National Health Administrators

1. National Health Administrators Long Term Care Insurance: An Executive Compensation Option CE Course 501

2. Presentation Agenda • The Basics about Long Term Care • The Basics of Long Term Care Insurance • Talking to Executive Clients about LTCi • LTC Insurance Options for Executive Clients • Executive Sales lead to Group Sales

3. Lesson For The Day To Sell Group LTCi Insurance, Start At the Top.

4. Why Educate Executive Clients About LTCI? • The right thing to do. • Professional responsibility. • Protect your current business. • Impact of health care reform. • Multiple revenue streams. • CLASS Act. • Liability questions. • Executive sales lead to group sales

5. What is Long Term Care? Long Term Care is assistance people need when they can no longer care for themselves. Activities of Daily Living: The "ADLs” Eating Transferring Toileting Continence Dressing Bathing Least DisabledMost Disabled

6. Long Term Health Care: The Classifications and Settings Classifications: Skilled Care (LPN, RN, PT, etc) Non-Skilled Care (95% of care received is Non-Skilled.) (Aides, attendants, assistants. Known as Custodial Care Services such as chore services, homemaker services, ADL help) Settings: At Home (Most Long Term Care is provided in the home) A person can receive both skilled care and non-skilled care. In addition, a person can receive care through: Adult Day Care, Hospice Care, and Respite Care for the family members. Assisted Living Facilities A person can receive daily benefits to cover room and board expenses and some personal assistance. Nursing Homes A person can receive daily benefits to cover room and board expenses and both skilled and unskilled personal assistance. -The 9 Steps To Financial Freedom, Suze Orman, 1997, p.84.

7. The Caregivers An estimated 44.4 million caregivers in U.S. Caregiving takes place in 23% of households. 50% of caregivers are employed full-time. Median age of caregivers is 45. Over 60% of all caregivers are women and married. The average caregiver provides care for 4.5 years. Most extended care is provided outside of nursing homes & usually by a family member. -“LONG-TERM CARE INSURANCE: Better Information Critical to Prospective Purchasers”, GAO, 9/13/2000. -National Alliance of caregivers and AARP, April 2004, JH

8. Family Caregivers Sixty percent of the disabled elderly living in the community rely exclusively on their families for care. • A Downward Spiral of Health • A national study of working caregivers found that: • 90% of caregivers experience signs of depression. • 69% spend less time with family and friends. • 51% report taking more medications. • 37% reported missing time from work. • 10% reported using alcohol more frequently. • -National Alliance for Caregivers.

9. Daily/Weekly Caregiver Tasks* • Bathing • Dressing • Toileting • Change sheets • Laundry • Transfer to bed, chairs and toilet • Prepare meals • Clean rooms • Safely navigate stairs, carpets and thresholds • Managing appointments • Attend doctor’s visits • Crisis manager-ER visits • Personal “nurse” • Medication management • Handle phone calls • Shop and run errands • Church and social events • Visit & host guests • Be a companion • Misc. daily needs *Usually while holding a job & raising a family.

10. Most Will Need Long Term Care! Almost seven in ten seniors over the age 65 will need Long Term Care before they die. • -Americans for Life Security & 2008 CT Partnership Training; u.s. HHS Dept

11. Long Term Care Is Expensive • As a national average, one year in a nursing home is estimated to cost in excess of $85,000 in 2011, and can vary greatly by location. • The median price of nursing home care in Dallas/FW area is approximately $75,000+ per year. High end exceeds $100,000. • The median priceforassisted living facilities in this area is $33,450 per year. • Bringing an aide into your home just 3 hours a day can easily cost $22,000/year.Or up to $50,000/year for 6-8 hours a day. Costs are expected to double every 15 years! - Private Room Average. Genworth Cost of Care Survey, 2009. - “A Shopper’s Guide To Long-Term Care Insurance”, National Association of Insurance Commissioners, 2003.

12. It’s Not Just The Money . . .It’s About The Consequences Two-in-five American workers are already involved in caregiving responsibilities. Family members struggle physically and emotionally. Caregiving strains family relationships. Drains family income and puts retirement assets and income at risk.

13. Employees Need Good AdviceSo Do Executives • “I have plenty of assets to pay for my care.” • “Government will pay for my care.” • “Long Term Care means nursing homes.” • “My family can easily care for me.” • “I won’t need Long Term Care.” • “Only old people should apply.”

14. Time Is Not On Our Side • You must be healthy to be eligible for coverage. Once your health begins to fail or you suffer a debilitating accident you may no longer qualify or you will pay more for coverage. • It will never be more affordable than it is this year because premium costs are based on your age at the time you apply for coverage.

15. Act While You Can Applicants Getting Good Health Discounts Applicants Who Are Declined LTCi Coverage American Association for Long-term care Insurance The 2009 Sourcebook. P.24

16. Cost Comparison By Age Dollar value is total premiums paid from issue age to age 85. All policies have the exact same benefits. While actual figures may vary according to carrier rate tables and alternate benefit choices, the trend line will remain relatively constant. $ $ $ $ $

17. Key Components of Long Term Care Insurance Benefit Triggers: Tax-Qualified Plans 2 of 6 ADLs expected for 90-days, or serious cognitive impairment.

18. Tax Basics for Individuals* Federal Taxes State Taxes Numerous states (30) also offer state specific tax incentives, either credits or deductions. • Deduction “Eligible Premium” • Must itemize • Medical expenses, co-pays, premiums, deductibles, • Total must exceed 7.5% AGI • Sliding scale based on age * Consult with your tax advisor for details and specific tax advice.

19. Business Basic Tax Facts • Any employer contributions to qualified plans for employees are deductible as business expense. • “C-Corps” may deduct 100% of premium cost for employees, including executives, their spouses and dependents. • Sole Prop., Partnerships and S Corps may deduct up to 100% of “Eligible Premium” amount without meeting 7.5% AGI* threshold. • Benefits paid through “reimbursement” plans generally not considered taxable income. * Moves to 10% in 2013 - Details require consultation with your CPA or tax advisor.

20. Tax Qualified Deductions of Premiums: 2011 Eligible LTCi Premium* • Deduction is limited to the lesser of actual premium paid or eligible premium amounts above. Taxpayer must Itemize. • Applicability rules vary for individuals versus businesses. • Consult your tax advisor.

21. LTCI Approaches andUnderwriting Procedures • Individual: • Individual policies. Full underwriting. • Multi-life: • Individual policies. • Simplified (5-6 questions). • Modified (additional underwriting possible). • True Group: • Guaranteed Issue (GI, No medical questions). • Certificates rather than policies. • Also Modified GI (Few medical questions). Normally, family members are subject to full underwriting unless full payment by employer. Exceptions exist.

22. The Great Broker Debate: How to Sell LTCi To Businesses? • Individual vs. Group sales • True Group (large groups w/GI) vs. Multi-Life (smaller w/simplified) • Voluntary vs. Employer paid/core contribution • Sell all EEs vs. Sell executive carve-outs

23. Current Thinking Group vs. Individual Sales • Sell less to more. • Greater return for effort. • Timeline often longer.

24. Current Thinking True Group vs. Multi-Life • True group: lower price and GI offers a great incentive, but large companies are harder to navigate, more time consuming. • Multi-life: smaller companies are easier to sell, better plans and most actively employed will pass simplified underwriting.

25. Current Thinking Voluntary vs. Employer Paid/Core Contribution • Some employer contribution highly beneficial. • Underwriting concessions possible. • Penetration will be greater. • More likely to meet carrier participation requirements. • Tax incentives are significant.

26. Current Thinking Sell everyone or Executive carve-outs • Executives often the best place to start. • Benefit discrimination is permitted. • Managers have the income, assets, and authority to act. • More likely to be working with CFPs who encourage LTCi. • Most likely to buy eventually. • Why not offer price discounts and underwriting concessions. • Tax incentives are very favorable. • May open doors to a larger group sale.

27. Talking to the Exec.Are You A LTCi Salesperson ? • Sales Pitch: Facts, figures, risk data, costs of care, etc. • The Problem: • Contest of wills. • “Bad things happen to other people.” • Denial statements. • Perceived as selling rather than helping.

28. Or LTC Planning Consultant? As with life and disability insurance: • Focus on planning rather than selling product. • It’s all about managing household or business risk. • Focus of the consequences ifclient ever needs extended care. • First, the impact on spouse & children, • Then discuss income stream, lifestyle, assets, independence and choice, etc.

29. Educating ClientsMaking the “Consequences” Connection • Life insurance: provide income to loved one if a pre-mature death. • Disability insurance: provide income to loved one if disabled during working years. • Annuity sale: protect loved ones so they don’t run out of income during retirement years. • LTC insurance: provide income stream to family should client require extended care services for many years.

30. Where To Start The DiscussionWith Executives • First, make the personal connection about LTC. • Focus of the consequences to family, not the business. • Less emphasis on risk data. • Then shift focus on the business. • Planning strategies taxes advantages.

31. Two Alternative Paths • If client is unconcerned, move on to next client. • If concerned about possible harmful consequences to loved ones, ask the client what their strategy will be to provide extended care without burdening family members. How will the client protect the family? • Focus on support services needed first. • Who will provide them and where? • Who will coordinate the services? • Then discuss costs for services. • Finally, how will the plan be funded?

32. Who Will Be Your Caregivers? Spouse:______________________ Children: Siblings: Friends: Have you thought about the consequences for your caregivers? Remember, Long Term Care isn’t just about you.

33. Funding Choices are Limited • Actual Assets • Sell stocks and bonds • Sell property • Sell the business or drain its resources • Life insurance cash values • Certificates of Deposit • Cash

34. Key Question • How much of your current retirement portfolio have you specifically allocated to pay for the possibility of extended care needs? • If the answer is “none,” then all of it is effectively allocated for potential long term care needs.

35. Self Funding? What Asset Will You Spend First? Retirement Security Family Security mutual funds Social Security stocks bonds life insurance pension annuity home cash IRA Long Term Care Costs

36. Income From Assets? • Assume a conservative and consistent 5% return, and that 100% of your portfolio is generating investment income. • Examples: • $500,000 = $25,000/year • $1,000,000 = $50,000/year • $1,500,000 = $75,000/year • $2,000,000 = $100,000/year • What will be the impact on lifestyle, retirement plan, and loved ones if your LTC needs require these income resources? Or invade this principal?

37. More Self Insuring “Costs” • Investment “Surcharge” (Opportunity Cost) - Every dollar of assetsliquidated to pay for care is a dollar that can no longer be invested. • Tax “Surcharge”– If an individual withdraws funds from an IRA account to pay for care, these funds may be subject to federal taxes. So, if the cost of care is $70,000.00 per year, an individual in the 28% tax bracket would need to withdraw $89,600.00 from the IRA. There may also be additional “early withdrawal” penalties. • Liquidation “Surcharge” – If the only available assets to pay for extended health care are not “liquid” (real estate, stocks/bonds), they may have to be sold at a loss.

38. Not Having A Plan for Long Term Care . . . • Can disrupt your plan to secure the financial viability of a surviving spouse or a dependent child. • Can disrupt your tax plan. • Can disrupt to your plan to keep financial commitments during retirement. • Can disrupt your succession plan. • Can disrupt your premarital agreement in a second marriage. • Can disrupt your special needs plan. • Can disrupt your charitable giving plan.

39. A Better Way To Protect Family? Retirement Security Family Security mutual funds Social Security stocks bonds annuity life insurance pension home cash IRA $$$$ LTC Insurance Coverage $$$$ Long Term Care Costs

40. What LTC Insurance Does • Protects loves ones from the burdens of becoming a daily caregiver. • Provides an income stream to pay for care, which allows the client’s loved ones to supervise, rather than provide care. • Allows retirement income to be used to keep financial commitments as planned. • Since the retirement portfolio never has to be used, principal is preserved and your retirement plan executes properly.

41. Plan Options For Executives • Traditional Insurance • Multi-Life • Group • Hybrid Plans • Life-LTCI • Annuity-LTCi

42. Multi-Life Plan Hypothetical -Additional Buy-ups available

43. “Linked” or “Hybrid” LTC Plansvs. Stand-alone LTC Plans • Combine standard LTC insurance policy with a life insurance policy or an annuity. (Non-qualified $ only) • Reposition or “leverage” savings, cash value from life insurance policy or transfer an annuity to a linked plan.* • Single premium payment typical. • Return of premium typically guaranteed. • Life-Hybrid plans pay for Long Term Care, a death benefit or both. • Annuity-Hybrid plans pay for Long Term Care, may be annuitized, or transferred to estate upon death. More complex w/diminished benefits. * More favorable tax provisions now apply for asset transfers.

44. Linked Long Term Care-Life Policy Hypothetical Case-Generic Carrier* Plus Guaranteed Death Benefit Monthly Benefits For 6 Yrs. Client Pays Total LTC Benefit $100,000 Initial Premium $586,512 Total LTC Benefit Maximum Monthly Benefit= Specified Amount/24 months Any Remaining Death Benefit Not used for LTC + Year 1 $8,146/month Remaining Death Benefit, or Residual Death Benefit $195,504 Specified Amount Death Benefit Death benefit if no LTC needed. 1st $ for LTC. Year 2 $8,146/month Residual Death Benefit $19,550 Year 3 $8,146/month $391,008 Extension of Benefits For LTC Additional dollars For LTC needs Year 4 $8,146/month Year 5 $8,146/month Year 6 $8,146/month *All figures vary by carrier, plan, state, premium & client.

45. Selling Executive Carve-outs • Walk Before You Run. • Start With Low Hanging Fruit. • Carve-outs can lead to all EEs • Be a Consultant, not a Salesperson. Questions?

46. Thank You