By Debra C. Newman, CLU, ChFC Long Term Care Insurance: The Niche in the Executive Marketplace Disclaimer The following disclaimer statement is included

By Debra C. Newman, CLU, ChFC

Long Term Care Insurance:The Niche in the Executive Marketplace

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continued . . .



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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.



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.



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.



Average Cost For Daily Nursing Home Care



Long-Term Care Costs and Inflation

Consider the effects of 5% inflation compounded annually on these costs for ten, twenty and thirty years.

Nursing Home . . . . . . .

Assisted Living . . . . . .

Private MemoryLoss Home . . . . . . . . .

CostToday

$55,000

$36,000

$90,000

End of10 Yrs.

$85,000

$59,000

$140,000

End of20 Yrs.

$139,000

$96,000

$217,000

End of30 Yrs.

$226,000

$156,000

$337,000



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



LTC Financing - What Medicare Pays



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.



LTC Financing - Private Insurance• Protects the non-qualified and qualified retirement

income from LTC cost.

• Preserves estate to pass on to heirs.

• Provides tax advantages.

• Enhances choice and independence.



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).



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.



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.



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.



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.



LTC Insurance Policy Essentials• Qualified Plan Elements

• Five Simple Policy Design Decisions



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.



5 Simple Policy Design Decisions• Daily Benefit

• Home Health Care Benefit

• Deductible: Waiting Period

• Maximum Benefit

• Inflation Protection



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



Individual Tax Deduction

Deductible Subject to the 7.5% AGI Rule

2002 Tax Year

Age 40 or Below . . . . . . . . . . . . $240

41 through 50 . . . . . . . . . . . . . . $45051 through 60 . . . . . . . . . . . . . . $90061 through 70 . . . . . . . . . . . . . . $2,39071 and Above . . . . . . . . . . . . . . $2,990

Benefits are TAX FREE



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.



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.



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.



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.



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.



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.



Case Study – Reward & Retain Key OfficersSolution: LTCI Program by (3) Employee Classes

Cost & Benefit Summary

Initial Daily

Benefit

Total Benefit Pool

Duration

Number of Employees

in Class

Average Age of EE in Class

Age 85 Ind. Cost

Age 85 Total Benefit Pool

Age 75 Total Benefit Pool

INDIVIDUAL CLASS

Class I Officers $140.00 6 Year 4 63 2,018$ 8,072$ 44,396$ 854,178$ 524,388$

Class II Managers $120.00 6 Year 4 55 1,140$ 4,560$ 34,200$ 1,226,295$ 664,080$

Class III Staff $50.00 3 Year 32 32 144$ 4,631$ 7,632$ 3,276,720$ 2,012,878$

Totals 17,263$

Annual Premium Cost



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.



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.

Documents

By Debra C. Newman, CLU, ChFC Long Term Care Insurance: The Niche in the Executive Marketplace Disclaimer The following disclaimer statement is included