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Long Term Care
Insurance
The Need and Methods of Funding
In the last 10 years . . .
Changes to Traditional Long Term Care Insurance Plans:
• Over 100 to less than 25 carriers
• Mo...
The “Why:” Understanding the Need
The need for care is created by:
• A chronic medical condition that compromises the
indi...
Likelihood of Need
68%: The probability that an individual over age 65 will become
cognitively impaired or unable to compl...
Home Care
Homemaker services
2014 $3,051
2044 $7,406
Home health aide
2014 $3,314
2044 $8,044
Adult Day Health Care
Adult ...
2014-2016: 4 year private room in a nursing home (without
factoring in inflation):
$294,912
2044-2046: 4 year private room...
Methods to Meet the Long Term Care Need
• My family will take care of me
• I will fully self insure
• I will spend down my...
My family will take care of me.
• The average weekly time requirement for caregivers is 21
hours
• 1/3 of caregivers must ...
I will fully self insure.
• Do you have money sitting in a bucket for this significant
and likely expense?
• If care is pa...
Our aging population:
37 million: Number of Americans age 65 or older in 2005.
81 million: Expected number of Americans ag...
I will purchase insurance to fully cover my potential risk.
• Too many variables to completely negate risk
• Cost of care ...
The viable solution: I will purchase insurance to cover
the majority of my risk, and self insure the remainder.
Major cons...
How many of you talk to your working-years clients about
disability insurance?
How many of you talk to your clients about ...
When should your client purchase coverage?
Underwriting
Traditional LTC application denial statistics:
• Under age 50: 9.5...
Long Term Care Insurance Products
•Traditional LTC
•Guaranteed Universal Life (UL) with long term care
rider*
•Indexed Uni...
Couple- Age 45
Type of Product Carrier Inflation
Monthly LTC
Benefit
Benefit
Period Benefit Pool Type of LTC Pay
Tradition...
Couple- Age 60
Type of Product Carrier Inflation
Monthly LTC
Benefit Benefit Period Benefit Pool Type of LTC Pay
Tradition...
Takeaways
• Long Term Care planning should be part of the financial
plans you design
• Better to allocate cost now rather ...
Questions?
Heath Hildreth
865-691-4652
hhildreth@hildrethins.com
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Long Term Care Need and Funding Methods - by Heath B. Hildreth

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Alternatives to Long-Term Care – Presented by Heath B. Hildreth, GBDS of The Hildreth Agency
May 14, 2014 - 11:30am – 1:00pm
Rothchild Catering and Conference Center, 8807 Kingston Pike, Knoxville, TN 37923

Published in: Economy & Finance, Business
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Long Term Care Need and Funding Methods - by Heath B. Hildreth

  1. 1. Long Term Care Insurance The Need and Methods of Funding
  2. 2. In the last 10 years . . . Changes to Traditional Long Term Care Insurance Plans: • Over 100 to less than 25 carriers • Most group LTC carriers threw in the towel • “Unlimited” benefits are gone • Inflation protection has become prohibitively expensive • Almost all LTC carriers have raised premiums on in force business • Short pay is gone • Underwriting is much more stringent How can you help your client in such a challenging environment? And why would you bother? Reasons traditional LTC is struggling: • Low interest rates • Low lapse rate (1-2% rather than 5-6%) • Rising cost of care • Longer benefit periods
  3. 3. The “Why:” Understanding the Need The need for care is created by: • A chronic medical condition that compromises the individual’s ability to perform the most basic of daily routines (the 6 Activities of Daily Living); or • A cognitive impairment that compromises his ability to safely interact with his environment (i.e., Alzheimer’s)
  4. 4. Likelihood of Need 68%: The probability that an individual over age 65 will become cognitively impaired or unable to complete at least two "activities of daily living“ (statistic includes short term, 1 in 5) 40%: Percentage of individuals who reach age 65 who will enter a nursing home during their lifetimes 2.5: Average length of stay in a nursing home Alzheimer’s: Most frequent claim (at nearly 20%). AD average length from diagnosis to death: 8-10 years 50%: Likelihood an insured that purchases a traditional LTC policy at 60 will use it before death
  5. 5. Home Care Homemaker services 2014 $3,051 2044 $7,406 Home health aide 2014 $3,314 2044 $8,044 Adult Day Health Care Adult day health care 2014 $1,192 2044 $2,893 Assisted Living Facility Private, one bedroom 2014 $3,650 2044 $8,860 Nursing Home Care Semi-private room 2014 $5,627 2044 $13,658 Private room 2014 $6,144 2044 $14,913 Knoxville, TN Monthly Cost of Care: 2014 vs. 2044 3% annual inflation* *Private Nursing Home five-year annual growth: 4.19%
  6. 6. 2014-2016: 4 year private room in a nursing home (without factoring in inflation): $294,912 2044-2046: 4 year private room in a nursing home (assuming 3% inflation until 2044): $715,824
  7. 7. Methods to Meet the Long Term Care Need • My family will take care of me • I will fully self insure • I will spend down my assets and rely on Medicaid • I will purchase insurance to fully cover my potential risk • I will purchase insurance to cover the majority of my risk, and self insure the remainder
  8. 8. My family will take care of me. • The average weekly time requirement for caregivers is 21 hours • 1/3 of caregivers must provide 30 or more hours of care per week • Adverse impact on caregiver’s career, as well as emotional and physical well-being • Your family’s role should be supervisory in nature
  9. 9. I will fully self insure. • Do you have money sitting in a bucket for this significant and likely expense? • If care is paid for from your retirement portfolio, it requires a reallocation of income. If the need for care lasts long enough it leads to an unintended invasion of principal. • Unnecessary taxes due to unintended sale of assets. • Can undermine the financial viability of the surviving spouse or children who may depend on an inheritance. • Liquidity issues: assuming assets can be converted to cash, will they incur a loss because of market conditions? • Lost investment opportunity for liquidated assets. • Beyond the financial: coordination of care (who, where, and how)
  10. 10. Our aging population: 37 million: Number of Americans age 65 or older in 2005. 81 million: Expected number of Americans age 65 or older in 2050. Can Medicaid and its long term care provider partners handle the influx? I will spend down my assets and rely on Medicaid. • Quality of life and the retirement plan you’ve built go out the door • Medicaid reform- raising disability threshold and tightening income requirements • Medicaid access and quality issues • A safety net without the guarantees
  11. 11. I will purchase insurance to fully cover my potential risk. • Too many variables to completely negate risk • Cost of care and inflation • Benefit Period • Premium guarantees, or lack thereof
  12. 12. The viable solution: I will purchase insurance to cover the majority of my risk, and self insure the remainder. Major considerations when buying: •Cost of Care •Age to Apply •Length of Benefit Period •Inflation Protection •Guarantees •What is Covered •How it pays- Reimbursement vs. Indemnity
  13. 13. How many of you talk to your working-years clients about disability insurance? How many of you talk to your clients about long term care insurance?
  14. 14. When should your client purchase coverage? Underwriting Traditional LTC application denial statistics: • Under age 50: 9.5% • 50 to 59: 14.0% • 60 to 69: 23% • 70-79: 45% • 80 and Over: 66% Inflation Predict most likely period of need, account for rising cost of care
  15. 15. Long Term Care Insurance Products •Traditional LTC •Guaranteed Universal Life (UL) with long term care rider* •Indexed Universal Life (IUL) with long term care rider •Whole Life with long term care rider •Second-to-die Whole Life with long term care rider *Not all riders are created equally. Make sure the coverage has a true LTC rider rather than an Accelerated Death Benefit Rider. There is no “one size fits all” in this market.
  16. 16. Couple- Age 45 Type of Product Carrier Inflation Monthly LTC Benefit Benefit Period Benefit Pool Type of LTC Pay Traditional LTC Transamerica None $10,200 5 Years $612,000 Reimbursement Genworth 3% Compound $5,000 5 Years Subject to Inflation Reimbursement Genworth 5% Compound $5,000 5 Years Subject to Inflation Reimbursement Guaranteed UL Transamerica None $10,000 50 Months $500,000 Indemnity Transamerica None $10,000 50 Months $500,000 Indemnity Genworth None $10,266 4 Years $492,768 Reimbursement Indexed UL John Hancock None $10,000 50 Months $500,000 Reimbursement John Hancock None $10,000 50 Months $500,000 Reimbursement Whole Life Guardian None $10,000 50 Months $500,000 Indemnity Guardian None $10,000 50 Months $500,000 Indemnity Whole Life- 2nd to Die State Life None $10,000 Lifetime N/A Reimbursement State Life None $10,000 Lifetime N/A Reimbursement Type of Product Carrier Death Benefit Projected Cash Value Year 30 (total both insureds) Projected Death Benefit Year 30 (total Traditional LTC Transamerica None N/A N/A Genworth None N/A N/A Genworth None N/A N/A Guaranteed UL Transamerica $500,000 each insured N/A $1,000,000 Transamerica $500,000 each insured N/A $1,000,000 Genworth $246,736 each insured N/A $493,472 Indexed UL John Hancock $500,000 each insured $1,326,945 $2,011,832 John Hancock $500,000 each insured $1,901,776 $2,891,750 Whole Life Guardian $555,555 each insured $1,020,965 $1,770,212 Guardian $555,555 each insured $608,066 $1,214,924 Whole Life- 2nd to Die State Life $333,333 second to dieN/A $166,667 State Life $333,333 second to dieN/A $166,667 Type of Product Carrier Pay Schedule Premium 30 Year Outlay Guarantee Information Traditional LTC Transamerica Pay All Years $3,697 $110,910 Assessable Premium Genworth Pay All Years $3,165 $94,950 Assessable Premium Genworth Pay All Years $5,852 $175,560 Assessable Premium Guaranteed UL Transamerica Pay All Years $8,444 $253,320 Guaranteed Premium, LTC, and Death Benefit Transamerica 20 Pay $10,860 $217,200 Guaranteed Premium, LTC, and Death Benefit Genworth Single Pay $137,000 $137,000 Guaranteed Premium, LTC, and Death Benefit Indexed UL John Hancock Pay All Years $16,275 $488,250 Guaranteed Segment Floor Rate John Hancock 20 Pay $25,303 $506,060 Guaranteed Segment Floor Rate Whole Life Guardian Pay All Years $21,067 $632,010 Guaranteed Interest Rate (dividend floor) Guardian Short Pay $21,067 $335,210 Guaranteed Interest Rate (dividend floor) Whole Life- 2nd to Die State Life Pay All Years $5,522 $165,660 Guaranteed Base and LTC Rider Premium, Death Benefit State Life Single Pay $114,182 $114,182 Guaranteed Base and LTC Rider Premium, Death Benefit
  17. 17. Couple- Age 60 Type of Product Carrier Inflation Monthly LTC Benefit Benefit Period Benefit Pool Type of LTC Pay Traditional LTC Mutual of Omaha None $5,100 5 Years $306,000 Reimbursement Genworth 3% Compound $5,000 5 Years Subject to Inflation Reimbursement Guaranteed UL Transamerica None $5,000 50 Months $250,000 Indemnity Transamerica None $5,000 50 Months $250,000 Indemnity Genworth None $5,000 4 Years $240,000 Reimbursement Whole Life Guardian None $5,000 50 Months $250,000 Indemnity Guardian None $5,000 50 Months $250,000 Indemnity Whole Life- 2nd to Die State Life None $5,000 Lifetime N/A Reimbursement State Life None $5,000 Lifetime N/A Reimbursement Type of Product Carrier Life Ins Benefit Projected Cash Value Year 20 (total both Projected Death Benefit Year 20 (total both insureds) Traditional LTC Mutual of Omaha None N/A N/A Genworth None N/A N/A Guaranteed UL Transamerica $250,000 each insured N/A $500,000 Transamerica $250,000 each insured N/A $500,000 Genworth $120,500 each insured N/A $241,000 Whole Life Guardian $277,777 each insured $484,831 $833,548 Guardian $277,777 each insured $372,347 $682,608 Whole Life- 2nd to Die State Life $166,667 second to die N/A $166,667 State Life $166,667 second to die N/A $166,667 Type of Product Carrier Pay Schedule Premium 20 Year Outlay Guarantee Information Traditional LTC Mutual of Omaha Pay All Years $3,020 $60,400 Assessable Premium Genworth Pay All Years $4,907 $98,140 Assessable Premium Guaranteed UL Transamerica Pay All Years $8,933 $178,660 Guaranteed Premium, LTC, and Death Benefit Transamerica 20 Pay $10,752 $215,040 Guaranteed Premium, LTC, and Death Benefit Genworth Single Pay $108,500 $108,500 Guaranteed Premium, LTC, and Death Benefit Whole Life Guardian Pay All Years $21,171 $423,420 Guaranteed Interest Rate (dividend floor) Guardian Short Pay $21,171 $324,834 Guaranteed Interest Rate (dividend floor) Whole Life- 2nd to Die State Life Pay All Years $5,903 $118,060 Guaranteed Base and LTC Rider Premium, Death Benefit State Life Single Pay $101,948 $101,948 Guaranteed Base and LTC Rider Premium, Death Benefit
  18. 18. Takeaways • Long Term Care planning should be part of the financial plans you design • Better to allocate cost now rather than drain retirement income or assets under management • It’s never too early to start the conversation about LTC • Rely on experts to help you find the best solution for your client
  19. 19. Questions? Heath Hildreth 865-691-4652 hhildreth@hildrethins.com

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