Long Term Care Insurance Opportunities Under The Pension Protection Act Presented by: DJ Mormile...

Long Term Care Insurance Opportunities Under The Pension Protection ActPresented by:

DJ Mormile

Long Term Care Insurance Underwritten by

Genworth Life Insurance Company, Richmond, VA

©2010 Genworth Financial, Inc. All rights reserved. Genworth, Genworth Financial and the Genworth logo are registered service marks of Genworth Financial, Inc.

50127 03/15/10

FOR PRODUCER USE ONLY. NOT FOR PUBLIC USE OR DISTRIBUTION.

2

Long Term Care Opportunities Under The Pension Protection Act of 2006

For Producer Use Only. Not for public use or distribution.

Consumer LTC Strategy

Long Term Care Insurance Purchasers– Recognize need for LTCI protection and willing to purchase a traditional

policy as solution– Solution = traditional LTCI policy

Self-Insuring– Expect to use existing assets to fund LTC need– Don’t like idea of paying premiums if they never have a long term care event– Solution = Linked Benefits Product

Medicaid– No private insurance solution

All Consumers Fall into One of 3 Categories

7% Market Penetration*

93% of the Market is Uncovered by Traditional LTCI * LIMRA, 2008 “The 2007 Individual Annuity Market”. Outside of Surrender Charge figures based on Genworth Financial companies’ experience as of 09/30/2009. Actual industry may be different.

3



Overview•Pension Protection Act

•Total Living Coverage Annuity (TLCA)

•Total Living Coverage (TLC)

4



Long Term Care Insurance Under the PPA

Current 1035 Rules*

Life Life

Annuity Annuity

Life Annuity

Annuity to Life is not Allowed

1035 New Tax Free Options:

• Annuity LTCI

• Life LTCI

• QLTCI LTCI

New 1035 Exchange Rules

New, Tax Advantaged Opportunities For LTCI Planning

Non- Qualified Annuity With

GainLTCI** LTCI Benefits

Tax Free Exchange

Tax Free LTCI Benefits

*Endowment Contracts may also be exchanged for other endowment contracts, annuity contracts or QLTCI, but are mostly legacy contracts.

**Traditional Long Term Care Insurance (LTCI) or Linked Benefit Annuity Products with a QLTCI Rider.

5



PPA – LTCI Planning Options

•Before 2010 Basis

GainTraditional

LTCI

Partial Withdrawal (Annual)

– Portion of withdrawal that is gain is taxable as ordinary income *

– Additional 10% penalty on gain may apply if younger than age 59½ *

•2010Basis

Gain

Traditional LTCI

Partial 1035 (Annual)

– No taxable event to owner

– Gain/Basis is pro-rated

Non-Qualified Annuity Funding Of Traditional LTCI

Non-Qualified Deferred Annuity

Fund LTCI Without Immediate Tax Consequences*Partial withdrawals from non-qualified deferred annuities bought after August 13, 1982 are taxed as ordinary income to the extent of gain in the contract (LIFO). Partial withdrawals from contracts entered into before that date may be treated as first coming from principal (FIFO).

Non-Qualified Deferred Annuity

A partial 1035 exchange from an annuity contract may incur surrender charges. Any surrender charges incurred should be considered prior to engaging in any 1035 exchange strategy.

6




•Before 2010 Basis

Gain

Traditional LTCI

Income

– Income may be part gain and part return of premium (Exclusion Ratio) until the premium is recovered

– Portion of income that constitutes gain is taxable as ordinary income

•2010Basis

Gain

Traditional LTCI

Income

– Payments irrevocably assigned from SPIA carrier to an LTCI carrier may be reported as a tax-free 1035 exchange*

SPIA Funding Of Traditional LTCI

SPIA

SPIA

* Based on our interpretation of current tax law, we can report SPIA payments directly funding long term care insurance as taxable amount $0.00 (zero), unless the IRS issues instructions requiring different reporting.

7




Long Term Care Expenses

Withdrawal

– Gain withdrawn to pay long term care cost taxed as ordinary income*

– Limited to Account Value

Long Term Care Expenses

LTC Benefits

– Benefits paid to reimburse for covered LTCI expenses are not taxed

– Many linked benefit annuity contracts allow the contract holder to leverage initial premium for larger covered LTC benefits

Using An Annuity To Pay For Long Term Care Expenses

Exchange A Non-Qualified Annuity With Substantial Gain For Income Tax Free Covered LTC Benefits

Linked Benefit Annuity

LTC Rider

*In some cases, long term care expenses paid out-of-pocket may be deductible as unreimbursed medical expenses for federal income tax purposes

BasisGain

BasisGain

Self Funding w/ Non-Qualified

Annuity

8



Questions Begin A New Conversation

1. If you were to have an extended health care need, what is your written plan of care?

2. What is the first asset you would liquidate to pay for long term care?

3. Does your current annuity or life policy or CD also provide LTC coverage in case you ever need it?

A lack of tangible answers is the beginning of CHANGE

9



•To solving the LTC problem– Which assets would you allocate first?

An Asset Allocation Approach…

Typical Portfolio

Annuities

Stocks

Real Estate (home)

Bonds

IRAs

Mutual Funds

Life Insurance

Cash Reserves

LTC Coverage

TLC Portfolio

Cash Reserves

10



TLCA Highlights•- Fast, easy underwriting process

•- Simplified underwriting

•- Long term care discounts for couples

•- Optional inflation protection

•- Waiver of monthly charges for home and facility care

•- Privileged Care® coordination services

•- No-lapse guarantee

11



Basic Information • Interest Rate

– Guaranteed never to be less than 3.0%

– Interest rates (initial & renewal) will be guaranteed for at least one year

– Credited from the policy effective date

• Issue Ages– 18 - 79– Age nearest birthday

• Backdating the policy effective date is not permitted.

• 1 Year Deferral on LTC Coverage – LTC expenses are not covered and the elimination period cannot be

satisfied during this period

– LTC charges are deducted from the AV each month, including during the deferral period

12



Policy Charges• LTC Rider Charges

– Deducted from the AV each month beginning on the policy effective date• Surrender Charges

– None on withdrawals due to covered care or LTCR charges– For other withdrawals or cash surrender:

Policy Year % of Policy Value

Note: There is a 10% annual free withdrawal amount

Up to 10% of the prior anniversary’s AV (or single premium in the first policy year) can be withdrawn without a surrender charge

1234567

8+

7%7%7%6%5%4%3%0%

13



How TLCA Works

$100K single premium

$300K (3x leverage factor)2

Yea

rs

Policy years

LTCR coverage maximum

Annuity policy valueExample (with no inflation)

14



How TLCA Works (continued)

$100K single premium

$300K (3x leverage factor)2

Yea

rs

Policy years

LTCR coverage maximum

Annuity policy value

Example (without inflation; claims begin)

15



Linked Benefit Annuity Example –Tax Benefits

$300,000

$110,366

($18,006)

$50,0185

$128,372

$100,000

Linked Benefit Annuity (3%)

$415,786

$104,767

($17,568)

$48,7995

$122,335

$100,000

Linked Benefit Annuity (3%)

w/ 5% Compound

$135,710

$135,710

($20,087)

$55,797

$155,797

$100,000

Traditional Annuity (3%)

Amount Available For a Long Term Care Event 4

Amount Available To Beneficiary In The Event Of Death 4

Tax Liability (36% Marginal Rate) 3

Taxable Gain 2

Account Value (Age 80) 1

Initial Premium (Age 65)

Product Examples

1 Assumes that no withdrawals have been taken and may or may not be available in the market

2 Based on distribution of death proceeds at age 80

3 Actual client tax liability may vary based on whether, for example, he or she itemizes deductions or owes state and local taxes.

4 Amount available for an LTC event or to the beneficiary in the event of death. The benefits are not cumulative.

5 Larger gain due to basis reduction each year by LTC rider charges within the Linked Benefit Annuity

16



A life insurance product that combines

the features and benefits of universal life insurance

and long term care insurance.

TLC Is Designed To Be There When Needed

Total Living Coverage (TLC) – What Is It?

17



TLC Key Advantages• No principal risk with Return of Premium Benefit

• Residual Death Benefit

• Informal Caregivers (HC is 75% of claims, 45% informal) other than family

• Preferred Health & Couples Discount (85% of TLC Sales have a discount)

• Optional Inflation Protection – 3% or 5% Simple or Compound

• Waiver of Monthly Deductions when on claim

• Guaranteed Minimum Benefits

• One-time Elimination Period (0-day for HC, 90-day for Facility)

• International Coverage

• Privileged Care® Coordination Services

18



Hypothetical Example

• Initial premium

• Safe

• Retain control

• 15-year ROP

• Initial premium leveraged 2+ times

• Income tax free

• Win-win!

• Initial premium leveraged 6+ times

• Flexible

• Tax free LTC benefits

19



2 + 4 Example SummaryHOW TLC WITH EXTENSION OF BENEFITS WORKS

CLIENT PAYS

$100,000 Initial Premium

TOTAL LTC BENEFITS

$629,520 Total LTC Benefit

$209,840 Specified Amount

$419,680 Extension of

Benefits

If the client doesn’t need LTC benefits, the specified amount (accelerated benefit) would be paid as a death benefit

BENEFITS PAID MONTHLY FOR 6 YEARS

Maximum Monthly Benefit = Specified

Amount ÷ 24 Months

If the client’s monthly benefits are less than the maximum, the benefit payout period could last longer than 72 months

YEAR 1$8,743 per month






PLUS GUARANTEED DEATH BENEFITS

Death Benefits would be any specified amount

NOT used for LTC+

______

$20,984

Or if specified amount is reduced below

Residual Death Benefit*

ResidualDeath Benefit

*The death benefit paid is any remaining specified amount that was not used for a long term care need or the $20,984 Residual Death Benefit, if greater.

20



The Opportunity

21



Annuity Linked Benefit Market Assessment

$204

$96

Nonqualified Fixed Annuities

• $300 Billion Assets as of 2007

• $96 Billion Outside the Surrender Charge Period

•Source – LIMRA, 2008 “The 2007 Individual Annuity Market”

•Outside of Surrender Charge figures based on Genworth Financial companies’ experience. Actual industry may be different.

22



LTCi / TLC Split TicketTrue Case – Broker in NH

FACT FINDCash Value Life Insurance Policy 1 - $40,000 Him Policy 2 - $35,000 HerNQ Annuity- 200,000CDs - $144,000IRAs - $123,000

Typical LTCi Sale

Step OneCall from Client 62 year old Existing Couple– want LTCi

Step TwoCall BGA for LTCi Quote for 62 year old Couple- preferred health

Step ThreeMeet with clients, review need for LTCi, do fact find, present traditional LTCi solution

Step FourClients objects to original premium but still want coverage so broker asks “how much can you afford” and calls BGA for quote to match affordability

FACT FIND•Married Couple – preferred health, non smoking•2 children finished college and both working•Would like to leave something to children in estate if at all possible•Worried about needing LTC as mother currently in nursing home •Would be able to pay annual premiums out of interest off CDs, however may need to buy new truck in next year or so •Currently working; however, worried about budgeting for annual LTCi premiums once retired and living off reduced income•Small pension plan so will probably need to annuitize IRAs for income in retirement

23



LTCi / TLC Split Ticket

FACT FINDCash Value Life Insurance

Policy 1 - $40,000 Him Policy 2 - $35,000 Her

NQ Annuity- 200,000CDs - $144,000IRAs - $123,000

Enhanced Sale using TLC

Privileged Choice $4,500 monthly LTCi60 months5% Compound InflationCost $4,400 Annual premium

Or Reallocate

1035 Cash Value Life Insurance Policy TLC (Total Living Coverage) Each

#1 DB- 80, 000 LTC 240,000- Him#2 DB- 70,000 LTC 210,000

AND 1035 $100,000 into TLC Annuity50,000 Deposit- 150,000 LTC Each

360,000- 390,000 LTC Coverage

OR Even Add 4 yr Priv Choice Traditional LTC4500 Per Month 2 yrs 3% Cpd - <$2000 Per Year.

24



Important InformationThis presentation outlines the tax treatment of funding long term care insurance premiums through a 1035 exchange from an annuity. However, prior to engaging in a 1035 exchange, your clients should carefully consider a number of factors including the features and crediting rates of their current product, applicable surrender charges, any new surrender charge period on the purchase of a new product, as well as the various features of the new product.

•While the assignment of an immediate annuity to fund a long term care insurance policy is in effect, any right to accelerate or commute payments or to receive payments under the assigned portion of the immediate annuity contract will be subject to the assignment. The right to receive annuity payments under any unassigned portion of the immediate annuity contract will not be affected. The assignment will end upon the cessation or suspension of premium under the LTCI policy (whether due to filing of an LTCI claim or termination of the LTCI policy.

25



Important Information•Long term care insurance underwritten by:•Genworth Life Insurance Company, Richmond, VA•Genworth Life Insurance Company of New York, 666 Third Avenue, 9th Floor, New York, NY 10017. Only Genworth Life of New York is licensed to conduct business in New York.

•Annuities Issued by:•Genworth Life and Annuity Insurance Company, Richmond, VA•Genworth Life Insurance Company, Richmond, VA•Genworth Life Insurance Company of New York, 666 Third Avenue, 9th Floor, New York, NY 10017. Only Genworth Life of New York is licensed to conduct business in New York.

•All guarantees are based on the claims-paying ability of the issuing insurance company.

•The Genworth Financial companies developed these materials to help you understand the ideas discussed. Any examples are hypothetical. They may not reflect your client’s particular circumstances. Your clients should carefully read their contract, policy and prospectus(es), when applicable. What we say about legal or tax matters is our understanding of current law. We are not offering legal or tax advice. Tax laws and IRS administrative positions may change. We did not develop these materials for use in avoiding any IRS penalty and neither you nor your clients may use it for that purpose. Insurance companies' tax reporting practices may vary. Your clients should ask their independent tax and legal advisors for advice based on their particular circumstances. We reserve the right to change the information reporting described herein to comply with forms and instructions issued by the Internal Revenue Service.

Genworth, Genworth Financial and the Genworth logo are registered service marks of Genworth Financial, Inc.

Long Term Care Insurance Opportunities Under The Pension Protection Act Presented by: DJ Mormile...

Documents

Transcript of Long Term Care Insurance Opportunities Under The Pension Protection Act Presented by: DJ Mormile...