LONG TERM CARE PLANNINGLONG TERM CARE PLANNINGMaking Informed Decisions and Minimizing the

I t Y d Y F ilImpact on You and Your Family

Presented in partnership with Nease, Lagana, Eden & Culley, Inc.

1000 Abernathy Road, Bldg 400, Suite 1500Atlanta, GA 30328Ph (770) 913 9704 / T ll F (800) 435 8526 / F (770) 913 9619Phone: (770) 913‐9704 / Toll‐Free: (800) 435‐8526 / Fax: (770) 913‐9619

The following materials prepared by Nease, Lagana, Eden & Culley, Inc. include discussion or application of current generally accepted legal, accounting or actuarial principles intended to assist you in your planning efforts. These materials represent our understanding of such principles and are not intended to constitute advice or opinions on legal, accounting or actuarial matters. Tax laws, accounting principles and other governing regulations are subject to periodic changes. You should consult private counsel for advice on the application of legal, tax, accounting and actuarial laws, regulations and practices to your specific factual situations.

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QUESTIONS WE WILL ANSWER

What is Long Term Care (LTC)?

What are the current trends in LTC planning?

What are the alternatives to pay for LTC?

Is Long Term Care insurance right for your family?

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AGENDA What is Long Term Care

Current Trends▬ Medicaid and LTC

▬ LTC Partnership Plans

▬ Combination LTC Policies

Who Should Consider LTC▬ Boomers

▬ Medicare Generation

▬ Women

LTC Insurance Options▬ Key Design Elements of LTC Plans

▬ Individual LTC Policies

▬ Combination LTC Alternatives

▬ Alternatives to LTC Insurance

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WHAT IS LONG TERM CARE?

Long Term Care (LTC) is the assistance you need when a serious illness or disability renders you  unable – physically or cognitively – to perform one or more of the Activities of Daily Living (ADLs) for a lengthy period of time. 

LTC can range from help with day‐to‐day activities in the home ‐such as bathing, dressing, preparing meals ‐ to more sophisticated services like skilled nursing care.

It is NOT provided in a hospital, and it is NOT limited to nursing homes.

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WHAT IS LONG TERM CARE?

Long Term Care can be given in a variety of settings: 

Nursing Home (NH)

Assisted Living Facility  (ALF)

Adult Day‐Care (ADC)

Community Care Centers

Your Own Home (HHC) or elsewhere

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WHO WILL NEED LTC?

According the Department of Health and Human Services*

▬ “About 70% of people over the age of 65 will require some type of long term care during their lifetime.”

▬ “Women are more likely to need long‐term care than men, primarily because women tend to live longer.”

Therefore, Long Term Care should be considered during the financial planning process.

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* www.longtermcare.gov

CURRENT TRENDS –MEDICAID AND LTC

Medicaid is a welfare assistance program for low‐income individuals and is the largest payer of long‐term care expenses in the country.

Medicaid programs are restricted to the financially indigent.▬ You are allowed to keep a small amount of your assets.  Limits vary by 

state, but in general the amounts are:● $2,000  ‐ $3,000 for single persons

● $109,560 for married couples

▬ Exempt assets include:● Principal residence if equity below $500,000 ($750,000 in some states)

● Automobile

● Personal property (up to reasonable limits)

● Wedding and engagement rings

● Life insurance

● Burial plots

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CURRENT TRENDS –MEDICAID AND LTC

The Deficit Reduction Act of 2005 was the boldest move by the federal government to date in the ongoing battle to preserve Medicaid for the truly needy.

▬ When determining eligibility, Medicaid takes into account assets you have now and assets you did have.● The “look back” period is now 5 years – not 3 years.

▬ The “look back” period begins with the date of Medicaid application.

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CURRENT TRENDS –LTC PARTNERSHIP PLANS

A partnership between the government and the private sector that actually works.▬ States promote the purchase of private Long Term Care (LTC) 

insurance as the first line of payment.

▬ Should insurance eventually run out, access to Medicaid through special eligibility rules  could help individuals fund continued expenses.

Special eligibility rules allow benefits paid out under certain LTC policies to be exempt from eligibility calculations.▬ Dollar‐for‐dollar formula

Win‐Win▬ States reduce future Medicaid obligations.

▬ Insured receives LTC benefits and preserves assets for children. 

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CURRENT TRENDS –COMBINATION LTC POLICIES

Common concern with traditional LTC policies“If I don’t use the benefit, I wasted money.”

Possible  solution – combination  policies▬ More than one type of coverage under the same policy

● LTC and Life Insurance

● LTC and Annuity

▬ “Best of both worlds” concept answering the question, “What do I get from this policy if I don’t use it for long‐term care?”

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WHO SHOULD CONSIDER LONG TERM CARE

Boomers▬ In general,

● Have been very protective of their own children—giving them the best of everything whenever possible.  If so, then shouldn’t that extend to keeping the kids out of a caregiving role?

● Believe that the problem is years away (if at all), leaving plenty of time to plan.

▬ Should consider it early● Less about long term care and more about preretirement planning.

● Projected LTC costs*

● Include and plan for both medical and long term care expenses.

● Consider transferring long term care risk as part of overall retirement plan.  

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1 Year of Care 3 Years of Care 5 Years of Care

Cost Today $73,000 $225,570 $387,500

In 10 Years $98,100 $303,200 $520,800

In 20 Years $131,850 $407,500 $700,000

* “Nursing Home Care, Assumes 3% Annual Increase in Costs,” 2011 Sourcebook for Long-Term Care Information

WHO SHOULD CONSIDER LONG TERM CARE

Medicare Generation▬ Tend to realize the need for care in the future.

▬ Closing in on long‐term care—faster & faster.

▬ Desire to preserve assets for family.

▬ Planning considerations● Use LTC policy to supplement other financial resources.

● Use a combination option (life or annuity).

● Reposition assets to leverage long‐term care assistance.

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WHO SHOULD CONSIDER LONG TERM CARE

Women (> 50 years old)▬ Primary concern tends to be not having enough money as they age.

▬ Higher potential for long term care needs (and expenses).*● Live longer than men

● More likely to reach age 85

● For those age 75+, are far less likely to be married than men

● More likely to suffer from Alzheimer’s disease 

▬ Two‐thirds of long‐term care insurance claim dollars go to women.**● Women who buy long‐term care insurance tend to be the ones that use it.

▬ Planning considerations● Married couple could insure the women only.

● Single or widowed women should consider alternatives at younger ages.

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* “Long-Term Care Planning is Especially Important for Women,” (Westlake Village, CA: American Association for Long-Term Care Insurance, 2010). ** “The Choices You Make Today May Give You Better Choices Tomorrow,” American Association for Long-Term Care Insurance, 2010 Industry Research Analysis

KEY DESIGN ELEMENTS OF INDIVIDUAL LTC INSURANCE POLICIES

Tax Qualified (TQ)

▬ The majority of LTC insurance contracts are Tax Qualified.

▬ Benefits are not taxable, and premiums may be deductible.

▬ Standard definition of chronically ill● The inability to perform, without substantial assistance from another 

individual at least two of six activities of daily living (ADLs) for an expected period of at least 90 days due to a loss of functional capacity; OR

● The need for substantial supervision to protect one from threats to health and safety due to severe cognitive impairment.

● ADLs include:  bathing, dressing, eating, transferring, toileting, & continence

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KEY DESIGN ELEMENTS OF LTC INSURANCE PLANS

Four major coverage selections1. Amount of Coverage

• Expressed as a daily or monthly benefit amount (e.g. $175/day or $5,250/month).

• Use the average cost of a skilled nursing facility (SNF) as a starting point.

2. When Benefits Begin• Elimination Period (EP)

• Number of days one must self‐insure before benefits are paid.

• Typical periods are 30, 60, 90, 100, 180, and 365 days.

• The longer the wait, the lower the premium.

• Some policies have two options via a wavier of elimination period for home care benefits.  

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KEY DESIGN ELEMENTS OF LTC INSURANCE PLANS

Four major coverage selections3. Duration of Benefits

• Benefit Period (BP) 

• The longer the period, the greater the premium

• Typical periods range from 2 – 10 years

• Likelihood of a need for longer than 3 or 4 years is low

4. Inflation• One of the most important elements of a long term care contract

• Options include:• Guaranteed purchase option

• Inflation‐specific riders (e.g. 3%, 5%, CPI)

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Duration of Claim % of Insured*

Longer than 3 years 13.1%

Longer than 4 years 7.6%

Longer than 5 years 4.5%

* Milliman, Inc., A Special Report on Long-Term Care Insurance Protection, 2010 AALTCI

EXAMPLE of an INDIVIDUAL LTC INSURANCE POLICY

60 year old Female 1

▬ $200/day benefit

▬ 90‐day Elimination Period

▬ 4‐year Benefit Period

▬ 5% Inflation (compounded)

Annual premium▬ $3,765 for all years, or 

▬ $11,330 for 10 years 

Total benefit is $292,000 ($200 x 365 days x 4 years) adjusted for inflation

Observations▬ Inflation protection is valuable.

▬ Premiums are not guaranteed and rates can increase on the group.

1 Preferred risk class, Prudential LTC3 contract

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POWER OF RISK TRANSFER

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60 year old Female

LTC needs▬ $200/day inflated at 5%

▬ Begins in 23 years at age 82

Assets grow at 4% per year.

LTC Policy (with annual premiums) as described on previous page

Year Age 

Estate ValuationsNo Insurance       & No LTC Event

No Insurance             with LTC Event

With Individual          LTC Insurance 

1 60 1,000,000 1,000,000 1,000,0002 61 1,040,000 1,040,000 1,036,0843 62 1,081,600 1,081,600 1,073,6124 63 1,124,864 1,124,864 1,112,6415 64 1,169,859 1,169,859 1,153,23110 69 1,423,312 1,423,312 1,381,87415 74 1,731,676 1,731,676 1,660,05320 79 2,106,849 2,106,849 1,998,50021 80 2,191,123 2,191,123 2,074,52422 81 2,278,768 2,278,768 2,153,58923 82 2,369,919 2,147,833 2,239,73324 83 2,464,716 2,000,556 2,329,32225 84 2,563,304 1,835,729 2,422,49526 85 2,665,836 1,652,066 2,519,395

Difference 0 (1,013,770) (146,441)% of Estate 0% ‐38% ‐5%

Long Term Care Event

EXAMPLE of a COMBINATION LIFE INSURANCE POLICY

Life insurance policy with Long Term Care rider▬ Premiums and death benefit are guaranteed.

▬ If and when paid, LTC benefits reduce death benefit.

60 year old Female 1

▬ $300,000 death benefit / $300,000 LTC benefit

▬ $6,000 maximum monthly benefit

Annual Premium*▬ $5,595 for all years, or 

▬ $10,792 for 10 years

Observations▬ Premiums are guaranteed.

▬ Death benefit, reduced by any LTC payment, will be paid to beneficiary.

▬ No automatic inflation protection.1 Preferred risk class, Nationwide Marathon NLG contract

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*$4,453 and $9,042 annual premium without LTC rider

ALTERNATIVES TO INSURANCE

Is LTC Insurance right for everyone?

No….LTC Insurance is NOT for those:▬ With no assets to protect

▬ Not interested in leaving an estate

▬ Who cannot afford the premium

▬ Who cannot medically qualify

▬ Who elect to self insure

Alternatives include:▬ Medicaid

▬ Reverse mortgage

▬ Life settlement (if life insurance policy is already owned)

▬ Veterans Aid & Assistance Program

▬ Children or other family members

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CONTACT INFORMATIONCONTACT INFORMATION

Pl CFG Fi i l Ad i f Please contact your CFG Financial Advisor for more information.

1000 Abernathy Road, Bldg 400, Suite 1500Atlanta, GA 30328Ph (770) 913 9704 / T ll F (800) 435 8526 / F (770) 913 9619Phone: (770) 913‐9704 / Toll‐Free: (800) 435‐8526 / Fax: (770) 913‐9619