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Is Long-Term Care Insurance
Part of Your Financial Planning And Asset
Protection Strategy?
© JTR 2004Revision 3.12.4
800-496-3572
www.ipg-us.com
Presentation Provided By:
J.T. RYAN & Associates, Inc.IPG’s Long Term Care Partner
What is long-term care (LTC)?
No longer able to live independently Prolonged physical illness Disability Cognitive impairment
© JTR 2004
When am I eligible for benefits?
Require help with two activities of daily living: Bathing Dressing Eating Continence Toileting Transferring
Require supervision due to cognitive impairment Memory Orientation Reasoning
© JTR 2004
What’s my risk of needing LTC?
Nearly 80% will live to be age 65 or older 60% to 70% of Americans age 65+ will need LTC Half of all women 65+, one-third of all men 65+ “At risk” group female baby boomers
Average stay in facility today is 2.6 years 24% who enter a facility stay a year or longer 9% spend five years or longer
Young Americans also need LTC 40% of those receiving LTC are age 18 to 64
© JTR 2004
What is the cost of LTC in 2004?
Daily Nursing Home Costs
$156 Atlanta$232 Boston$172 Chicago$147 Dallas$246 New York City$174 Phoenix$312 San Francisco$185 Seattle
Home Care Hourly Rates
$18 Atlanta$21 Boston$18 Chicago$17 Dallas$15 New York City$18 Phoenix$20 San Francisco $20 Seattle
© JTR 2004
•National average today for nursing home care is $181 a day•Average long-term care stay in facility lasts 2.6 years•Average cost of long-term care event is $171,769
What is the cost of LTC in 2024?
Daily Nursing Home Costs
$413 Atlanta$615 Boston$456 Chicago$390 Dallas$652 New York City$461 Phoenix$827 San Francisco$490 Seattle
Home Care Hourly Rates$48 Atlanta$56 Boston$48 Chicago$45 Dallas$40 New York City$48 Phoenix$53 San Francisco $53 Seattle
© JTR 2004
•National average is for nursing home care is projected to be $480 a day•Average long-term care stay in facility lasts 2.6 years•Average cost of long-term care event is $455,520
But I’m covered by Medicare
Not designed as a long-term care productPays 100% of first 20 days in SNF Must be hospitalized three days Must enter SNF within 30 days Must require “skilled” care
Pays amount in excess of $109.50 next 80 daysPays $0 beyond 100 days
© JTR 2004
Medicare, Medigap and LTCI
MedicareFederal Government
Health Insurance Program
MedigapPrivate Health Insurance Medicare Out of Pocket
Costs
LTCIPrivate Disability
InsuranceHelp with Daily Living
Part A: Hospital ServicesInpatient hospital careSome SNF careHospice careSome home care
Most people get Part A at age 65 as a result of paying Medicare taxes while working.
Part B: Medical InsuranceDoctors’ servicesOutpatient hospital
servicesLaboratory servicesPhysical therapistsSome home care
Enrolling in Part B is your choice. The cost in 2003 is $58.20 per month.
Ten Plans: A through J
All offer Basic BenefitsPart A coinsurancePart B coinsurance
Some offer Extra BenefitsSkilled nursing coinsurancePart A deductiblePart B deductiblePart B ExcessForeign travel emergencyAt home recoveryBasic and extended drug benefitPreventive care
Assistance with daily activitiesBathingDressingEatingToiletingContinenceTransferring
Cognitive ImpairmentMemoryOrientationReasoning
Care provided in:Nursing facilityAssisted living facilityAlzheimer’s facilityAdult day care centerHome care
© JTR 2004
Who funds the cost of LTC?
10% Insurance companies14% Medicare32% Family income, savings and investments44% Medicaid 43% Funded by States 57% Funded by Federal Government Must have “spent down” assets to poverty level
© JTR 2003
Why do people buy LTCI?
Protect assetsPreserve independenceQuality of care choicesAvoid depending upon family and friends
© JTR 2004
Families and care-giving
84% of working caregivers changed work hoursLost an average of $659,000 in compensationWithin two years suffered serious illness
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Protection for financial security
Auto insuranceHome insuranceHealth insuranceLife insuranceLong-term care insurance?
©JTR 2004
Without Insurance
©JTR 2004
($50,000)$0
$50,000$100,000$150,000$200,000$250,000$300,000$350,000$400,000$450,000
YR1 YR2 YR3 YR4 YR5
LTC expense could totally deplete a $500,000 nest egg in five years.Assumptions:1. Family savings of $500,000 including retirement income and savings2. Household living expenses of $50,000 annually plus 3% annual inflation3. Nursing home expenses of $66,065 annually plus 5% annual inflation4. Remaining annual savings earn 8% per year
Is LTCI appropriate for me?
Are you between the ages of 40 and 60 (18-84)?Excluding your home, are assets >$30,000?Can you afford the premium?
© JTR 2004
What determines the policy costs?
AgeHealth statusDaily benefit Benefit periodElimination periodType of care – facility, home or integratedInflation protectionOther benefitsDiscounts that may apply
© JTR 2004
Premium examples
© JTR 2004
PurchasedToday at
Age
DailyBenefi
t
BenefitPeriod
InflationProtection
AnnualPremiu
m40 $100 Lifetime 5% Compounded
$1180
45 $100 Lifetime 5% Compounded
$1336
50 $100 Lifetime 5% Compounded
$1524
55 $100 Lifetime 5% Compounded
$1850
60 $100 Lifetime 5% Compounded
$2359
65 $100 Lifetime 5% Compounded
$3325
Assumptions:•Standard health status•Elimination Period of 100 days•100% Home Care•No discounts applied•Indemnity payment method
What’s important in an LTCI policy?
The company!Size Billions or millions in assets?
Other lines of business Insurance or manufacturing?
Reputation Rate increases and complaint ratios
Ratings AM Best, Moody, Fitch, Standard & Poor’s
© JTR 2004
What else is important?
Type of careNursing facilityAssisted living facilityAlzheimer’s facilityContinuing care retirement communityHome careInternationalCombination or integrated
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The tax issue
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Tax Qualified• Two triggers
– Assistance with 2 ADLs
– Cognitive impairment
• No “necessity” trigger
• 90-Day certification• IRS $230 per diem
cap• Conditional
deductibility
Non-Tax Qualified• Three triggers:
– Assistance with 2 ADLs
– Cognitive impairment– Medically necessary
• No 90-day certification
• May include “necessity”
• Benefits taxable?• Premiums
deductible?
What about options?
Inflation protection Compound or simple
Payment method Reimbursement or indemnity
© JTR 2004
$0
$500,000
$1,000,000
$1,500,000
40: YR1 50: YR10 60: YR20 70: YR30 80: YR40Age and Years In Force
No inflation 5% Simple 5% Compounded
Comparison of Inflation Protection Options$100 Daily Benefit for 5 Years or $182,500 Lifetime Benefit
Inflation options
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Reimbursement payment method
Covers care in a facility Covers home care by certified providersCovers supplies approved by certified providersCan be more flexible if care coordinator usedDoes not reimburse if paid by another sourceStretches pool of funds
© JTR 2004
Indemnity payment method
Monthly or daily cash paymentCovers care in a facilityCovers home careCare can be provided by informal caregiversIncidental charges coveredPremiums more costlyGreater flexibility
© JTR 2004
Claims payment example:
Assumptions: Age 50, $130 daily benefit, 5% compounding Age 80, $561 daily benefit Home health aide $60/hour in 30 years
Reimbursement payment: Aide used 3 hours/day 3 hours X $60 X 30days = $5,400
Indemnity payment: Policy pays 30 days X $561 = $16,830 Difference of $11,430 can be used as
needed
© JTR 2004
Why indemnity?
70% of Alzheimer’s patients live at home 75% of care provided by unpaid
caregivers
66% ADL assistance by family and friends
© JTR 2004
Other important options
Return of Premium Survivor benefit
Payment Options Flexibility for retirement income changes
Shared Care A solution to rising premiums
© JTR 2003
Shared Care
A solution to escalating rates for new clients
Offers a less costly policy Provides significant benefit period Allows one spouse to use another’s
benefits If spouse dies, remaining benefits go
to survivor
© JTR 2004
© JTR 2004
MetLife Indemnity ComparisonShared Care
Ages: 65 and 63 Daily Benefit: $120 Elimination Period: 90
days Inflation: 5%
compounded Risk Class: Standard Benefit Period: 4
years/person or 8 years combined
Indemnity Rider: Yes
Premium: $4273
Lifetime Ages: 65 and 63 Daily Benefit: $120 Elimination Period: 90
days Inflation: 5% compounded Risk Class: Standard Benefit Period: Unlimited Indemnity Rider: Yes
Premium: $5969
The cost of waiting
Year/Age Purchased
DailyBenefit
AnnualPremium
Years To Age 80
Premium Paid
Year 1 40
$100 $861 40 $34,440
Year 5 45
$130 $1268 35 $44,380
Year 10 50
$160 $1780 30 $53,400
Year 15 55
$200 $2701 25 $67,525
Year 20 60
$260 $4458 20 $89,160
Year 25 65
$340 $8252 15 $123,780
This chart illustrates how LTCI premiums for the equivalent of $100 Daily Benefit in 2003 dollars are impacted by age and expected increase in healthcare costs. The example assumes benefit eligibility at age 80. Quote based on the following criteria:
1. Single 2. Standard health rating
3. MetLife Value Plan with Indemnity Option 4. $100 Daily Benefit equivalent adjusted at each age purchase
5. 100-day Elimination Period 6. 5- year Benefit Period
7. 5% compounded Inflation Option 8. No discounts applied
© JTR 2004
The risk of waiting
At age 65, 23% uninsurableAt age 75, 31% uninsurable
© JTR 2004
Is Long-Term Care Insurance Part of Your Financial Planning And Asset Protection Strategy?
What is long-term care?How much does it cost?Is long-term care insurance appropriate for you?What’s important in a policy?
© JTR 2004