4/15/2016 1 1 For agent use only. Not for use with the public. “There are four kinds of people in the world. Those who: Have been caregivers; Currently are caregivers; Will be caregivers; and Will need caregivers.” - former First Lady Rosalyn Carter 2 For agent use only. Not for use with the public. Retirement Timing Closing the Retirement Expectations “Gap:” Variations in Demographics, Sources of Information, and the Implications of a “Bad Guess”, by Nevin E. Adams, JD and Jack L. VanDerhei, PhD. Journal of Financial Service Professionals / January 2014 ‐ Data Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993‐2013 Retirement Confidence Surveys. 3 For agent use only. Not for use with the public.
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Session 1 Traditional LTC vs LTC vs Indemnity Rider vs ... · “There are four kinds of people in the world. Those who: Have been caregivers; ... Claims can reduces policy values
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4/15/2016
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For agent use only. Not for use with the public.
“There are four kinds of people in the world. Those who:
Have been caregivers;Currently are caregivers;Will be caregivers; andWill need caregivers.”
- former First Lady Rosalyn Carter
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For agent use only. Not for use with the public.
RetirementTiming
Closing the Retirement Expectations “Gap:” Variations in Demographics, Sources of Information, and the Implications of a “Bad Guess”, by Nevin E. Adams, JD and Jack L. VanDerhei, PhD. Journal of Financial Service Professionals / January 2014 ‐ Data Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993‐2013 Retirement Confidence Surveys.
3For agent use only. Not for use with the public.
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Reasons For Retiring Earlier Than Planned
Closing the Retirement Expectations “Gap:” Variations in Demographics, Sources of Information, and the Implications of a “Bad Guess”, by Nevin E. Adams, JD and Jack L. VanDerhei, PhD. Journal of Financial Service Professionals / January 2014 - Data Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2013 Retirement Confidence Surveys.
4For agent use only. Not for use with the public.
1For those in the high-risk years of 80 plus:A recent AARP study projected a dramaticdecline in the caregiver support ratio from
7 potential caregivers in 2010to
4 potential caregivers in 2030
Who are your four people?1D. Redfoot, L. Feinberg, and A. Houser, The Aging of the Baby Boom and the Growing Care Gap: A look at Future Declines in the Availability of Family Caregivers. AARP Public Policy Institute. August 2013.
5For agent use only. Not for use with the public.
17% of working adults:
◦ Provide unpaid care for family members and friends◦ Valued at $470 billion annually
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Individual LTC Lives
2002 582,000
2014 130,000
2015 104,000
Life & LTC and Linked Benefits Lives
= 582,000
+ 108,000 = 212,000
Source: LIMRA (2015 Annual sales Include Companies Only Reporting Sales Annually)
Look Back:
1985 1 year1989 2 years1991 3 years2006 5 years
Number of ADL’s changed to 4 in 2014
Proposal for constitutional amendment
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For traditional LTCI, how stable are premiums on new blocks?
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Six companies participated with these characteristics:◦ Currently issuing new policies◦ In market since before 2000
Provided pricing assumptions for a portfolio of benefits and issue ages for three issue dates (2000, 2007, 2014)
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Source: 2015 SOA Health Meeting, LTC Pricing Project Session
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Source: 2015 SOA Health Meeting, LTC Pricing Project Session
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Source: 2015 SOA Health Meeting, LTC Pricing Project Session
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Voluntary Lapse Rates Investment Income Morbidity MortalityCommission ExpensesAdministrative Expenses
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Source: 2015 SOA Health Meeting, LTC Pricing Project Session
For new business, strong margins, better understanding of morbidity, and rock-bottom lapse assumptions indicate relatively low probability of a rate increase (e.g. 10%)Source: 2015 SOA Health Meeting, LTC Pricing Project Session
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2011 AHIP Survey of People Who Did Not Purchase LTCMost Cited Very Important Reason For Individual Not Buying Insurance
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Overall Purchase interest doubled that of traditional plan, from 14% - 30%
14% 30%
• Effect strongest among 45 to 51 year olds, where interest tripled
11% 36%45-51 year olds
11% 24%59-65year olds
29%20%52-58year olds
A Study of Consumer Behavior, Results of the John Hancock 2012 Consumer Survey, Conducted by Forbes Consulting, LGroup TC-8591 1/13
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Key Price Point Thresholds
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Claimants are only using 67% of their benefit
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Source – Genworth In Depth Claims Data Study 2013
For agent use only. Not for use with the public.
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Where are claims being paid?
Industry averages:Home Care 52.1%Assisted Living 19.7%Nursing Home 28.2%
Source: AALTCI 2015-2016 Sourcebook
According to Genworth claims data, more than 70% of their claimants are seeking home care services.
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Care Type 2015
Homecare
Homemaker Services $53,768*
Home Health Aide $57,200*
Assisted Living Facility
Private One Bedroom $41,613*
Nursing Home Care
Semi-Private Room $84,406*
Private Room $96,021*
Minnesota Average Cost of Long Term Care Services
*Source: Genworth 2015 Cost of Care Survey – Executive Summary
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Three Strategies For:
Married Couple - Male/Female Age 55
Standard Health
Goal: $1500/person annual premium
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Case Study 1:
• No partnership protection• Initial policy limit $460,000• Almost a half million dollars combined benefits immediately• Initial reimbursement benefits $9000/month each• In 30 years $9000/month each
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Case Study 2:
Initial Policy Limit $105,000 each
Reimbursement Benefit Up to $4100 per month each
Benefit Duration 2.1 years (25.6 months)
Partnership Qualified Yes
Inflation Protection Benefit 3% compound Lifetime w/Buy Up Option
Shared Benefit Yes
Annual Premium $2,956.67
• 3% compound inflation• Partnership protection• Initial policy limit $210,000 total• Benefit in 30 years $509,724• Initial reimbursement benefit $4100/month each
23For agent use only. Not for use with the public.
Case Study 3:
Initial Policy Limit $190,000 each
Reimbursement Benefit Up to $5300 per month each
Benefit Duration 3 years (35.8 months)
Partnership Qualified Yes
Inflation Protection Benefit 1% compound Lifetime w/Buy Up Option
Shared Benefit Yes
Annual Premium $3074.77
• 1% compound inflation• Partnership protection• Initial policy limit $380,000 total• Benefit in 30 years $512,186• Initial reimbursement benefit $4100/month each
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Company A – Step-rated Compound BIO, Tailored BIO, Deferred BIO
Company B – Inflation in .25% increments (from 1-5%) or Buy-up options
Company C – 2% CompoundCompany D – Flexible Increase Benefit, 1% and 2%
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The Group Marketplace
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For agent use only. Not for use with the public.MLINY101314103
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Benefits of all Linked
benefit products
Hybrid LTC Products
Life and LTC Riders
Reimbursement,Indemnity
And Chronic Illness
What you need to know
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For agent use only. Not for use with the public.
The LTC rider that can accelerate a portion of the death benefit for LTC needs
That Death Benefit protects both beneficiaries at death and can provide funds to pay for LTC.
It can provide options by providing funds to pay for care in setting of your choice◦ Home health care, assisted living, adult day care,
and nursing home
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Built on a life insurance chassis, but are specifically designed as a LTC solution
They may:◦ Accelerate the death benefit ◦ Often include a secondary guarantee on the death
benefit◦ Some products offer Rate guarantees Money back guarantees More costly
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Product appeal – target market ◦ Large sum of discretionary money 1035 Exchange Other savings and/or investments◦ Want a guarantee that their money will be paid out
(no use it or lose it)◦ No need for flexible premium payments◦ Willing to commit large premiums early in the policy◦ Not concerned with maximizing cash value
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Life insurance contract is still optimized May not include an Extension of Benefits May not be a secondary guarantee on the
underlying death benefit May be less expensive May be more flexible Can accelerate premium to 5 or 10 years
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Product appeal – target market◦ Like the Hybrid concept, but not the large premium
commitment ◦ Prefer flexibility in funding◦ Leverage premium to maximize benefits◦ Inclined to pay some LTC expenses out of pocket◦ Need life insurance
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LTC, Indemnity Riders, and Chronic Illness Riders
‣7702B &101(g)
‣May be marketed as long-term care insurance
‣Pays Permanent and Temporary Claims
‣Can be either Reimbursement model or Indemnity
‣101(g)
‣May not be marketed as long-term care insurance
‣Generally permanent condition is needed to qualify claim (condition must last the insured’s lifetime)
‣Commonly called “accelerated access” or “accelerated benefit” riders
‣ Indemnity only
Long Term Care Rider Chronic Illness Rider
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• Cannot perform 2 of 6 ADLs, cognitive impairment
• Cannot perform 2 of 6 ADLs, cognitive impairment
Benefit Pay Out
Lesser of maximum monthly benefit or IRS per diem limit
Lesser of maximum monthly benefit or IRS per diem limit
Expenses incurred (limited only by the maximum monthly benefit)
Payments in Excess of IRS Limit
May create taxable event May create taxable
eventNo adverse consequences
Cost Comparison
Higher as benefits can be accelerated for non LTC costs (some riders have no initial charge)
Higher as benefits can be accelerated for non LTC costs ( rider cost can add 25%)
Lower cost as benefits paid purely for LTC(Rider cost can add 8-11%%)
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Non‐Qualified Qualified
Indemnity Indemnity Reimbursement
Rider rates Guaranteed Generally No* Generally No Yes
Who can provide care •Anyone Generally Anyone Qualified Care provider
Who receives LTC funds? Owner Owner
Owner or Care Provider Directly
Tax Reporting Requirement
1099-LTC & 1040 & Schedule A
& Form 8853
1099-LTC & 1040 & Schedule A & Form 8853
1099-LTCInformational
only
*Lincoln and Transamerica rider rates are guaranteed.
**Some companies with indemnity riders allow for accelerations above the per diem limit, but those accelerations are subject to taxation to the extent they exceed actual costs incurred by the policyholder.
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Understand and know the details of the LTC Riders and Chronic Illness Riders you sell. Get and read sample contract.
“Free” Chronic Illness is often not free. Claim can reduce DB and LTC benefit substantially.
Know carriers rules regarding loans/ withdrawals when selling riders on cash accumulation products like CAUL, IUL or VUL. Claims can reduces policy values disproportionately vs some policies reduce values proportionately. In addition on some products cash value withdrawals and loans reduce benefit disproportionately.
Potential consequences of family providing care. Is money paid to family member treated as income or a gift?
Understand the consequences of third party ownership. Understand who does claims and tax administration.
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Female, Age 60, Preferred Non Smoker, $500,000 Death Benefit; 2% LTC claim effective year 10
• Company B chronic illness rider is available free of charge… Unless You Use it– In the event of a claim, Company B death benefit is reduced by more
than the amount of the claim– Company A death benefit reduces only by the amount of the claim
Death Benefit Reduction
Maximum Annual LTC Benefit
Benefit Pool Lost Upon Acceleration
Company A $120,000 $120,000 $0
Company B $120,000 $56,639 ‐$63,361
Company B reduces the death benefit by the full $120,000, but the client only receives $56,639. The remaining $63,361 is lost!
For agent use only. Not for use with the public.
• Company B‘s approach depletes policy CV much faster. Reduction equal to the amount of claim.
• Company A: Claims reduce cash value proportionally to reduction in death benefit.
Accelerate $120,000
IULs: Male, 55, Preferred, $500,000 Death Benefit, 6% assumed rate of return 2% LTC Rider. Premium $15,000 for 10 years
Cash Value Comparison:Assume 2% Acceleration, $10,000, for 12 months beginning in year 21
Before Claim
After Claim
(CSV Year 20) (CSV Year 21)
Company A $231,493 $181,360
Company B $237,946 $130,994
For agent use only. Not for use with the public.
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It depends Case facts Clients personal experience Clients assets Legacy desires The math
Come to our next session for interactive case studies
40For agent use only. Not for use with the public.