Session 1 Traditional LTC vs LTC vs Indemnity Rider vs ... · “There are four kinds of people in...

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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., 19932013 Retirement Confidence Surveys. 3 For agent use only. Not for use with the public.

Transcript of Session 1 Traditional LTC vs LTC vs Indemnity Rider vs ... · “There are four kinds of people in...

Page 1: 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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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.

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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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For agent use only. Not for use with the public.

Source: 2015 SOA Health Meeting, LTC Pricing Project Session

12For agent use only. Not for use with the public.

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

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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

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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

24For agent use only. Not for use with the public.

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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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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

For agent use only. Not for use with the public.30

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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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For agent use only. Not for use with the public.

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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For agent use only. Not for use with the public.

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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

34For agent use only. Not for use with the public.

Non‐Qualified/ Chronic Illness

Qualified LTC Riders

Indemnity Indemnity Reimbursement

Benefit Qualification • Cannot perform 2 of 6 ADLs, cognitive impairment

• Condition must be permanent

• Annual recertification required

• 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%%)

35For agent use only. Not for use with the public.

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.

36For agent use only. Not for use with the public.

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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.

37For agent use only. Not for use with the public.

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.