Post on 23-Dec-2015
transcript
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Presented by…
Understanding the Different Types of LTC/Chronic Illness ABRs
Policies issued by American General Life Insurance Company, a member company of AIG
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Agenda
Defining the Chronic Care/LTC Landscape Today
Life Insurance Solutions
Long Term Care vs. Chronic Care
The 3 Types of Chronic Illness Riders
The Power of Waiver of Monthly Deductions
Care Coordination Program
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What is a Chronic Illness?
Chronic illness care, which is also called long-term care, is needed
for two reasons:
–Inability to perform the activities of daily living (ADLs) bathing,
continence, dressing, eating, toileting, and transferring in or out of a
bed or a chair;
–Needing supervision because of a cognitive impairment, such as
Alzheimer’s disease or other causes of dementia.
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Type of Care?
The vast majority of chronic illness care is provided at home by family
caregivers, including relatives, partners, friends, and neighbors.1
According to AARP, “The ‘average’ caregiver is a 49-year-old woman
who works outside the home and spends nearly 20 hours per week
(which is equivalent to a half-time job) providing unpaid care to her
mother for nearly five years.”1
1 Feinberg L. Testimony before the Commission On Long-Term Care. “Populations in need of LTSS and service delivery issues.” AARP Public Policy Institute July 17, 2013.
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Short Term
fractures, joint replacement, broken leg, heart
attack, heart failure, minor stroke, diabetes,
and complications of cancer treatment.
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Short Term Conditions
– Short-term care is needed for only a few days, weeks, or months.
– Medicare Part A pays a significant portion of the costs via a post-acute care
benefit that covers skilled nursing care.1
– Average length of post-acute care ranges from a high of 36 days for home
health care, to a low of 13 days for inpatient rehabilitation factilities.2
– Family and friends can usually provide short-term care until recovery occurs
for most conditions.
– A lot of clients that are purchasing a life insurance policy have enough
savings to pay for expenses not covered by Medicare or Medicare
Supplement Insurance (Medigap).
1 Medicare post-acute care reforms. Statement of Mark E. Miller. Executive Director, Medicare Payment Advisory Commission. Before the Subcommittee on Health. Committee on Ways and Means. U.S. House of Representatives. June 14, 2013.2 Medicare Payment Policy. Medpac, Medicare Payment Advisory Commission. March 2013.
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Long Term
Alzheimer’s disease, serious stroke, frailty at older ages,
crippling arthritis, cancer, Parkinson’s disease, brain and
spinal cord injury, and degenerative neurologic diseases.
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Long Term Condititions
– Chronic illness care is usually needed for many months or years, and often
for the remainder of life.
– Chronic illness care is usually custodial, which means non-skilled personal
care, such as assistance with the activities of daily living. Neither Medicare
nor Medicare Supplement Insurance pay for custodial care.1
– Family and friends are potentially faced with much greater demands on their
time.
– Many people do not have enough savings to pay for custodial care or would
be more apt to insure this risk.
1 Medicare and You 2014. The official U.S. Government Medicare Handbook. U.S. Department Of Health And Human Services Centers for Medicare & Medicaid Services.
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No one wants to think about being disabled during retirement. We imagine it will happen to “other people”. But the reality is much different. Seven in ten people who are age 65 will need chronic illness care later in life.1
1 http://longtermcare.gov/the-basics/who-needs-care/ 11/14/2014
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The vast majority of people – four in five (80%) – live in private homes where about 80 percent of the care is provided by family and friends.1
This is true even for Alzheimer’s disease. Seven in ten (70%) of people with Alzheimer’s disease and other dementias live at home.2
1 Congressional Budget Office “Rising Demand for Long-Term Services and Supports for Elderly People” June 20132 http://longtermcare.gove/the-basics/who-will-provide-your-care/ 11/14/2014 3 http://www.alz.org/kyin/in_my_community_donate_use.asp 11/14/2014
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So What Can We Do?
Some of the best advice is provided by the Administration on Aging, an
agency of the United States Department of Health and Human Services
that is charged with maximizing the independence and health of older
adults and their families and caregivers.1
“For many, a blended approach to long-term care works best.
Most consumers want to remain in their homes for as long
as possible and delay facility care until they need it. Plan
early and look for flexible options that give you more say.”2
1 http://acl.gov/About_ACL/Index.aspx 11/14/20142 http://longtermcare.gov/the-basics/where-can-you-receive-care/ 11/14/2014
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Typical Long-Term Care Product
With the typical long-term care product, clients pay a premium and
receive benefits if qualified expenses occur.
LTC contracts utilize the 2 of 6 ADLs or Severe Cognitive Impairment
as a benefit trigger.
One requirement is that the condition is expected to last at least 90
days.
LTC contracts do require the producer to have both an A&H license
as well as meet the LTC education and certification requirements in
their state.
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Use it or lose it nature
Rising life expectancy and health care cost
Prolonged low interest rate environment
Consumers are more hesitant about paying for a product they
may not use especially with a budget limit.
Consumers are living longer and are more likely to use long-term care.Long-term care costs are rising along with medical care. Average annualized increase of US nursing home costs from 1994 to 2011 is 3.95%.*
Insurers need a 10-15% increase in premiums to offset every
1% decline in long-term interest rates. Some insurers drop
benefits to keep the same premiums.
*LIMRA, U.S. Individual LTC Insurance, 2Q 2013
Factors Impacting LTC Markets
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Life Insurance Solutions
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Life Combination ProductsLife products with chronic/LTC benefits
Life Insurance with LTC Rider
Linked Benefit Life Insurance
Life Insurance with Accelerated Death
Benefit for Long Term Care
UL-LTC products, structured as a real LTC; usually have a low death benefit and a high LTC
benefit
Governed under IRS Code 7702(b), require health insurance
license to sell
Life Insurance with Chronic Illness
Rider
Life Insurance with Accelerated Death Benefit for Chronic
Illness
Most Governed under IRS 101(g) code
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Reimbursement vs. Indemnity
Reimbursement
Reimbursement products provide a benefit if the
client meets the requirements of the policy and
spends money on a qualified service.
– The benefit of a reimbursement product is that clients
receive a benefit equal to their total cost, up to a
predetermined maximum.
– The downside is the rider usually requires
confinement in a facility and does not cover home
care or family care.
– Also issues with ILIT owned contracts
Indemnity
Indemnity products are those that provide
clients with a benefit once they meet the
requirements of their policy.
– The benefit of an indemnity product is that it does not
require clients to receive services in a care facility.
Therefore, the client can use the benefit to pay
medical or non-medical expenses, or to enhance their
savings.
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Long Term Care vs. Chronic Care
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Chronic Illness vs. Long Term Care RidersBenefit comparisons
Feature Chronic Illness LTC
Diagnosis Severe cognitive impairment or unable to perform 2+ ADLs
Severe Cognitive impairment or unable to perform 2+ ADLs
Duration Usually permanent At least 90 days
Payment types Indemnity Reimbursement or Indemnity
Requirements IndemnityReimbursement requires facility
confinement
Benefit types Face amount accelerationFace amount acceleration &
Extension
Benefit payments Tax favored if meet per diem requirements (Current $330 per day)
Tax favored if meet per diem requirements (Current $330 per day)
Other features May waive policy monthly deductions while on claim
Can have inflation adjustment
Distribution Life Agents can sellRequires A&H License &
LTC certification
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Chronic Care vs. Long-Term Care
Chronic Care Long-Term Care
Use Section 101(g) only Use Section 101(g) & 7702(b)
Pays only after permanent diagnosis for most riders
Pays for both temporary or permanent diagnosis
Amount above IRS limits are taxable
Amount above IRS limits are not taxable if reimbursement
Possible waiver of ALL policy deductions while on claim
LIMITED to NO waiver of deductions available while on
claim
For both Chronic Care and LTC the Licensed Health Care Practitioner determines qualification it is not the insurance carrier
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Life Combination ProductsLife products with chronic/LTC benefits
Life Insurance with LTC Rider
Linked Benefit Life Insurance
Life Insurance with Accelerated Death
Benefit for Long Term Care
UL-LTC products, structured as a real LTC; usually have a low death benefit and a high LTC
benefit
Governed under IRS 7702B code, require health insurance
license to sell
Life Insurance with Chronic Illness
Rider
Life Insurance with Accelerated Death Benefit for Chronic
Illness
Governed under IRS 101(g) code
Dollar for Dollar Death Benefit(Upfront Cost)
Discounted Death Benefit
(No Upfront Cost)
Lien Method(No Upfront Cost)
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Let’s begin with these three questions –
Do I have to pay upfront?
Do I know the monthly benefit I can get when I’m on claim?
How much of my death benefit can I receive?
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Discounted Death Benefit (No Upfront Cost)
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Discounted Death Benefit Basics
Clients can accelerate all or part of their death benefit in the event of
a Critical, Chronic or Terminal Illness depending on the carrier
No-cost accelerated benefit payout and what the client receives is
based on change in life expectancy after diagnosis of a covered
illness or some other discount calculation (varies by carrier)
No additional underwriting
Significantly shorter life expectancy = larger payout
Moderately impacted life expectancy = smaller payout
Depending on the carrier clients may accelerate up to 100% of the
policy death benefit up to a lifetime maximum
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Discounted Death Benefit ABR –
Henry purchases a $250,000 …Insurance
product at age 40
Ten years later, at age 50, he suffers a stroke
and is unable to perform 2 of 6 ADL’s his
prognosis for recovery is not good.
The medical costs associated with this event
are substantial. To help cover these expenses,
Henry decides to accelerate $50,000 of his
$250,000 policy.
Not an actual case, and is a hypothetical representation for illustrative purposes only.
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Henry’s Accelerated Benefit
When Henry files the claim, the company determines his benefit and makes an offer based on the severity of his condition and how it will affect his life expectancy.
– Henry receives an offer from the company for $22,444.
– He could elect to take all, part or none of the accelerated benefit amount.
– If Henry’s stroke had been more severe, the offer would have been higher.
– Henry accepts the offer, and his death benefit is reduced by the full amount he accelerated - $50,000.
– His remaining death benefit of $200,000 remains intact.
– Henry can accelerate this money if he has a future event, or it will pass to his beneficiaries when he dies.
Not an actual case, and is a hypothetical representation for illustrative purposes only.
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Lien Method(No Upfront Cost)
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Lien Method
No charge until used
No additional underwriting
Less than 100% of the death benefit
Benefits accrue with interest
Only charged interest if you use it
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Lien approach ABR Hypothetical Case Study
Mr. Able at age 50 purchases a $500,000 life insurance policy with a lien method chronic illness acceleration rider, paying $4,666 for lifetime coverage
Twenty years later, at age 70, he suffers a stroke and is unable to perform two of six ADL’s…prognosis for recovery is not good.
The medical costs associated with this event are substantial. To help cover these expenses, he decides to accelerate $250,000 of his $500,000 policy.
At the time, the cash value = $52,755, and the acceleration factor is 50%, and lien interest rate is 5.5%
The eligible amount to accelerate = – 50% * (500,000 – 52,755) + 52,755= $276,000
He’s eligible to accelerate the requested $250,000 in the form of a lien
Not an actual case, and is a hypothetical representation for illustrative purposes only.
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Lien Approach ABR Hypothetical Case Study continued
Upon claim, the net death benefit available upon death = $500,000 – lien of $250,000 = $250,000
The net cash value available is zero since the lien exceeds the cash value, $250,000 > $52,755
In 10 years, the Lien has grown to $427,036, the net death benefit available upon death = $500,000 - $427,036 = $72,964
The premium of $4,666 must continue to be paid to keep the policy in force
In 3 more years (policy year 33), the policy will lapse because the lien will exceed the original face amount of $500,000
Not an actual case, and is a hypothetical representation for illustrative purposes only.
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Dollar for Dollar Death Benefit (Upfront Cost)
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Accelerated Access Solution®
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Adult Daycare Assisted Living
Family Care Nursing Home Care
Virtually any expense,even those unrelated to the illness
A chronic illness1 rider for select American General permanent products
The funds can be used to help pay for –
1Insured must be certified as chronically ill by a licensed physician and meet all eligibility requirements.
Adult Daycare Assisted Living
Family Care Nursing Home Care
Accelerated Access Solution
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Benefits of Accelerated Access Solution
101(g)– No LTC license necessary: only Life / A&H– 2-out-of-6 ADLs or severe cognitive impairment– Deemed to be permanent
Indemnity– No receipts, spend benefits on anything
Choose your total AAS Benefit Base– Minimum = greater of 50% of DB or $50,000– Maximum = lesser of 100% of DB or $1,500,000
Maximum Monthly Benefit = IRS Monthly Per Diem, with choice of 3 caps:– 2% of AAS Benefit Base; – 4% of AAS Benefit Base; or – Per Diem
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Benefits of Accelerated Access Solution
Inflation hedge against future costs
Purchase more than today’s Per Diem limit!
– Some products won’t allow it!
– Provides inflation protection with a maximum monthly benefit cap
4% Cap – example:
– 4% of $300,000 = $12,000 per month
– Go on-claim in 2014: Collect $9,900 per month
– Go on-claim in the future when Per Diem = $15,000 per month: Collect $12,000 per month
Per Diem – example:
– $300,000 AAS benefit
– Maximum monthly benefit: $300,000 = $15,000 per month
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Accelerated Access Solution
Built-in Waiver of Monthly Deduction
– Waiver of costs for the entire policy» AAS rider charges» Base policy charges
– If less than 100% is accelerated, 100% of policy costs are still waived while on claim
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Did you know that 9 in 10 people who go on long-term care claims do
not recover? This means that only 10% of the market would have what
turns out to be a non-permanent condition. 1
While 10% might have a concern if the condition is chronic, but not
permanent – far more people will be concerned about continuing to have to
pay premiums once on claim. It is important to note that while on an AAS
claim, AGL waives all charges for the entire base policy and riders. There is
no other chronic illness life insurance rider that allows for coverage of non-
permanent conditions and waives charges for the entire base policy on the
market currently.
1 Society of Actuaries: “Long-Term Care Risk Management: Re-Pricing In-Force Policies”, 2014
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The downside of using a rider that does not waive charges for a non-
permanent condition is that unless policyholder continues to pay policy
premiums while on claim, they may owe all the missed charges during claim
period to keep the policy from lapsing once they come off claim. Therefore,
they could be faced with a very large catch up premium to keep the policy in
force - particularly in a GUL, where the timing of premium payments can
have a significant effect on the overall cost.
Unlike long-term-care riders or other chronic illness riders, AGL does
NOT continue charging ANY policy expenses while on claim. Even if a
policyholder did recover from a condition that was expected to be
permanent, they would not have to pay back missed charges to keep
the policy from lapsing.
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It may be that only a small portion of people would not be covered for a non-permanent chronic condition, but 100% of people would need to be concerned about the catch-up premiums required when they did come off claim.
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Care Coordination Program
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Care Coordination Program
AGL offers services to help the insured locate and choose a provider
through its “Care Coordination Program”.
American General Life has partnered with the nation’s largest
administrator of long-term care insurance (Long-Term Care Group, Inc.
or LTCG™), to arrange the long-term care services at no cost to
policyholders. This free benefit, called the “Care Coordination
Program”, is completely optional and available on all policies with the
Accelerated Access Solution chronic illness rider.
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This program offers access to Care Management professionals that can
provide information to support a search for a caregiver or facility that is right for
each family’s situation as well as assistance to:
locate a qualified caregiver, long term care facility or home-delivered meals provider
develop a plan of care to ensure all your needs are met
direct you to organizations with expertise in your disabling condition
set up your first home care visit
understand the steps involved in moving into a long term care facility
help you understand the cost of long term care and how you will be billed for the services you receive
Care Coordination Program
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Also be on the lookout for new White
Paper from American General that
discusses the differences between
Long Term Care and Chronic Illness
life insurance riders!Talk to your American General Representative today for more information.
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Important Information
Policies issued by: American General Life Insurance Company (AGL), Policy Form Number 13460, ICC13-13460, Rider Form Number 13972, 13600, ICC13-13600, 82001, CA WMDR 82001-5 Rev0914. Issuing company AGL is responsible for financial obligations of insurance products and is a member of American International Group, Inc. (AIG). AGL does not solicit business in the state of New York. Products may not be available in all states and product features may vary by state. These product specifications are not intended to be all-inclusive of product information. State variations may apply. Please refer to the policy for complete details. There may be a charge for each rider selected. See the rider for details regarding the benefit descriptions, limitations and exclusions.
Guarantees are backed by the claims-paying ability of the issuing insurance company.
AGLC108204REV0715
©2014. All rights reserved.
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American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries.. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in theUnited States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com | YouTube: www.youtube.com/aig | Twitter: @AIG_LatestNews | LinkedIn: http://www.linkedin.com/company/aig
AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds.