Long Term CareInsurance

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• 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

The “Why:” Understanding the Need

The need for care is created by:

• A chronic medical condition that compromises theindividual’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 safelyinteract with his environment (i.e., Alzheimer’s)

Likelihood of Need

68%: The probability that an individual over age 65 will becomecognitively impaired or unable to complete at least two "activitiesof daily living“ (statistic includes short term, 1 in 5)40%: Percentage of individuals who reach age 65 who will entera nursing home during their lifetimes2.5: Average length of stay in a nursing homeAlzheimer’s: Most frequent claim (at nearly 20%). AD averagelength from diagnosis to death: 8-10 years50%: Likelihood an insured that purchases a traditional LTCpolicy at 60 will use it before death

Home CareHomemaker services

2014 $3,0512044 $7,406

Home health aide2014 $3,3142044 $8,044

Adult Day Health Care

Adult day health care2014 $1,1922044 $2,893

Assisted Living Facility

Private, one bedroom2014 $3,6502044 $8,860

Nursing Home Care

Semi-private room2014 $5,6272044 $13,658

Private room2014 $6,1442044 $14,913

Knoxville, TNMonthly Costof Care:2014 vs. 2044

3% annualinflation*

*Private Nursing Home five-year annual growth: 4.19%

2014-2016: 4 year private room in a nursing home (withoutfactoring in inflation):

$294,912

2044-2046: 4 year private room in a nursing home (assuming3% inflation until 2044):

$715,824

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

My family will take care of me.

• The average weekly time requirement for caregivers is 21hours

• 1/3 of caregivers must provide 30 or more hours of careper week

• Adverse impact on caregiver’s career, as well as emotionaland physical well-being

• Your family’s role should be supervisory in nature

I will fully self insure.

• Do you have money sitting in a bucket for this significantand likely expense?

• If care is paid for from your retirement portfolio, itrequires a reallocation of income. If the need for carelasts long enough it leads to an unintended invasion ofprincipal.

• 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)

Our aging population:37 million: Number of Americans age 65 or older in 2005.81 million: Expected number of Americans age 65 or older in2050.

Can Medicaid and its long term care provider partners handle theinflux?

I will spend down my assets and rely on Medicaid.

• Quality of life and the retirement plan you’ve built go outthe door

• Medicaid reform- raising disability threshold andtightening income requirements

• Medicaid access and quality issues• A safety net without the guarantees

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

The viable solution: I will purchase insurance to coverthe 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

How many of you talk to your working-years clients aboutdisability insurance?

How many of you talk to your clients about long term careinsurance?

When should your client purchase coverage?

UnderwritingTraditional 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%

InflationPredict most likely period of need, account for rising cost of care

Long Term Care Insurance Products

•Traditional LTC•Guaranteed Universal Life (UL) with long term carerider*•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 atrue LTC rider rather than an Accelerated Death Benefit Rider.

There is no “one size fits all” in this market.

Couple- Age 45

Type of Product Carrier InflationMonthly LTCBenefit

BenefitPeriod Benefit Pool Type of LTC Pay

Traditional LTC Transamerica None $10,200 5 Years $612,000 ReimbursementGenworth 3% Compound $5,000 5 Years Subject to Inflation ReimbursementGenworth 5% Compound $5,000 5 Years Subject to Inflation Reimbursement

Guaranteed UL Transamerica None $10,000 50 Months $500,000 IndemnityTransamerica None $10,000 50 Months $500,000 IndemnityGenworth None $10,266 4 Years $492,768 Reimbursement

Indexed UL John Hancock None $10,000 50 Months $500,000 ReimbursementJohn Hancock None $10,000 50 Months $500,000 Reimbursement

Whole Life Guardian None $10,000 50 Months $500,000 IndemnityGuardian None $10,000 50 Months $500,000 Indemnity

Whole Life- 2nd to Die State Life None $10,000 Lifetime N/A ReimbursementState Life None $10,000 Lifetime N/A Reimbursement

Type of Product Carrier Death Benefit

ProjectedCash ValueYear 30 (totalboth insureds)

ProjectedDeathBenefit Year30 (total

Traditional LTC Transamerica None N/A N/AGenworth None N/A N/AGenworth None N/A N/A

Guaranteed UL Transamerica $500,000 each insured N/A $1,000,000Transamerica $500,000 each insured N/A $1,000,000Genworth $246,736 each insured N/A $493,472

Indexed UL John Hancock $500,000 each insured $1,326,945 $2,011,832John Hancock $500,000 each insured $1,901,776 $2,891,750

Whole Life Guardian $555,555 each insured $1,020,965 $1,770,212Guardian $555,555 each insured $608,066 $1,214,924

Whole Life- 2nd to Die State Life $333,333 second to die N/A $166,667State Life $333,333 second to die N/A $166,667

Type of Product Carrier Pay Schedule Premium30 YearOutlay

GuaranteeInformation

Traditional LTC Transamerica Pay All Years $3,697 $110,910 Assessable PremiumGenworth Pay All Years $3,165 $94,950 Assessable PremiumGenworth Pay All Years $5,852 $175,560 Assessable Premium

Guaranteed UL Transamerica Pay All Years $8,444 $253,320 Guaranteed Premium, LTC, and Death BenefitTransamerica 20 Pay $10,860 $217,200 Guaranteed Premium, LTC, and Death BenefitGenworth 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 RateJohn 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 BenefitState Life Single Pay $114,182 $114,182 Guaranteed Base and LTC Rider Premium, Death Benefit

Couple- Age 60

Type of Product Carrier InflationMonthly LTCBenefit Benefit Period Benefit Pool Type of LTC Pay

Traditional LTC Mutual of Omaha None $5,100 5 Years $306,000 ReimbursementGenworth 3% Compound $5,000 5 Years Subject to Inflation Reimbursement

Guaranteed UL Transamerica None $5,000 50 Months $250,000 IndemnityTransamerica None $5,000 50 Months $250,000 IndemnityGenworth None $5,000 4 Years $240,000 Reimbursement

Whole Life Guardian None $5,000 50 Months $250,000 IndemnityGuardian None $5,000 50 Months $250,000 Indemnity

Whole Life- 2nd to Die State Life None $5,000 Lifetime N/A ReimbursementState Life None $5,000 Lifetime N/A Reimbursement

Type of Product Carrier Life Ins Benefit

ProjectedCash ValueYear 20 (totalboth

ProjectedDeath BenefitYear 20 (totalboth insureds)

Traditional LTC Mutual of Omaha None N/A N/AGenworth None N/A N/A

Guaranteed UL Transamerica $250,000 each insured N/A $500,000Transamerica $250,000 each insured N/A $500,000Genworth $120,500 each insured N/A $241,000

Whole Life Guardian $277,777 each insured $484,831 $833,548Guardian $277,777 each insured $372,347 $682,608

Whole Life- 2nd to Die State Life $166,667 second to die N/A $166,667State Life $166,667 second to die N/A $166,667

Type of Product Carrier Pay Schedule Premium 20 Year OutlayGuaranteeInformation

Traditional LTC Mutual of Omaha Pay All Years $3,020 $60,400 Assessable PremiumGenworth Pay All Years $4,907 $98,140 Assessable Premium

Guaranteed UL Transamerica Pay All Years $8,933 $178,660 Guaranteed Premium, LTC, and Death BenefitTransamerica 20 Pay $10,752 $215,040 Guaranteed Premium, LTC, and Death BenefitGenworth 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 BenefitState Life Single Pay $101,948 $101,948 Guaranteed Base and LTC Rider Premium, Death Benefit

Takeaways

• Long Term Care planning should be part of the financialplans you design

• Better to allocate cost now rather than drain retirementincome 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

Questions?Heath Hildreth865-691-4652

hhildreth@hildrethins.com