National Health Administrators National Health Administrators

Long Term Care Insurance:Long Term Care Insurance:

An Executive Compensation OptionAn Executive Compensation Option

CE Course 501CE Course 501

Presentation AgendaPresentation Agenda

• The Basics about Long Term Care

• The Basics of Long Term Care Insurance

• Talking to Executive Clients about LTCi

• LTC Insurance Options for Executive Clients

• Executive Sales lead to Group Sales

Lesson For The DayLesson For The Day

To Sell Group LTCi Insurance, Start At the Top.

Why Educate Executive ClientsWhy Educate Executive Clients About LTCI? About LTCI?

The right thing to do. Professional responsibility. Protect your current business. Impact of health care reform. Multiple revenue streams. CLASS Act. Liability questions. Executive sales lead to group sales

What is Long Term Care?What is Long Term Care?

Activities of Daily Living: The "ADLs”Least Disabled Most Disabled

Eating

Transferring

Toileting

Dressing

Continence

Bathing

Long Term Care is assistance people need when they can no longer care for themselves.

Long Term Health Care: Long Term Health Care: The Classifications and SettingsThe Classifications and Settings

Classifications:Skilled Care(LPN, RN, PT, etc)Non-Skilled Care (95% of care received is Non-Skilled.)(Aides, attendants, assistants. Known as Custodial CareServices such as chore services, homemaker services, ADL help)

Settings:At Home (Most Long Term Care is provided in the home)A person can receive both skilled care and non-skilled care. In addition, a person can receive care through: Adult Day Care, Hospice Care, and Respite Care for the family members.

Assisted Living FacilitiesA person can receive daily benefits to cover room and boardexpenses and some personal assistance.

Nursing HomesA person can receive daily benefits to cover room and boardexpenses and both skilled and unskilled personal assistance.

-The 9 Steps To Financial Freedom, Suze Orman, 1997, p.84.

The CaregiversThe Caregivers

• An estimated 44.4 million caregivers in U.S.• Caregiving takes place in 23% of households.• 50% of caregivers are employed full-time.• Median age of caregivers is 45.• Over 60% of all caregivers are women and married.• The average caregiver provides care for 4.5 years.• Most extended care is provided outside of nursing homes

& usually by a family member.

-“LONG-TERM CARE INSURANCE: Better Information Critical to Prospective Purchasers”, GAO, 9/13/2000.-National Alliance of caregivers and AARP, April 2004, JH

Family CaregiversFamily Caregivers

Sixty percent of the disabled elderly living in the community rely exclusively on their families for care.

A Downward Spiral of HealthA Downward Spiral of Health

A national study of working caregivers found that:

90% of caregivers experience signs of depression. 69% spend less time with family and friends. 51% report taking more medications. 37% reported missing time from work. 10% reported using alcohol more frequently.

-National Alliance for Caregivers.

Daily/Weekly Caregiver Tasks*Daily/Weekly Caregiver Tasks*

• Bathing• Dressing• Toileting• Change sheets• Laundry • Transfer to bed, chairs

and toilet• Prepare meals• Clean rooms • Safely navigate stairs,

carpets and thresholds

• Managing appointments• Attend doctor’s visits• Crisis manager-ER visits• Personal “nurse”• Medication management• Handle phone calls• Shop and run errands• Church and social events• Visit & host guests• Be a companion• Misc. daily needs

*Usually while holding a job & raising a family.

Most Will Need Long Term Care!Most Will Need Long Term Care!

Almost seven in ten seniors over the age 65 will need Long Term Care before they die.

-Americans for Life Security & 2008 CT Partnership Training; u.s. HHS Dept

Long Term Care Is ExpensiveLong Term Care Is Expensive

As a national average, one year in a nursing home is estimated to cost in excess of $85,000 in 2011, and can vary greatly by location.

The median price of nursing home care in Dallas/FW area is approximately $75,000+ per year. High end exceeds $100,000.

The median price for aassisted living facilities in this area is $33,450 per year.

Bringing an aide into your home just 3 hours a day can easily cost $22,000/year. Or up to $50,000/year for 6-8 hours a day.

- Private Room Average. Genworth Cost of Care Survey, 2009.- “A Shopper’s Guide To Long-Term Care Insurance”, National Association of Insurance

Commissioners, 2003.

Costs are expected to double every 15 years!

It’s Not Just The Money . . .It’s Not Just The Money . . .It’s About The Consequences It’s About The Consequences

Two-in-five American workers are already involved in caregiving responsibilities.

– Family members struggle physically and emotionally.

– Caregiving strains family relationships.

– Drains family income and puts retirement assets and income at risk.

Employees Need Good AdviceEmployees Need Good AdviceSo Do ExecutivesSo Do Executives

• “I have plenty of assets to pay for my care.”• “Government will pay for my care.”• “Long Term Care means nursing homes.”• “My family can easily care for me.”• “I won’t need Long Term Care.” • “Only old people should apply.”

Time Is Time Is NotNot On Our Side On Our Side

• You must be healthy to be eligible for coverage. Once your health begins to fail or you suffer a debilitating accident you may no longer qualify or you will pay more for coverage.

• It will never be more affordable than it is this year because premium costs are based on your age at the time you apply for coverage.

Act While You CanAct While You Can

Applicants Getting Good Health Discounts

Applicant Age Avg. Who Qualify

40-49 66.8%

50-59 51.5%

60-69 42.2%

70-79 24.2%

Applicants Who Are Declined LTCi Coverage

Applicant Age Avg. Declined

Under 50 7.3%

50-59 13.9%

60-69 22.9%

70-79 44.8%

American Association for Long-term care InsuranceThe 2009 Sourcebook. P.24

Cost Comparison By AgeCost Comparison By AgeDollar value is total premiums paid from issue age to age 85. All policies have the exact same benefits. While actual figures may vary according to carrier rate tables and alternate benefit choices, the trend line will remain relatively constant.

$$

$

$

$

Key Components of Long Term Care InsuranceKey Components of Long Term Care Insurance

Benefit Triggers: Tax-Qualified Plans 2 of 6 ADLsexpected for 90-days, or serious cognitive impairment.

Tax Basics for Individuals*Tax Basics for Individuals*

Federal Taxes

• Deduction “Eligible Premium”• Must itemize• Medical expenses, co-pays,

premiums, deductibles, • Total must exceed 7.5% AGI• Sliding scale based on age

State Taxes

• Numerous states (30) also offer state specific tax incentives, either credits or deductions.

* Consult with your tax advisor for details and specific tax advice.

Business Basic Tax FactsBusiness Basic Tax Facts• Any employer contributions to qualified plans for employees

are deductible as business expense.

• “C-Corps” may deduct 100% of premium cost for employees, including executives, their spouses and dependents.

• Sole Prop., Partnerships and S Corps may deduct up to 100% of “Eligible Premium” amount without meeting 7.5% AGI* threshold.

• Benefits paid through “reimbursement” plans generally not considered taxable income.

* Moves to 10% in 2013- Details require consultation with your CPA or tax advisor.

Tax Qualified Deductions of Premiums: Tax Qualified Deductions of Premiums: 2011 Eligible LTCi Premium*2011 Eligible LTCi Premium*

Attained Age in Tax Year Limitations on PremiumsAge 40 or under $340Age 41-50 $640Age 51-60 $1,270Age 61-70 $3,390Age 71 and Older $4,240

•Deduction is limited to the lesser of actual premium paid or eligible premium amounts above. Taxpayer must Itemize.•Applicability rules vary for individuals versus businesses.

Consult your tax advisor.

LTCI Approaches andLTCI Approaches andUnderwriting ProceduresUnderwriting Procedures

• Individual:• Individual policies. Full underwriting.

• Multi-life: • Individual policies.• Simplified (5-6 questions).• Modified (additional underwriting possible).

• True Group:• Guaranteed Issue (GI, No medical questions).• Certificates rather than policies.• Also Modified GI (Few medical questions).

Normally, family members are subject to full underwriting unless full payment by employer. Exceptions exist.

The Great Broker Debate: The Great Broker Debate: How to Sell LTCi To Businesses?How to Sell LTCi To Businesses?

Individual vs. Group sales True Group (large groups w/GI) vs. Multi-Life (smaller

w/simplified)

Voluntary vs. Employer paid/core contribution Sell all EEs vs. Sell executive carve-outs

Current ThinkingCurrent Thinking

Group vs. Individual Sales

• Sell less to more.

• Greater return for effort.

• Timeline often longer.

Current ThinkingCurrent Thinking

True Group vs. Multi-Life

• True group: lower price and GI offers a great incentive, but large companies are harder to navigate, more time consuming.

• Multi-life: smaller companies are easier to sell, better plans and most actively employed will pass simplified underwriting.

Current ThinkingCurrent Thinking

Voluntary vs. Employer Paid/Core Contribution

• Some employer contribution highly beneficial.• Underwriting concessions possible.• Penetration will be greater.• More likely to meet carrier participation

requirements.• Tax incentives are significant.

Current ThinkingCurrent Thinking

Sell everyone or Executive carve-outs • Executives often the best place to start.

• Benefit discrimination is permitted.• Managers have the income, assets, and authority to act.• More likely to be working with CFPs who encourage LTCi.• Most likely to buy eventually.• Why not offer price discounts and underwriting concessions.• Tax incentives are very favorable.• May open doors to a larger group sale.

Talking to the Exec.Talking to the Exec.Are You A LTCi Salesperson ?Are You A LTCi Salesperson ?

1. Sales Pitch: Facts, figures, risk data, costs of care, etc.

2. The Problem: Contest of wills. “Bad things happen to other people.” Denial statements. Perceived as selling rather than helping.

Or LTC Planning Consultant?Or LTC Planning Consultant?

As with life and disability insurance: Focus on planning rather than selling product. It’s all about managing household or business risk. Focus of the consequences if client ever needs extended care.

– First, the impact on spouse & children,– Then discuss income stream, lifestyle, assets, independence

and choice, etc.

Educating ClientsEducating ClientsMaking the “Consequences” ConnectionMaking the “Consequences” Connection

• Life insurance: provide income to loved one if a pre-mature death.

• Disability insurance: provide income to loved one if disabled during working years.

• Annuity sale: protect loved ones so they don’t run out of income during retirement years.

• LTC insurance: provide income stream to family should client require extended care services for many years.

Where To Start The DiscussionWhere To Start The DiscussionWith Executives With Executives

First, make the personal connection about LTC. Focus of the consequences to family, not the

business. Less emphasis on risk data. Then shift focus on the business. Planning strategies taxes advantages.

Two Alternative PathsTwo Alternative Paths

1. If client is unconcerned, move on to next client.

2. If concerned about possible harmful consequences to loved ones, ask the client what their strategy will be to provide extended care without burdening family members. How will the client protect the family?

• Focus on support services needed first.• Who will provide them and where?• Who will coordinate the services?• Then discuss costs for services.• Finally, how will the plan be funded?

Who Will Be Your Caregivers?Who Will Be Your Caregivers?

Spouse:______________________

Children:

Siblings:

Friends:

Have you thought about the consequences for your caregivers?

Remember, Long Term Care isn’t just about you.

Funding Choices are LimitedFunding Choices are Limited

Actual Assets Sell stocks and bonds Sell property Sell the business or drain its resources Life insurance cash values Certificates of Deposit Cash

Key QuestionKey Question

• How much of your current retirement portfolio have you specifically allocated to pay for the possibility of extended care needs?

• If the answer is “none,” then all of it is effectively allocated for potential long term care needs.

Self Funding? What Asset Will You Spend First?Self Funding? What Asset Will You Spend First?

cashstocks bonds

mutual funds IRApension

SocialSecurity home

Retirement SecurityFamily Security

Long Term Care Costs

annuitylife

insurance

Income From Assets? Income From Assets? Assume a conservative and consistent 5% return, and that

100% of your portfolio is generating investment income. Examples:

• $500,000 = $25,000/year• $1,000,000 = $50,000/year• $1,500,000 = $75,000/year• $2,000,000 = $100,000/year

What will be the impact on lifestyle, retirement plan, and loved ones if your LTC needs require these income resources? Or invade this principal?

More Self Insuring “Costs”More Self Insuring “Costs”

Investment “Surcharge” (Opportunity Cost) - Every dollar of assets liquidated to pay for care is a dollar that can no longer be invested.

Tax “Surcharge”– If an individual withdraws funds from an IRA account to pay for care, these funds may be subject to federal taxes. So, if the cost of care is $70,000.00 per year, an individual in the 28% tax bracket would need to withdraw $89,600.00 from the IRA. There may also be additional “early withdrawal” penalties.

Liquidation “Surcharge” – If the only available assets to pay for extended health care are not “liquid” (real estate, stocks/bonds), they may have to be sold at a loss.

Not Having A Plan for Long Term Care . . .Not Having A Plan for Long Term Care . . .

• Can disrupt your plan to secure the financial viability of a surviving spouse or a dependent child.

• Can disrupt your tax plan. • Can disrupt to your plan to keep financial commitments

during retirement.• Can disrupt your succession plan. • Can disrupt your premarital agreement in a second marriage.• Can disrupt your special needs plan.• Can disrupt your charitable giving plan.

A Better Way To Protect Family?A Better Way To Protect Family?

cashstocks bonds

mutual funds IRApension

SocialSecurity home

Retirement SecurityFamily Security

Long Term Care Costs

annuity lifeinsurance

$$$$ LTC Insurance Coverage $$$$

What LTC Insurance Does What LTC Insurance Does

Protects loves ones from the burdens of becoming a daily caregiver.

Provides an income stream to pay for care, which allows the client’s loved ones to supervise, rather than provide care.

Allows retirement income to be used to keep financial commitments as planned.

Since the retirement portfolio never has to be used, principal is preserved and your retirement plan executes properly.

Plan Options For ExecutivesPlan Options For Executives

• Traditional Insurance– Multi-Life– Group

• Hybrid Plans– Life-LTCI– Annuity-LTCi

Multi-Life Plan HypotheticalMulti-Life Plan HypotheticalAce Tech-Tronics, Inc. LTCi Program

 

  Plan 1 Plan 2 Plan 3

Daily Benefit (Monthly) $90 $120 $150

       

Benefit Period 3 years 4 years 5 years

       

Home Care Benefit 100% 100% 100%

       

Lifetime Maximum Pool $98,550 $131,400 $273,750

       

Inflation Rider 3% comp. 3% comp. 5% comp.

       

Elimination Period 90 days 90 days 90 days

-Additional Buy-ups available

““Linked” or “Hybrid” LTC PlansLinked” or “Hybrid” LTC Plansvs. Stand-alone LTC Plansvs. Stand-alone LTC Plans

• Combine standard LTC insurance policy with a life insurance policy or an annuity. (Non-qualified $ only)

• Reposition or “leverage” savings, cash value from life insurance policy or transfer an annuity to a linked plan.*

• Single premium payment typical.• Return of premium typically guaranteed.• Life-Hybrid plans pay for Long Term Care, a death benefit or both.• Annuity-Hybrid plans pay for Long Term Care, may be annuitized,

or transferred to estate upon death. More complex w/diminished benefits.

* More favorable tax provisions now apply for asset transfers.

Linked Long Term Care-Life PolicyHypothetical Case-Generic Carrier*

$100,000Initial Premium

$195,504Specified Amount

Death Benefit

Year 6$8,146/month

Year 5$8,146/month

Year 4$8,146/month

Year 3$8,146/month

Year 2$8,146/month

Year 1$8,146/month

Residual Death Benefit

$19,550

Remaining Death Benefit,

or Residual Death Benefit

$391,008Extension of

BenefitsFor LTC

Any RemainingDeath Benefit

Not used for LTC

Maximum Monthly Benefit= Specified

Amount/24 months

$586,512Total LTC

Benefit

Client Pays Total LTC BenefitMonthly Benefits

For 6 Yrs.

Plus Guaranteed

Death Benefit

*All figures vary by carrier, plan, state, premium & client.

+

Death benefit ifno LTC needed.1st $ for LTC.

Additional dollarsFor LTC needs

Selling Executive Carve-outsSelling Executive Carve-outs

Walk Before You Run. Start With Low Hanging Fruit. Carve-outs can lead to all EEs Be a Consultant, not a Salesperson.

Questions?

Thank You