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1. Long Term Care: Too Expensive? Navigating the Need www.freedombrokerservices.com Kevin P. Conley, CLU, CASL, LUTCF, CLTC Ryan D. Buck, CLTC

2. Agenda • The importance of planning for long term care • The future of long term care in America • The cost of long term care • Strategies for paying for long term care • Public • Private • State of the marketplace

3. What is Long Term Care? • Long-term care goes beyond medical care and nursing care to include all the assistance you could need if you ever have a chronic illness or disability that leaves you unable to care for yourself for an extended period of time. Health Insurance Association of America, 2003

4. Your Long-Term Care Experiences • Who? • Where? • How was it paid for? • Who provided the care? • How long did the person need care? • Was the care expected or unexpected? • How did long-term care affect the family?

5. Why is it important to plan for Long Term Care? • Safeguard goals most important to you help protect assets for yourself and your family. • Help preserve dignity, independence and choices in long term care.

6. The Current State of LTC in the United States • Among people turning 65 now, nearly 70% will need some form of long term care (informal care, paid home care, nursing home care, assisted living) before they die. • 20% of those will need care for more than 5 years • 10,000 baby boomers turn age 65 everyday • According to the US Census Bureau, by the year 2025 25% of the population of Virginia will be over the age of 65

7. The Future of LTC in America • Longevity – People are living longer • Increased Demand for Services • Shortage of Caregivers

8. The Future of LTC: Longevity What happens when you don’t die? • You live • You get old • You get sick • You need care How do you plan to pay for that care?

9. Activities of Daily Living – “When the Parent Becomes the Child” • The lifetime probability of becoming disabled in at least two activities of daily living, or of being cognitively impaired, is 68% for people age 65 and older1 • Gradually a role reversal takes place in which the child becomes the parent and the parent becomes the child • “Sandwich Generation” – A generation of people who care for their aging parents while supporting their own children 1) AARP. Beyond 50.2003: A Report to the Nation on Independent Living and Disability, 2003, http://www.aarp.org/research/health/disabilities/aresearch-import-753.html> (11 Jan 2005).

10. Cost of Long Term Care • Most don’t know the cost • Seven in ten think that the average cost of a private room in a nursing home is $40,000 … less than half of the average national cost of $94,170 Source: John Hancock 2013 Cost of Care Survey, conducted by Harris, Rothenburg International LLC, 2013.

11. Cost of Long Term Care “It can’t be that expensive!” • The average daily rate for a private room in a Nursing Home in the Northern VA area is $270 – or $98,550 annually • The average daily rate for Home Care in the Northern VA area is $200 daily (10 hr/day, 5 day/wk) – or $52,000 annually Source: Genworth, National Advisory Center for Long Term Care Information, 2014

12. How Would You Pay for Long Term Care? Long Term Care is a family issue: • If you had a need for LTC services, how would it effect your family and/or spouse? • 78% of adults receiving long term care at home rely exclusively on assistance from family and friends1 • 71% of caregivers are women2 • Could your family care for you? • Would you want them to? 1) Georgetown University Long-Term Care Financing Project, “Long-Term Care Support for Family Caregivers” March 2004. 2) Wiser Special Report, “ The Effects of Caregiving” 2004.

13. Could I Need Long Term Care? • 44% of people reaching the age of 65 are expected to enter a nursing home at least once in their lifetime. • Of those who do enter a nursing home, about 53% will stay for one year or more. Source: Shoppers Guide to Long Term Care NAIC 2008

14. Your Home Adult Day Care Center Assisted Living Facility (ALF)1 Nursing Home Where can I receive LTC Services? • Hospice Facility • Senior Adult Condominiums • Senior Apartments • Continuing Care Retirement Community 1) Residential Care Facility in California 2) Agency for Healthcare Research and Quality. Long-term Care users range in age and most do not live in nursing homes: Research alert. Rockville: Author, 2000.

15. Who pays the LTC bill? Georgetown University Long-Term Care Financing Project, "Who Pays for Long-Term Care?" May 2004.

16. Who Cares About LTC Funding? • The Federal Government • Tax incentives available for individuals and businesses • Medicaid look back period extended from 3 to 5 years • Individual States • Partnership programs • Tax incentives available for individuals and businesses • Sponsored advertisements on radio, by mail, on television, and in publications

17. Public/Government Programs Medicare Medicaid* Private Self-Funding Stand-Alone Long Term Care Insurance Single Deposit Life/Long Term Care Hybrid Annual Pay Life/Long Term Care Hybrid Annuity/Long Term Care Hybrid Who Pays for LTC Services? *Medi-Cal in California.

18. Paying for LTC: Public • Medicare • Does not cover nursing home or homemaker services – skilled care only • Three day prior hospital stay required • Enter Facility within 30 days • Full costs covered for 20 days • Cost share for the next 80 days • No coverage after 100 days in that coverage period

19. Paying for LTC: Public • Medicaid • Must “spend down” assets to state required level • 5 year look back period instead of 3 • Government funded program that pays for nursing home care only for individuals who are low income and who have spent most of their assets • Can be difficult to qualify – health, finances • Spouse usually affected by financial requirements • Medicaid eliminates choice in care setting

20. Self-Funding Personal Assets: • Out-of-pocket • Savings and investments • Reverse mortgage • Tapping the equity of your home while maintaining ownership • Accelerated death benefits • Certain life insurance policies provide this benefit, also known as a living benefit, if you become terminally ill • Private health insurance • Only select policies will cover a limited period of care, usually related to a covered illness or injury • One long term illness may jeopardize your accumulated retirement savings/nest egg

21. Self-Funding • Strategy that is doomed for failure • “Rainy Day Fund” • Transfer the risk to the insurance company

22. Self Funding vs. LTC Comparison

23. Self Funding vs. LTC Comparison • Compare $20,922.46 investment to the cost of a stand-alone LTCi plan • Sample Company – Annual Premium $2,864.64 • Male, age 55, state VA • $8,000/mo. • $300,000 pool of benefits (3.1 years) • 90 Day Elimination Period • 5% simple inflation protection • 100% H.C.B.S.

24. Self Funding vs. LTC Comparison Example Purchasing Insurance Alternative Investment Future Value $576,517.56 Tax Bracket 20% Tax Equivalent Future Value $691,821.00 Investment Rate of Return 5% Number of Years to Invest 20 Age Long Term Care Insurance Details Daily Benefit Amount Benefit Period (Years) Pool of Benefits Inflation Protection Option Number of Years Policy Inforce Before Claim Future Annual Pool of Benefits Claim Time (Years) Future Value of Insurance Claim 55 55 $270 3 $295,650 5% Simple 20 $192,172.50 3 $576,517.50 How much would I have to invest to attain my tax equivalent value? $20,922.46

25. Single Deposit Life/LTC Hybrid Hypothetical Example Male, 55, Preferred Non Smoker Risk Class, $122,824 Single Deposit, Lifetime Benefit Period $122,824 Single Deposit Life with LTC Policy If Long-Term Care Benefits Are Used If NO Long-Term Care Benefits are Used UNLIMITED Maximum LTC Benefit $8,000 Monthly $96,000 Annually Guaranteed Death Benefit $200,000 (minus) LTC Benefits Used Guaranteed Death Benefit $200,000 Tax free

26. Annual Pay Life/LTC Hybrid • Life insurance death benefit can be accessed to help pay for long-term care expenses if needed • Any unused portion of the death benefit remains in your policy and is later paid to your beneficiaries • If you never need the policy coverage for long-term care, the entire death benefit will be paid to your beneficiaries on a tax-favored basis

27. Annual Pay Life/LTC Hybrid Hypothetical Example Male, 55, Non Smoker Risk Class, $7,434 Annual Premium, Lifetime Benefit Period $7,434 Annual Premium Life with LTC Policy If Long-Term Care Benefits ARE Used If NO Long-Term Care Benefits are Used UNLIMITED Maximum LTC Benefit $8,000 Monthly $96,000 Annually Guaranteed Death Benefit $200,000 (minus) LTC Benefits Used Guaranteed Death Benefit $200,000 Tax free

28. Single Deposit Annuity/LTC Hybrid Hypothetical Example Male, 55, Non Smoker, $192,000 Single Deposit, Lifetime Benefit Period $192,000 Single Deposit Life with LTC Policy If Long-Term Care Benefits ARE Used If NO Long-Term Care Benefits are Used $486,000 Maximum LTC Benefit $8,000 Monthly $96,000 Annually Guaranteed Death Benefit $192,000 (minus) LTC Benefits Used Guaranteed Death Benefit $192,000

29. State of the Marketplace • Future of stand alone LTCi Premiums • Guaranteed renewable • Rate increases • Carrier solvency • Future of Products • Cradle to grave policies/multi-use hybrid • Trend away from lifetime benefits • Trend away from Compound Inflation Protection

30. www.freedombrokerservices.com Questions & Answers Contact Us Kevin P. Conley, CLU, CASL, LUTCF, CLTC kconley@freedombrokerservices.com 240.477.1137 Ryan D. Buck, CLTC rbuck@freedombrokerservices.com 240.477.1136