to work at the insurance companies, actually go calculate what are the probabilities of these things happening? And they’ll build it so that they can afford to price the policy the way it is. Again, given that they’re starting with people that are healthy or not the people that need care necessarily tomorrow, but maybe further into the future.

Marc: (15:30)

That’s what makes them comfortable. So this isn’t really to figure out how much insurance protection you need, but you don’t necessarily expect to reap the full benefits. This is not an investment over here. No. And in fact, you don’t want to use your benefits, which is what makes it a win-win. If you never need long-term care, that’s probably the best case scenario is you don’t need care, but if you do need care, you have the protection. If your house goes, you know, it gets on fire, you have the homeowner’s insurance to help you rebuild your house. And that’s the concept here is it creates a win-win environment. 

John: (15:59)

So there was another uniqueness to this, that for entrepreneurs or business owners, they might have the chance, if I understand you right, to deduct some of the premiums they’re paying today from the total income that they may be earning. So as a disclaimer, this isn’t tax advice. And if you’re not a client of Marc and I, we don’t want to give specific advice. So this is just education, but at least so that people are aware of it and they can bring it up with their tax professionals. Marc, talk to us a little bit about what’s available for our business owners, entrepreneurs. 

Marc

Okay. And I’ll structure this a little bit more commonly. So I’m going to do this as an annual premium, and then I’ll do it as a 10-year premium so we can get an idea. You’ll notice the total cost is roughly the same. It might even be less in some situations, but you’re gonna be paying more upfront. And so why I structured it this way for a business owner is let’s say this person owns a business. They’re 56 years old.

Marc: (16:54)

Actually I know they do, because this is a real case study, eight over 10 years. That means they’ll be paid up in the policy and they’re able to fund it out of their business during their working years. Oftentimes won’t structure the premiums. So it makes sense in terms of how they want to fund the plan. But the added advantage of doing that is that the premiums, if you pay them through a business, and it could be any profitable business, are tax deductible for that business because long-term care is treated like health insurance. So we’re not going to get into all the nuances of this, but the idea is as long as it’s reasonable compensation for the person you’re deducting it for, and obviously for business owners oftentimes it would be, then you can treat it as an ordinary business expense. 

Marc: (17:43)

And on top of that, even though you’re able to potentially receive some level of tax deduction on your premiums as part of your overall business expense, when you do reach a certain age, let’s say you are age 80 and you do need to be paid, or your family needs to be paid to reimburse costs or whatever for a long-term care event is someone having to pay taxes on the money they’re receiving in the future. No, and that’s really the beauty of this. And this is one of the few things the IRS allows you to do this way is you’re allowed to not only take the deduction, but even if you receive the benefits because they’re tax qualified long-term care, they are still received tax free, which is why I tell business owners, if you own a profitable business, you should at least be looking into this because there’s very little downside to that equation. And you may find that there are significant opportunities here to get additional value beyond what we had already talked about. 

John: (18:34)

Yeah. That’s really interesting. Well, of course it’s still high level, so it needs to be discussed with a tax advisor. But I think for, like you said, a profitable business should already be potentially looking at a long-term care solution. This is just an added benefit people don’t often even know about. And so it’s important to go in with eyes wide open and just understand all the options. 

Marc:

Yeah. And I’ll add a couple of other nuances. I know people are thinking about, well, what does this really work? So what I’ve seen from personal experience, it depends on your type of business, whether you’re a C corporation or you’re an S corp or a partnership. It depends on whether you have a spouse and you’re doing this with your spouse.

Marc: (19:14)

And sometimes it depends on your age, but typically we’ll see as little as 5% savings off the cost of this for certain businesses, upwards of almost 50% for some businesses, again, depending on various parameters, but in any case, whether it’s five or 50%, it’s definitely worth considering doing this because that’s just extra value. It’s kind of quote, unquote subsidized a little bit by the government because of how they handle health insurance. 

John:

Yeah. I see. Well, super overview, Marc. I really appreciate it. And without going too far today, maybe we can start to close. Tell us a little bit about anything else that you think is important for the audience to hear, or maybe even more, how people can get in touch with Buddy Ins. if they’ve got further questions. 

Marc: (20:00)

Yeah. Well, first of all, I just realized that this is a planning process. So don’t feel like you have to buy an insurance product; make sure that you talk to a specialist about it, though, because it is very complex. There’s a lot of great options on the market, but again, they’re all kind of unique for different use cases. So what Buddy Ins is, and how to contact us, we are a network of long-term care specialists. So you can reach me by going to www dot buddy I N S.com or you can just Google search and you’ll find us that way. And if you put in your information and let us know you came from John or John’s podcast here, we’ll help connect you to one of those top specialists in the country. 

John:

That’s awesome. I’ll put some of the information in the show notes, too. Thanks everyone for tuning into the podcast today. And, Marc, really appreciate you being here. 

Marc:

Thanks. Thanks for having me.

Speaker 1: (20:43)

Thanks for tuning into The John Chapman Show. Be sure to subscribe on iTunes, Stitcher, or Spotify. We encourage your questions, comments, and feedback for additional information. Check out the John Chapman show.com or look for John on LinkedIn and Twitter. See you next week.

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