In September 2020, Brian Gordon guested on the Personal Financial Planning Section Podcast to discuss a range of issues about Long Term Care Insurance and Long Term Care Planning. This is part 2. You can find part 1 here.

Below is the podcast and its transcript.

Sarah Bradley:

Welcome to the Personal Financial Planning Section podcast, delivering insights from experts on tax, retirement, estate, risk management, investment planning, and practice management. Designed to help you best serve your clients and take your practice to the next level. I’m your PFP Section host, Sarah Bradley. Be sure to visit us at AICPA.org/PSP and stay tuned at the end of the episode for information on how to access valuable resources. And now over to our guests.

Brooke Salvini:

Thank you, Sarah. I’m Brooke Salvini, and I’m here to talk with you about long term care insurance planning with Brian Gordon, who is President of Gordon Associates, also known as Gordon Associates Limited, long term care insurance. And you may not have tuned into our first discussion with Brian, so, Brian, again I’d like to welcome you. Thank you so much for doing this for us. Definitely, long term care insurance is something that all of us work into our conversations with our clients. And I should say maybe long term care insurance planning, whether it’s a puzzle is solved with insurance or self-funding or however a particular family is going to solve the puzzle. But just in case, listeners were not on our first conversation with us, could you just briefly give us some background again on long term care insurance? Just some of the fundamentals.

Brian Gordon, Gordon Associates Long Term Care Planning:

Sure. Yeah, absolutely. Thanks for having me again, Brooke. So it what long term care planning and long term care insurance does is it basically picks up where our health insurance and our Medicare leave off. And those types of programs will typically cover things that you and I are going to recover from. What long term care insurance is designed to do is to allow really the families to make good decisions for their loved ones, whether they need to have home health care for themselves, or they need to be in an assisted living or in that full blown nursing home type of situation.

Brian Gordon, Gordon Associates Long Term Care Planning:

It just allows the families to execute a plan that a family puts together. And I always say that I’m always working with the kids or grandkids or nieces and nephews, when our clients file a claim. And I find that when people have a plan in place, whether they have some modest coverage or they have something that’s covering a lot of the cost of care, what it does it just sends that message to them that says, “Hey, we are okay with getting home health care. We’re okay getting assisted living. We put this plan in place for you to be able to allow us to get care.” So I find it removes some of that guilt from the family members, and it allows them to really take good care of that family member, to make sure that they take care of exactly what they need to do and be cared for the way they want to be cared for, if something were to happen.

Brooke Salvini:

There are a couple of different kinds of policies out there, just straight long term care insurance versus hybrid policies. Just a quick overview of that, in case somebody was not on our first call.

Brian Gordon, Gordon Associates Long Term Care Planning:

Absolutely. So you’ve got two types of plans. You have a standalone long term care policy that had been around for 45 plus years. And those policies basically, I look at them like our home and automobile insurance plans, that if we don’t use them, then that’s something that’s great that nothing bad happened to us at the end of our lives. If something did happen, then there is protection and there’s a benefit that’s paid to the families while they’re getting care for themselves down the road.

Brian Gordon, Gordon Associates Long Term Care Planning:

And the standalone plans, most of them are going to be lifetime pay policies, but we do have a couple of them that people can design to get them paid up in a 10 year period of time, or even on a single premium basis. So it just depends on what they want to do for themselves. And the other thing that they got to do with standalone plans is that people need to budget for potential rate increases. And the nice part about it is people buying the plans today, they are already buying policies where they’ve kind of corrected some of those mistakes of the earlier generations. Not to say that those premiums would not go up in the future, because they still can. So we advise people to budget for rate increases down the road.

Brian Gordon, Gordon Associates Long Term Care Planning:

With the hybrid plans or asset-based products, those are life insurance policies with long term care riders attached to them. And those types of policies basically, if someone doesn’t use them, that the families are able to basically get their premium back on the policy. And in some situations, they’re also going to get a little bit more than what they paid into the policy. And if they bought it when they were much older, they could get a little bit less with that death benefit, if they don’t use it.

Brian Gordon, Gordon Associates Long Term Care Planning:

But the life insurance is not the main point of those plans, it’s the leverage it provides for long term care and it also gives guarantees on that. So a hybrid plan, the premiums can never change and someone can make premium payments on those policies to age 95, to age a hundred with some companies. They’ll do five pays. They’ll do 10 pays, 20 pays and even single premiums. So there’s a lot of different choices when it comes to premium options and types of plans with the hybrids.

Brian Gordon, Gordon Associates Long Term Care Planning:

And we always tell people they really need to look at both policies. People come to me a lot and say, “Hey, I just want to look at a hybrid. I just want to look at a standalone.” We really show them both, so that when they are sitting down with their advisors, or they’re talking to their friends at the dinner table, they at least know that they have the option to look at both plans and they’re educated on it and they know how to have a conversation on it.

Brooke Salvini:

So there were some problems in the past, you mentioned the premiums and premiums in the past have increased at times significantly, are any other aspects of the newer policies now that the industry has evolved, that you want our listeners to know?

Brian Gordon, Gordon Associates Long Term Care Planning:

Well, I think one of the other changes were that back when I first started in the business, probably the first 15 years I was writing policies, most of the plans we wrote, when we wrote it with inflation, had 5% compounding inflation built into the plans. And nowadays, when we’re writing policies for people, we’re pretty much doing 3% inflation and in some cases we put in 4% inflation. But that’s one of the bigger differences in the coverages, I feel in today’s plans.

Brian Gordon, Gordon Associates Long Term Care Planning:

And also people today are not really looking at unlimited benefits like they did back in the ’90s and early 2000s where the premiums were pretty reasonable for a product like that. They’re looking more at anywhere from like a three to five year benefit period, when they buy the plans. But other than that, I just think it’s important for people to know that it’s also, the companies are doing a much, much more thorough job of underwriting the plans. They’re looking even at family history from our clients.

Brian Gordon, Gordon Associates Long Term Care Planning:

If someone has a parent or an immediate family member, siblings or parents that had dementia or Alzheimer’s and was diagnosed, if they had two members of the family, we have many companies that won’t even insure them anymore. If they have one family member, some companies will even limit them on the kind of benefits they can buy for themselves. So, that’s one of the things that they really were not looking at early on in the business. And even when I first started in the business, in my early twenties I saw what these premiums looked like, and I saw what those benefits were going to look like 20, 30, 40 years down the road, in some cases. And we were very, very strong with our clients back then, making sure that they understood that the rates were going to go up at some point.

Brian Gordon, Gordon Associates Long Term Care Planning:

And when we send our letters out to our clients, we get phone calls back or I talked to some of our clients and they’re saying, “Oh, no. You told us not if our rates are going to go up, but when they go up and you told us they were really underpriced back then.” So if I could figure that out, I feel like most people should have been giving that advice, and unfortunately that’s not quite the case.

Brooke Salvini:

Are there options for clients who have an older policy when they received that unwanted phone call or email from the carrier that their rate is going to increase?

Brian Gordon, Gordon Associates Long Term Care Planning:

So, yeah. The companies, I feel have done a good job in allowing people to maintain their same coverage. We have some companies that offer to lower the benefit periods on the plans. We have some companies that have also lowered the inflation rate. Let’s say from, 5% on those older plans down to like 3.2 or 2.7% on a moving forward basis. So the companies are there to provide choices.

Brian Gordon, Gordon Associates Long Term Care Planning:

Also, we get really involved with the clients as well when they get rate increases and it’s becoming more of a financial burden to the client. We try to help them make good decisions on what to do. We had a client not long ago where his rate was going up on his policy. He had had 5% compounding on his plan and has benefited, grown over $600 a day in his policy. So we had our very easy conversation and said, “Hey, we can remove the inflation protection and it’s actually going to be lower than what you were originally paying for your policy.” And they’ve done that in many cases, also. And it gives them some really good, good coverage, and they’re not having to pay that higher premium because they’ve got that 5% compounding in their plan.

Brooke Salvini:

There’re many gears and bells and whistles and these policies, so do you suggest periodically reviewing your policy, even if you’re not receiving a rate increase? Is that something that should be done on an ongoing regular basis?

Brian Gordon, Gordon Associates Long Term Care Planning:

Yeah, we recommended, we usually have our clients, they like to review it probably every three years. We send newsletters out to our clients on an annual basis and we let them know that if they’d like their policy reviewed or want something updated to let us know. Because what we do is we provide them with an updated benefit schedule and then we always say if we’re working with the financial advisor, we will also send the financial advisor that updated schedule to put in their file as well, for down the road.

Brian Gordon, Gordon Associates Long Term Care Planning:

So absolutely, we do it and I’m working with some people that are in their late fifties, who’ve had policies with me now for about eight, nine years and they were going through all their documents with their estate planning attorney and putting things together. And they reached out to me, they’re like, “Oh yeah, we saw in your newsletter that we can get an updated schedule.” And so I was able to provide that to them and then to their attorney. And so, they’re putting it in their binder, they’re putting in their plans so that their family knows what’s going on with things.

Brooke Salvini:

Is there anything that we should know about 1035 exchanges between life insurance and long term care policies? Anything that would be helpful?

Brian Gordon, Gordon Associates Long Term Care Planning:

Yeah, no. We’ve been having a lot of people, a lot of advisors, and a lot of clients coming to us with policies that clients don’t happen to need anymore, from the life insurance side of it. And they’ve got some pretty significant cash value in some of these plans. And so, we’ve been working with a lot of families doing a 1035 exchange, which is a tax free exchange between a life insurance policy, or even an annuity, to an annuity and long term care plan. And the idea is to sort of repurpose that money to use it for their future down the road. And a lot of times when we’re doing these 1035 exchanges, we are doing single premiums into those, so that the client would never have to worry about making another premium payment into the plan.

Brian Gordon, Gordon Associates Long Term Care Planning:

I was dealing with it with a gentleman on the east coast. He was in Virginia and he had an annuity that had about $300,000 in it and over half of it was gains. And he looked at a hybrid, an annuity long term care plan. And he was telling me that, that annuity was what he was going to use to pay for his care in the future. So we actually were able to do a 1035 exchange into an annuity long term care plan. And it gave him, I forgot when he was age 85, I want to say it gave him just under a million dollars worth of long term care coverage, if you were to need care for himself. And if he passed away and didn’t use it, that he didn’t have any children, that money would just go to his nieces and nephews, just split up equally.

Brian Gordon, Gordon Associates Long Term Care Planning:

And so he was able to get some nice leverage on it. But we have families too, where we’re working with, where kids have policies that their parents bought for them when they were really young. And they look at the death benefit versus the cash value and they’re almost the same a lot of times. So we’ve been able to repurpose those types of policies and the kids a lot of times look at it as a gift from their parents, buying a life insurance policy for their death benefit, but then being able to repurpose that later on for a benefit that will provide them care if they should need it down the road.

Brian Gordon, Gordon Associates Long Term Care Planning:

So, it’s definitely an area that we were seeing a lot of people exploring now and if somebody doesn’t, let’s say they have, let’s say $50,000 in if cash value and we’re working with a couple right now where he’s got to come up with another $30,000 to $40,000 to make the policy, make it a really good plan. And so, people can add after tax dollars to that as well. But it’s kind of a good way to get some tax-free benefits and repurpose that as well.

Brian Gordon, Gordon Associates Long Term Care Planning:

We also have some people that are using portions of their HSAs also to pay some of the premiums for themselves, too. And unfortunately, it’s an age based amount they can use and the younger we are, the less we can take out of it. But if our clients are let’s say 61 to 70 right now, they can take a little over $4,300 out of an HSA and pay for their long term care policy. And that’s typically on the standalone policies, but we also do have a couple of hybrid plans that would allow somebody to use HSA dollars as well. So we’re just trying to be a little bit creative and try to give people some tax advantages with this type of coverage, if possible.

Brooke Salvini:

Those are all, some excellent planning considerations and so, thank you for sharing those with us. This is where we can really add value to our clients and knowing some of these more nuanced aspects of dealing with long term care insurance and long term care planning. So, we probably just have a few more minutes. We haven’t talked anything about the claim process, so as we wrap up, is there anything you would like to share with us about the claims side of this, when clients are on benefit and how that process is going? Is it smooth? What should we help our clients look out for?

Brian Gordon, Gordon Associates Long Term Care Planning:

Sure. No, that’s something that we get super involved with, with our clients. And again, we’re usually dealing with their families when this does happen. And what I can tell you is that I think no matter what industry, no matter what type of insurance, no matter what it is, sometimes the bad news travels faster than the good news does in some cases. What I can tell anybody and if we were able to sit in across the table I can tell you this, too, that if you have a legitimate claim that I will tell you that a hundred percent of all legitimate claims are paid out. We’ve never had a situation where someone was not paid benefits that we felt that they were due benefits.

Brian Gordon, Gordon Associates Long Term Care Planning:

Have they been declined coverage? Yes. I’ve had clients where their in-laws were living at their home and they thought that when they went away for Christmas break that someone could come in and clean and provide meals and do that for them and basically be a babysitter and those situations are not going to work. But when you have a legitimate claim, it’s not a problem. And what we do with our clients, and we also have a consulting side of our business that a lot of people come to us to assist them with claims because they can’t really handle it themselves and their agents are nowhere to be found, or they give them a 800 number to go to. But what we do is, we help the families get through that process, with each of the carriers that we work with. We have it listed out exactly what the steps are, how you have to go about filing the claim for a successful claim, and we work with the clients and their families directly.

Brian Gordon, Gordon Associates Long Term Care Planning:

We’ve been hired by families all around the country to assist them when they’ve had not a good experience with the claim or the company is asking them for additional information and we have a really good system for it. Right now, it’s typically a phone intake with the insurance company, either with our client or the client and a family member. And when I tell people in the 30 years I’ve been doing this, I’m not exaggerating, there’s probably been about six or seven different ways the insurance companies have done their claim intakes, and now we’re on phone interviews and doing it that way with the carriers. And that’s been going on for a few years already.

Brian Gordon, Gordon Associates Long Term Care Planning:

And the people just need to understand what they have in their policies and that’s why those reviews are so important. I always tell people, sometimes we forget more than we remember with these things, and that’s why they need to lean on specialists for this. And we work with a lot of people from coast to coast and someone who’s in Arizona or California or in New York and I’m in Chicago, it makes no difference. We’re able to help them no matter where they are and we live in Chicago area, so it’s a lot of my clients don’t reside here in their retirement years anyway. So we’re always dealing with them from a nice warm state somewhere else.

Brian Gordon, Gordon Associates Long Term Care Planning:

So, that’s what I would tell people is, just know what they have and do not wait til the last second to file a claim because there are elimination periods that people have to meet almost like a deductible period. And it’s so important to start that process sooner than later, because we don’t like our clients jumping into full time care and then they’re stuck paying $5,000 to $15,000 a month out of pocket, until that elimination period is met for them. So we like to bite a piece off of that apple and take care of it as soon as possible. So, let your agent or let your insurance company know immediately that you might need some help and then kind of walk through the process at that point.

Brooke Salvini:

Brian, thank you so much for these important insights into the long term care insurance industry right now, especially in this era of COVID-19, when we’re all thinking about our health and thinking about our financial plans, our life plans and really trying to hone in on this. You’ve given us a lot of good information, very grateful that you were willing to spend time with me today, discussing all of it. And again, Brian, I want to thank you so much. Brian Gordon, President of Gordon Associates, located in Chicago. On behalf of the PFP section, this has been Brooke Salvini and Brian Gordon, and I hope you’ve enjoyed this podcast.

Brooke Salvini:

I highly encourage you to visit the PFP section website and access the advisor’s guide to retirement and elder planning, financial retirement health care. Stay tuned for Sarah Bradley, who will tell you how to find this valuable resource. Thank you for listening.

Sarah Bradley:

And thank you for sharing with our community of listeners. Want more information, resources, tools, and guidance on technical and practice management topics, visit AICPA.org/PFP and check out the show notes for this episode as well. So if you’re not already a member, think about joining the PFP section, which is designed to save you time, help you best serve your clients and take your financial planning practice to the next level.

Sarah Bradley:

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Speaker 4:

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On September 14, 2020   /   Blog