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

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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

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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

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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

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•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

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•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

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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

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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

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Why do people buy LTCI?

Protect assetsPreserve independenceQuality of care choicesAvoid depending upon family and friends

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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?

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Without Insurance

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($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?

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What determines the policy costs?

AgeHealth statusDaily benefit Benefit periodElimination periodType of care – facility, home or integratedInflation protectionOther benefitsDiscounts that may apply

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Premium examples

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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

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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

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$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

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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

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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

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Why indemnity?

70% of Alzheimer’s patients live at home 75% of care provided by unpaid

caregivers

66% ADL assistance by family and friends

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Other important options

Return of Premium Survivor benefit

Payment Options Flexibility for retirement income changes

Shared Care A solution to rising premiums

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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

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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

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The risk of waiting

At age 65, 23% uninsurableAt age 75, 31% uninsurable

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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