Disclaimer

2. Disclaimer The following disclaimer statement is included with each Programs in a Box topic. Do not delete this disclaimer as a part of the program. It is also to be included along with the handouts you are providing each program participant. Programs In A Box are intended to be educational and to provide program attendees (and others who use these materials) with general information on particular topics. The information contained in Programs In A Box materials, and in accompanying presentations, does not constitute insurance, financial, investment, estate planning, tax, legal, compliance, accounting, or other professional services or advice by the National Association of Insurance and Financial Advisors (NAIFA), by NAIFA’s state and local member associations, or by the authors or presenters of the programs. continued . . .

3. Disclaimer continued . . . While NAIFA tries to provide accurate information in its Programs In A Box materials, and in accompanying presentations, NAIFA does not warrant or guarantee the accuracy of these materials or presentations. The necessarily generic nature of these materials and accompanying presentations may not always reflect frequently changing state and federal regulations and may not be compatible with the specific rules established by insurance and other financial services companies for their respective agents and employees. It is the individual responsibility of all advisors to comply with applicable state and federal insurance, banking, and NASD/SEC requirements and with the rules established by insurance companies and other financial services entities they represent. NAIFA disclaims all liability and responsibility for claims or damages that may result from any errors or inaccuracies in these materials or accompanying presentations and from any transactions that may employ any information contained in these materials or accompanying presentations.

4. Explaining the Need - Aging Population • Americans are living longer -- By 2020, one out of six Americans will be 65 or older. • One out of five Americans over the age of fifty is at risk of needing long-term care in the next 12 months. • More than half of the US population will require some type of long-term care during their lives. • US Census Bureau estimates that the number of people who need assistance with ADLs will increase by 51% between 2000-2020.

5. Explaining the Need - Cost of Family Care • It is estimated that at least two-thirds of all home care assistance is provided free of charge by family members or friends. • Caregiving may cost individuals upwards of $659,000 over their lifetime in lost wages, lost social security and pension contributions because they take time off, leave their jobs entirely or compromise opportunities for advancement.

6. Explaining the Need - Cost of Family Care • Long-term care continues to be the single largest out-of-pocket expense faced by the elderly and their families. • A recent study predicts that by 2005, elder care will replace child care as the #1 dependent care issue because 1 out of 3 workers will be caring for an aging family member.

7. Average Cost For Daily Nursing Home Care

8. Long-Term Care Costs and Inflation Consider the effects of 5% inflation compounded annually on these costs for ten, twenty and thirty years. End of20 Yrs. $139,000 $96,000 $217,000 End of30 Yrs. $226,000 $156,000 $337,000 CostToday $55,000 $36,000 $90,000 End of10 Yrs. $85,000 $59,000 $140,000 Nursing Home . . . . . . . Assisted Living . . . . . . Private MemoryLoss Home . . . . . . . . .

9. LTC Financing - Medicaid & Medicare • Executives are not likely candidates to spend down to qualify for Medicaid. • Medicare only covers skilled nursing facility care and requires the following: • Prior Hospital Stay of three days • Admitted to nursing home within 30 days for same medical condition • Require skilled nursing care or rehabilitative care • Facility must accept Medicare

10. LTC Financing - What Medicare Pays

11. LTC Financing - Private Insurance • Viable alternative to government programs -- especially for executives. • One of the fastest growing health insurance business lines; in 1999 alone, growth in premium from new sales was 13%. • Provides both the executive and spouse with the funds needed to pay for LTC expenses if they occur.

12. LTC Financing - Private Insurance • Protects the non-qualified and qualified retirementincome from LTC cost. • Preserves estate to pass on to heirs. • Provides tax advantages. • Enhances choice and independence.

13. LTC Insurance Environment • Individuals still believe that the government will pay for long-term care or that such services will be covered by other health insurance. • Employer-sponsored market has seen a 40% average annual growth rate. • 53% of employers offering LTC insurance are small employers(1-100 employees).

14. LTC Insurance Environment • Fewer than 10% of all elderly Americans have LTC insurance coverage. An even smaller percentage of the working-age population have coverage. • Two out of three buyers cite spouses and agents as having the most influence on the decision to purchase long-term care insurance. • Non-buyers cite cost as the most significant barrier to purchase.

15. Why Prospect Executive Market? • Affordability is not an issue because it is offered as a benefit. • Voluntary market participation is below 10%. • New Federal LTC Program (available to 20 million federal workers and their family members) will raise awareness of need, clarify that government doesn’t pay for LTC and will validate private LTC insurance.

16. Why Prospect The Executive Market? • Recent equity market volatility and portfolio losses have dramatically affected retirement income and lifestyle objectives. • It is estimated that over 70% of an executive’s retirement benefits will be provided by non-qualified plans.

17. LTC-Important Executive Benefit • CEO survey indicates: • LTC will become an important executive benefit. • Over 75% of respondents to the survey offer supplemental retirement benefits to the executives. • Corporations are seeking additional non-compensation related benefits. • Will fill in the “hole” that exists in most non-qualified plans.

18. LTC Insurance Policy Essentials • Qualified Plan Elements • Five Simple Policy Design Decisions

19. What Makes A Plan Qualified? • According to HIPAA each plan must adhere to the following criteria: • Assessed by licensed health care practitioner that an individual is “chronically ill”. • Unable to perform two ADLs without substantial human assistance and certifies loss will last 90 days or severe cognitive impairment requiring substantial supervision. • Plan of Care required for all services.

20. 5 Simple Policy Design Decisions • Daily Benefit • Home Health Care Benefit • Deductible: Waiting Period • Maximum Benefit • Inflation Protection

21. Federal Tax Incentives • Individual Tax Deduction • Benefits To Employer • Employer Tax Incentives • C-Corp • S-Corp • Partnership • LLC • Sole Proprietor • Advantages of Corporate Provided LTC

22. Individual Tax Deduction • Deductible Subject to the 7.5% AGI Rule • 2002 Tax Year • Age 40 or Below . . . . . . . . . . . . $240 • 41 through 50 . . . . . . . . . . . . . . $450 • 51 through 60 . . . . . . . . . . . . . . $900 • 61 through 70 . . . . . . . . . . . . . . $2,390 • 71 and Above . . . . . . . . . . . . . . $2,990 • Benefits are TAX FREE

23. Benefits To Employer • Employer contributions are tax-deductible. • Premium payments are not taxable income to the employee (including the owner if taxed as a C-Corp). • Benefits are not taxable when received. • Employer can select who participates. • Attract, retain and reward key employees.

24. C-Corporation • LTC Taxation • Owners can purchase LTC on themselves and deduct the full premium. • The corporation can select among individual employees or employee classes, and deduct the full premium. • Premium is not taxable as income to employees Benefits are received tax-free.

25. Self-Employed, S-Corps, Partnerships, Limited Liability Companies (LLC) • Owner/partner may deduct a percentage of the age related LTC premium: • 2002 . . . . . . . . .70% • 2003 . . . . . . . . .100% • Deduction is based on the age related premium.

26. Advantages Of Corporate Provided LTC Insurance • Provide tax-free additional benefits. • Obtain the possibility of relaxed underwriting standards. • Create portable LTC coverage. • Provide a cost effective retirement planning vehicle.

27. Steps to Selling • Become educated in the need and cost of LTC in addition to the benefits of private LTC insurance. • Establish yourself as an expert - speaking engagements and articles. • “Sell” the CEOs before the HR directors by discussing a wrap around benefit to protect their most important asset -- cash for retirement.

28. Case Study- Reward & Retain Key Officers • Design by employee class-category • Professional (medical) Association Firm • Four senior officers, four managers, 32 staff Design Highlights • Retain and reward senior executives • Potential rated-uninsurable senior executive • Relaxed underwriting (guaranteed standard issue-GSI) offer requiring minimum of 15 lives. 100% employer paid.

29. Case Study – Reward & Retain Key Officers Solution: LTCI Program by (3) Employee Classes • Cost & Benefit Summary

30. Summary • Aging population unable to perform activities of daily living necessitates long-term care. • Providing long-term care is costly. • Government programs are inadequate for executives.

31. Summary • Small businesses are looking to provide non-compensation related benefits to executives. • Executive LTC planning allows employers to “carve out” a plan to fit their needs. • Overwhelming majority of businesses in America are under 100 employees. That is the ‘niche’ market for this executive carve out LTC planning.