Income Investor Podcast Ep. 16 – Transcript

Stan: Welcome, everybody. This is Stan The Annuity Man with my co-founder of Annuities.direct, Jimmy Dot Direct also known as Jim Farrish, the man behind the curtain, the brains. We welcome everybody to this podcast. This is going to be a unique one, and we’re very happy to have Jack Lenenberg with us, the number one, and this is not even disputable, the number one long-term care expert in the country, based out of Atlanta, Georgia. We’re going to be talking long-term care, which you need to know the truth about, because there’s a lot of misinformation, especially in the annuity world of people talking about long-term care. Bottom line is, anybody that needs long-term care, that’s who we refer to, is Jack, and we’re happy that here’s going to be with us. Before we get started, I’m going to throw it to Jimmy Dot Direct. He’s going to talk about the newsletter Incomeinvestor.direct, which is sponsoring this podcast, and then the Annuities.direct platform. So, Jimmy go for it.
Jim: Well, I want to welcome Jack. Thank you, Stan. Everybody who’s listening, each week we talk about  IncomeInvestor.direct, as we’ve launched this newsletter. It’s available now for everyone to log in. It’s free. You can go to Incomeinvestor.direct, not .com, but .direct. On the right-hand side of the homepage, you can sign up there for free. Every time we post a new webinar, a new podcast, a new article, or any of our contributors write an article, you receive an update when that’s available. As always, you can get your free quotes on Annuities.direct and now we have Incomerider.direct, so all five quote systems are now available for free on the website, and you can get your quotes online. With that, Stan, it’s all you.
Stan: Super. Let me give a little bit of background on who Jack Lenenberg is. We think a lot of him because if we’re going to refer any business that person has got to pass a pretty good sniff test. Jack is unique in the business. Jack is a lawyer, for gosh sakes, and Jimmy and I usually hate lawyers, but we don’t hate Jack. Jack actually got his JED, as they say, at the Boston School of Law, that was after he played a little basketball at Brandeis University. One of the things that Jack and  i have in common is we put ourselves through college shooting basketballs, which sounds crazy. Jack and I are going to have a free throw shooting contest later this year for a million dollars cash. We’re looking forward to that, since I am one of the best free throw shooters in the world. I’m really happy to have Jack with us. Jack Lenenberg welcome to the IncomeInvestor.direct podcast. How are you?
Jack: I am doing well Stan, and thank you for having me. It’s a pleasure to be here.
Stan: Let’s just jump right into this thing. Long-term care. What’s a smart guy like you doing in the long-term care business?
Jack: I suppose I fell in by accident. Years ago I started in the insurance and estate planning arena. I was security licensed and I really thought I was going down the investment path. I was working with John Hancock, and at the time John Hancock was very bit in the long-term care insurance arena. I have a cousin and he had a stroke and he needed care for about eight and a half years. That developed my passion into trying to help my clients with long-term care planning. I developed an expertise about 18, 19 years ago and it’s led me where I am today.
Stan: Interesting. That is interesting. Long-term care is the focus. You’re the heart surgeon, you’re the guy that just does the long-term care, is that correct?
Jack: It is 99% of what I do 24 hours a day, 7 days a week. I get about 6,000 visitors a month to my website, unique visitors.
Stan: We’re going to include that. Exactly. Let me start off with the first question, and you told me kind of the answer. I think people have in the back of their head the misconception. Obama Care, long-term care with the full implementation of Obama Care coming in. I’m sorry to tell you democrats out there. The affordable care act, when that gets fully implemented in 2017 will that have any effect on you at all or is that just a non-event to your world?
Jack: It is unfortunately a non-event to my world. I say unfortunate because Obama Care guarantees insure-ability for health insurance for all Americans. Unfortunately long-term care insurance you have to buy the coverage with good health. There is no guaranteed insure-ability. 30% of all applicants will be declined. The most difficult part of the long-term care insurance arena is getting approved for coverage. Unfortunately, Obama Care does not apply to my world. I wish it did.
Stan: Can you cover the process a little bit of that? What’s the process? Someone wants long-term care they’re going to have to go through an underwriting process. What does that involve? What are people going to have to do? Are they going to have to pee in a cup, stick their arm? What are they going to do? What’s going to happen?
Jack: Stan, it depends upon the under riders. Each insurance company has different guidelines for the application process. Some companies, yes, a para-med exam will be required with a cognitive screening test as well to rule out any early Alzheimer’s or dementia. Height, weight measurements. Some under riders have full under riding. Some under riders simply a telephone interview lasting about 20 minutes. They will go out and order medical records. The process depending upon the under rider could be a para-med exam. Almost always will be medical records, at least on the traditional long-term care under riding side. There’s some other policies that are in the arena where there’s more streamlined under riding and there’s just an interview and that is all. Each under rider is different, but they will get their information Stan. They do prescription drug reports, they know the answers before they interview you, truthfully.
Stan: There you go. Jimmy?
Jim: Explain to people, because I think sometimes people have a misconception about long-term care and home healthcare, all of the different elements of what long-term care coverage is about. Explain to people what you perceive is the number one reason they should look at this at a younger age versus waiting until they are 70 or 75 years old.
Jack: Absolutely Jimmy. I’ve already touched upon that under riding is very stringent, very hard to get approved. We’re buying our coverage without health. The best advice I can give to anyone, if you want to do long-term care planning apply early when you’re healthy enough to get the coverage. 50’s is a good time to really start to look into long-term care planning. Most people have not developed cronic illnesses yet at that time, and generally can get approved for coverage. By the time an individual is 65 or 70 years old the medical file is just becoming too thick. It’s going to be very hard to have the same options at 70 years old as you will have when you are in your 50’s. The best time to apply is when you are young and in good health to get the coverage.
Stan: You’re telling us that life insurance and long-term care companies want to insure healthy people? That’s the goal.
Jack: Imagine that. They’re trying to not pay out claims sooner.
Stan: Beautiful. How long does that process take? I know products are different and maybe you need to go through the types of products and then what people should expect. Is it like an elephant giving birth? What is it?
Jack: I tell everyone, at least with f a traditional product, usually four to six weeks. Four to six weeks to get approved. The first two weeks they’re inputting the information, assigning the policy number, ordering the telephone interview. After the interview inevitably the under rider will order medical records. Two to four weeks to get medical records depending upon how many specialists the applicant might have seen. The six week process solid to the approved. Sometimes depending upon the doctor’s office and how efficient they are it could take two and a half months sometimes. Typically six weeks it should be done.
Stan: Interesting. What are the types you deal with? I know there’s traditional. Break down, showing paintings to blind people here. Be as elementary as needed. Tell people the types of long-term care coverage that you handle.
Jack: Today, to keep things simple, I will state that the marketplace has really evolved into two types of long-term care insurance. The first type is the traditional stand alone long-term care insurance policy that most people probably think about when they think about long-term care insurance. Stand alone policy just like you’re auto insurance, your homeowners insurance, your health insurance. If you need care your policy will pay benefits to you, if you don’t need care it’s use it or lose it essentially. There’s no cash value, it’s just a stand alone long-term care insurance policy. That’s the traditional marketplace. You pay a premium as you go annually for life. If you need care you get benefits. The second type of policy is many different names in the marketplace, asset based long-term care policy, linked benefit long-term care policy. The term that I know, Stan you might not like, hybrid long-term care policy.
Stan: Oh, my God.
Jack: Yes, there I go and use the term hybrid. Hybrids probably the most popular term used. The assets based marketplace, what the policies are is a cash value asset which also provides long-term care insurance should you need care. Those are the two types of policies today. Stand alone no cash value, asset based hybrid linked benefits policies that do provide cash value. Those are the types today. They have very distinct features in the sense of traditional non-guaranteed premiums. You may get a rate increase just like with your auto insurance, homeowners, or your health insurance rates can go up. Asset based policies, fixed and guaranteed cannot get a rate increase.
Those are the two types of policies. Aside from the marketing of these policies, they both do the same thing. They both provide long-term care benefits to the policy holder should the policy holder be defined as chronically ill. In all of these policies the definition of chronically ill is exactly the same. You have to be unable to either perform two out of six activities of daily living without assistance from another individual or you have to have a cognitive impairment such as Alzheimer’s or dementia. To get your benefits with any type of policy it’s exactly the same, word for word definition of how to receive benefits under the policies.
Stan: Jimmy?
Jim: Would it be fair to say that one is better than the other in your opinion?
Jack: Never.
Jim: I knew you were going to say that, but I figured I had to ask.
Jack: Never. No, I’m sure there’s a lot of insurance salesman who will always say that one is better than the other based upon the camp that they want to be in. I know that for a fact. Every stockbroker wire house guy is going to be on the asset based side. Then every traditional long-term care insurance agent will be on the traditional side. Truthfully they’re both wrong. Neither policy is better than the other. It really comes down to I try to help my client analyze both options, so that they can find what’s best for them. It’s going to be based upon their age, their health, their state of residence, what the funding will be with either one options or the other, and what the opportunity costs are with one options or other. We just have to analyze the cost. The funding cost, the opportunity cost, and find the best solution for the client. You can never make a blind statement that one is better than the other.
Stan: I’ve got one that’s going to throw you here. How about all these annuity gunslingers out here talking about long-term care doublers Jack? What’s a long-term care doubler?
Jack: We can use annuities as well to fund long-term care costs. They can be appropriate for certain consumers I would say who are un-insurable, possibly for a different approach such as a traditional policy.
Stan: Oh, my Gosh. You’re talking like a lawyer Jack. I need you to put the law book down. I need you to drill these guys for calling this long-term care because it’s not long-term care.
Jack: At the end of the day it’s not going to do anything. In my mind. I’m not out seeking annuity doublers to address long-term care planning. I don’t feel you really get the right leverage on that product to address long-term care costs. Certainly if someone is in relatively good health they’re an infinite number of solutions that will be better than, yes, the annuity doubler Stan.
Stan: Thank you. You know what, Jimmy Dot says all that means if you get sicker you get your money back quicker. He’s right. What benefit is that? I think the problem in the annuity world, as you well know, is everybody’s trying to do a one size fits all solutions. People will say, “Stan. I need long-term care, I’m going to go ahead and buy this index.” I’m like, “Stop. You need to call Jack, because that’s not long-term care. That’s confinement care, and if you get sicker you get your money pack quicker I. E. Jimmy Dot. That’s what he says.” To us that drives us crazy, because you are doing it correctly with the under riding and the steps, et cetera. The doublers, which sounds so good at a bad chicken dinner seminar, require no under riding?” That should tell people what the coverage, if any if they consider it coverage, the benefit of that really is. Correct?
Jack: Absolutely. The more stringent the under riding the better leverage the policy holder is going to receive from the policy. If you have to prove good health it’s common sense you’re going to get greater benefits than your neighbor who maybe did not have to prove good health. Yes.
Stan: You were so nice to them. Go ahead Jimmy.
Jim: It’s funny because I’m probably showing my age of having hung out in high school with Moses.
Stan: Is that Moses Malone?
Jack: Moses Malone?
Stan: Moses Malone?
Jack: I think Moses has to join us in our free throw shooting contest.
Stan: Moses is dead, Jack. Moses is dead. Yes.
Jim: Yeah, he passed away.
Stan: You long-term care guys with no heart. Go ahead Jimmy, sorry.
Jim: I’ve always said that the way to look at anything is that it’s whether you want to insure or self-insure. To me, that’s what we’re talking about with these differences of policies is that if you’re going to insure … To me, I’ve always explained long-term care insurance it’s much like disability insurance. You have to qualify for disability insurance when you’re healthy, not when you become disabled and it’s the same type of thing. You have to decide if you want to insure yourself or if you want to self-insure which is the asset based side that you’re talking about. What about home healthcare? Is that still something that people should be looking at as relative to this type of coverage?
Jack: The policies today have evolved to where they’re 100% comprehensive today. The consumers are buying an amount of money, and the money can be used in any setting wherever they lay their head on the pillow at night. Their healthcare in assisted living facilities, adult daycare centers, nursing facilities. If an individual is buying a $7,000 a month benefit policy that $7,000 can be used to reimburse them for their care in any setting wherever they happen to be living, subject to qualifications of the policy of course. There’s often exclusions for immediate family members being the caregiver, but you can use your policy in any setting.
Jim: I’m going to step on Stan’s toes and not let him say anything else.
Stan: Do it, go ahead.
Jim: Can you address asset spend down by one spouse for long-term care and the risk of that?
Stan: I want to make sure I understand your question, so asset spend down medicaid planning?
Jim: Well, no. Where people actually will say, “We have enough money we can take if we get sick.” They end up where Alzheimer’s a good example. They could last 10, 15 years. They spend down assets and leave the surviving spouse impoverished.
Jack: Right. That’s the risk. That’s why people need to understand how expensive long-term care could be and the risk of-
Jim: How expensive can it be?
Jack: Today, Nationwide the average cost of care, let’s say it’s $7,000 a month on average. The cost of care, and this is the dirty secret right now in my industry, The cost of care can compound by 5% a year. If you’ve got a 60 year old couple and it’s $7,000 a month today, at 85 is $14,000 a month with inflation. Age 90 is $28,000 a month. That’s over $300,000 a year on average. You can spend three million dollars on care. You need to have a plan or you need to have assets. That’s the bottom line. For a couple it’s just very important to protect a retirement nest egg, because yes, if care happens the healthy spouse is going to need the nest egg. It’s important to have a plan in place and not to be exposed, especially when there is a couple.
Stan: That’s the two by four to the forehead. How about that?
Jack: In my industry, right now, the movement by the insurance companies and the marketers is really to have everybody believe that inflation is low, and it’s only two or three percent. They’re selling policies today and they’re pretty much selling 3% compound inflation inside the policies. For consumers today due to the current policies a lot of buyers are going to be set up for, at best, a co-insurance model, at best as time goes by.
Stan: Wow. Jimmy, you got a follow up to that.?
Jim: I’m on the floor. I’m lying on the ground at this point. I had not heard that dirty little secret. I love dirty little secrets when they’re factual like that, that’s a mind blower.
Jack: This year was the first year that Genworth Financial is a big player in the long-term care arena. This is the first year that they did not do a detail cost of care studies on their website showing the actual inflation factors in every city in the United States. I’ve got them on my website from 2015 and you can see certain areas 5, 6,7, 8%. This year on Genworth website they just … In all their projections they just plugged in assume 3%. They want people to believe 3% is fine so they can sell as many policies as possible with 3% inflation protection. That’s my biggest concern as an advisor today is the cost of the policies. They’re not inexpensive. Most consumers today are going to sell designing plans that really will serve mostly as a co-insurance model moving forward.
Jim: To think all this started in 1982 with our current presidential nominee from the democratic party. In 1992 we passed the diagnostic groups which limited social security payments, which was the first phase of needing long-term care insurance. It’s quite amazing how this has progressed even at a rate that a lot of people have not expected. The inflation cost of this, I don’t know how Americans are going to deal with this really on a go forward basis. It’s quite an interesting thing. All that said, I want to ask a question. You talk about long-term care planning, how important to you is this? I know you do some estate stuff from looking at your website, to incorporate all of this into estate planning for both asset protection as well as asset spend down and protecting even your heirs as you go forward.
Jack: I think it’s definitely important to incorporate all aspects and to do the proper estate planning. The reality is a lot of consumers today don’t have the proper access to estate planning attorneys and the right insurance advisors. For America today it’s going to be very hard, I think, for the proper planning to be done across middle America. I think we’re going to be in for a very big … 20 years from now the cost of care for everyone, no one’s going to be able to afford it.
Stan: Then what?
Jack: That’s really sad. That’s why it’s important that, Stan, we build more direct websites so that middle America has this opportunity.
Stan: Hey, Jack. I hear a lot of these gunslingers out here talking about life insurance with long-term care. If the person says, “I don’t want to buy the doubler, they see through that, then they immediately pivot to life insurance with long-term care. That seems more valued. Can you explain what’s going on out there with the life insurance gunslingers with long-term care inside that policy?
Jack: It’s not long-term care insurance, it’s life insurance. I want everyone to understand what life insurance with an accelerate death benefit rider is. It’s life insurance plus a 20% load. What you’re buying is a bull boat life insurance policy. You’re buying a full boat life insurance policy and you’re paying 20% to have keys to the policy before you die. You’re getting access to the policy before you do, and that caused 20% low. That’s what you’re getting. You’re buying life with a 20% premium cost to it to just possibly have keys to accelerate your benefit to you before you die. That’s not long term care insurance. There’s no leverage there. It’s completely based upon mortality pricing, not morbidity processing.
Stan: How much do we love jack? That answer right there. We love him for everything, but that answer was the hammer.
Jack: If a client wants life insurance, if they tell you, “I want life insurance because I have a need for life insurance. Oh, by the way, what if I need care?” Yeah, they have an expressed need for life insurance, a want for life insurance. You cannot take a life insurance policy with an accelerated long term care rider and position it as long term care insurance. It’s just not. It’s not. You’re getting no leverage for the long term care need.
Stan: People that are listening to this on replay, replay that back. Go back to what Jack just said and just keep replaying that. This is what drives us crazy. Everyone’s trying to fit the square peg into the round hole, it doesn’t work like that. If you want long-term care you go long-term care. You can’t get the all-encompassing product.
Jim: I think that leverage is a key factor of what Jack’s saying. Also, think of the fact that if you have Alzheimers it’s not a life threatening event. They’re not going to accelerate the death benefit. You got reverse engineering because you got to go into under riding to prove that you’re going to die soon enough that they’ll make the accelerated payment.
Jack: Right. People have to decide if they’re doing something for long term care benefits or if they want to shift the needle to life insurance benefits. You got to decided what you need and what you want. If you want a long-term care insurance an individual could buy a policy that has life insurance benefits to it. You might get 12 to 1 leverage on the long-term care side. You could put in $100,000 and get 1.2 million. You can’t put in $100,000 into a paid up life insurance policy and get 1.2 million of that benefit. Nowhere close. You might get 250, 300,000. You have to just decide what it is you’re looking for. You are correct that there are salesman who are selling life insurance and trying to characterize it as long-term care insurance, and it’s not.
Stan: Those lawsuits will be a dozy. We’re getting close to the finish line here. I wanted to ask you a couple more things, so I know Jimmy’s got a couple of questions. Where do you see the long term care industry going? Five years from now when we do this same interview what’s going to be different from now?
Jack: I can tell you what’s going to be different, and it doesn’t look good truthfully. Where the marketplace has gone just from the last five years traditional policies the premiums are starting to go through the roof, they really are. Gender based pricing for women has taken effect over the past two years. Women are now anywhere from 50% to 100% more premium than men are for traditional long-term care insurance. There were two polices released this year by very big under riders that are marketed by very large groups, AARP, USAA, I’ll just say the groups that are basically un-buy-able polices. Un-buy-able. The insurance company is getting a free ride. Traditional long-term care insurance.
Stan: Go back, go back. What’s that mean? Go back, explain that.
Jack: Free ride?
Stan: Yeah, tell me about it.
Jack: I don’t want to name names. Let’s say an individual buys a policy for let’s say their premium … They might have $350,000 of insurance, but their premium might be $7,000 a year. You can do the math. $7,000 a year for 20 years with growth of the premium, the insurance company has no risk. They just have no risk. The benefits that individual is buying is completely self- funded by the premium, there’s no leverage. That’s what’s going on, especially for female applicants today. Two companies have eliminated the risk that they have for their female applicant buyers completely. The marketplace in five years I’m not sure, especially for females, how accessible the products will be because 9 out of 10 residents in nursing facilities are women.
The companies are trying to eliminate their risk. What I am saying is a significant growth on the asset based site. I am seeing that. Significant. Double digit year after year for the past six, seven years. Double digit growth. Where the traditional side has been declining by 20% per year. I’m seeing the asset based policies becoming very popular. If you fast forward five years it might be a total asset based space. The insurance companies, as you know, they’re headed with the asset based design because they’re using your money really for the first two years of the claim. If you asked me in five years ago what we’re looking at it might be an asset based world, which again is going to really hurt middle America because not everybody has $100,000 or 150,000 per person to put into a policy. I think for a lot of consumers they need to be able to have a $200, $250 monthly premium insurance policy to cover their care. My fear is in five years it might not exist.
Stan: Jimmy you got the last question buddy and then we’ll tie this thing up.
Jim: How do people get a quote, or how do they find out more information relative to long term care? Do they just go to your website and request it there?
Jack: Absolutely, they can request it at my website. Anyone who comes to my website I will give quotes for their state, every policy in their state, any asset based illustration available in their state, no obligations. What separates myself from the other insurance agents in the country is I give all of the information, unbiased, full transparency. Every company, whether or not I’m’ an agent with the company or not they can see the rates for every company with no obligation.
Stan: He’s a pro. I’ve used him definitely. By the way, his site is LTCpartner.com. We’re out of time. Jack, I really appreciate you being here. Let me just do a broad synopsis of who you are once again to our listeners. We’re going to have all your information on the site. Again, www.LTCpartner.com. This has been great speaking with Jack Lenenberg. He is an actual lawyer that is the number one expert and the number one agent in the long term-care field based out of Alpharetta Georgia. We’ll call it Atlanta for right now. H’s our guy. If you’re looking for this type of transfer of risk solution, which is what long-term care is, then Jack is your source. Jack, we really appreciate you being with us, and this isn’t your last time being with us. Thanks again.
Jack: Thank you. It’s a pleasure being here.
Stan: All right. Take care everybody.
Jack: Thank you for everything.

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