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1. Financing Long Term CareInsurance to prevent seeing your parents naked – You don’t need to bathe your Mama!

2. You may download this presentation from our website.

3. Agenda • The Problems • Getting old stinks • Being old is likely to be very costly • Very few Americans are prepared • Funding long term care expenses could include: • Traditional Long Term Care Insurance • Life insurance with accelerated death benefits to pay for extend health care • Annuities with accelerated benefits for chronic or extended care • Life Settlements • HECMs – Home Equity Conversion Mortgages Brokers and independent agents are vital to helping solve the problem!

4. AgeLess: a prescription for successful aging

6. Long term care is very costly • The need for LTC poses a significant financial risk • Many people mistakenly believe they are covered • Medicare does not cover long term care • Americans are living longer than ever before • The 2017 median cost: • Home-health aide for an eight-hour day is more than $48,000 a year • Assisted Living Facility is $46,000 per year • Nursing Home care in a facility with a private room has a median cost of over $96,000 a year1 1Genworth 2017 Cost of Care Survey https://www.genworth.com/about-us/industry-expertise/cost-of-care.html

7. Very Few Americans are prepared • In 2010, 12,000,000 Americans needed LTC • By 2050, more than 27,000,000 will need LTC • Over the next two decades, an unsustainable demand for extended care will emerge • Challenges: • Aging population • Increasingly limited personal resources • Growing strains on federal, state and family budgets Source: Bipartisan Policy Center (2014) America’s LTC Crisis: Challenges in Financing and Delivery

8. Average Cost of Care: $87,600 per year for private room in 2014 If medical inflation is @ 3.5% By 2025 with inflation + $123,568 By 2035 with inflation = $174,305 • Trends that could impact costs of Long-term Care: • Baby Boomers – number of people needing care at same time • Medical Technology – Life expectancy increasing - costs more • Family Dynamics – Who is providing care now? • Government – What programs will be available? Who will qualify? Source: Genworth Financial, www.genworth.com; April 22, 2015

9. According to The National Long-Term Care Clearinghouse: • About 70% of individuals over age 65 will require at least some type of long-term care service during their lifetime • Over 40% will need care in a nursing home for some period of time • Women need care for longer (avg. 3.7 years) than do men (avg. 2.2 years) • Projected cost for extended care in 2032: • Men: $ 174,305 per year, average 2.2 year extended care = $ 383,471 • Women: $ 174,305 per year, average 3.7 year extended care = $ 644,928 • Alzheimer’s: $ 174,305 per year, average 8 years for Alzheimer’s= $1,394,440 • Source: U.S. Department Source: U.S. Department of Health and Human Services, www.longtermcare.gov, 4/12/12

10. Perhaps you can relate to why families don’t plan for care 2 The timing of care was unforeseeable 3 Care recipient did not want to talk about it 1 Did not want to admit care was needed 2 The timing of care was unforeseeable 3 Care recipient did not want to talk about it 1 Did not want to admit care was needed Genworth’s Beyond Dollars Study, July 2015

11. Four Questions to Ask Your Loved Ones • What are your concerns? • What are your housing preferences if your situation changes? • What arrangements have you already made? • Are you concerned about running out of money while it is still needed?

12. Building a pyramid of need 5 Challenges Later in Life: • Pre-retirement shocks • Health care costs • Longevity • Alone late in life • Chronic illness care

13. Building a pyramid of need • Pre-retirement shocks

14. Pre-retirement shocks are common • Serious health problems like cancer, stroke, hip fractures, etc. • Job loss (long time unemployed) • Alone as you approach retirement • Frail parents or in-laws • Children born later in life • Adult children • Grandchildren

15. Postponing retirement may not be an option Almost 5in10 people retire earlier than planned, mainly because of: • Poor health • Job loss, or • Need to care for spouses or other family members Our financial obligations don’t end at a milestone age of 60, 65, or the day we retire. Our obligations continue for as long as the people we love need our help. Helman R, et al. The 2015 Retirement Confidence Survey. Employee Benefit Research Institute. April 2015, p.26-27.

16. Building a pyramid of need • Pre-retirement shocks • Health care costs

17. Medicare won’t pay all the bills What is the estimated average out of pocket medical costs for a 65-year-old couple retiring in 2015? $245,000* … and even more if chronic illness care is needed *Health Care Costs for Couples in Retirement Rise to an Estimated $245,000. Fidelity Investments. October 8, 2015. Based on a hypothetical 65-year-old couple with average life expectancies of 85 for a male and 87 for a female, with costs in 2015 dollars.

18. Building a pyramid of need • Pre-retirement shocks • Health care costs • Longevity

19. Life expectancy For healthy men and women who are now age 87 65 … Men: life expectancy is 89 Women: life expectancy is 2015 Valuation Basic Table, Nonsmoker Select and Ultimate mortality rates, Age Last Birthday Basis. American Academy of Actuaries and Society of Actuaries.

20. Living to age 90 and beyond is common For healthy people age 65, almost 4 in 10 men and half the women will live to age 90 90 Age 95 Age • about 1 in 7 men and 1 in 4 women • almost 4 in 10 men and half the women • about 3 in 100 men and 7 in 100 women 100 Age 2015 Valuation Basic Table, Nonsmoker Select and Ultimate mortality rates, Age Last Birthday Basis. American Academy of Actuaries and Society of Actuaries.

21. Building a pyramid of need • Pre-retirement shocks • Health care costs • Longevity • Alone late in life

22. Many older people, especially women, live alone Because women generally live longer than men and are more likely to be widowed, 53% of women are living alone at age 85+ Medicare Current Beneficiary Survey. Demographic and Socioeconomic Characteristics of Noninstitutionalized Male and Female Medicare Beneficiaries, by Living Arrangement and Age, 2012. October 23, 2014. Table 1.4b, p.46; Table 1c, p.48. (Accessed August 12, 2015). Values in chart may not total 100% due to rounding.

23. Building a pyramid of need • Chronic illness care • Pre-retirement shocks • Health care costs • Longevity • Alone late in life

24. The 5 concerns of chronic illness care Who Whatduration Why 5 concerns ofchronic illness care When Where

25. Conditions that require chronic illness care 1 U.S. Department of Health and Human Services. http://longtermcare.gov/medicare-medicaid-more/medicare/ (Accessed August 17, 2015). 2 Favreault M, et al. Long-term Services and Supports for Older Americans: Risks and Financing. ASPE Issue Brief. Department of Health and Human Services. July 2015, p.2.

26. Most chronic illness care is provided at home Freedman VA, et al. Disability and Care Needs among Older Americans. The Milbank Quarterly. Vol.92, No.3, p.509 – 41, August 26, 2014.

27. Families pay for most chronic illness care The U.S. spends nearly $725 billion per year on chronic illness care. Most of the care is provided by family members. Of every $100 spent on care, $71 is paid by families. The State of Long-Term Care Financing. The Scan Foundation. March 19, 2013. This report estimates the economic value of family caregiving at $450 billion based on 42.1 million caregivers age 18 or older providing an average of 18.4 hours of care per week to care recipients age 18 or older, at an average value of $11.16 per hour.

28. Short-term care Duration of short-term care in a skilled nursing facility is usually well within the 100 days covered by Medicare1 Average duration of short-term care in a skilled nursing facility is 27 days2 1 Medicare & Medicaid Statistical Supplement, Table 6.5. Centers for Medicare & Medicaid Services. http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareMedicaidStatSupp/2013.html. (Accessed August 17, 2015). 2 A Data Book: Health care spending and the Medicare program, June 2015. Medicare Payment Advisory Commission, Chart 8-4, p.116.

29. Extended care Extended care lasts for many months, years, or the remainder of life Projected need for extended term care for people turning 65 in 2015 Favreault M, et al. Long-term Services and Supports for Older Americans: Risks and Financing. ASPE Issue Brief. Department of Health and Human Services. July 2015. Table 1, p.4. Values in chart may not total 100% due to rounding.

30. Costs will be higher for women Projected average lifetime out-of-pocket costs for people turning 65 in 2015 who need long-term care Projected average out-of-pocket costs are 44% higher for women who need long-term care than for men who need care. • $80,500 • $69,800 • $55,900 Favreault M, et al. Long-term Services and Supports for Older Americans: Risks and Financing. ASPE Issue Brief. Department of Health and Human Services. July 2015

31. What will you want? Question: When planning for chronic illness care that might be needed for months, years, or the remainder of life, and at a time 20 years or more in the future where your circumstances could be far different than today, what will you want? • Answer: • Maximum flexibility and the freedom,choice, and controlto be cared for as you think best at the time.

32. So what are the solutions to this LTC problem?

33. Some Solutions Include: • Self Insurance • Welfare (Medicaid) • Long Term Care Insurance • Hybrid or Linked Benefits with Accelerated Death Benefits (ADBs) • Life Settlements • Home Equity Conversion Mortgages

34. Traditional Long Term Care Insurance • The LTCI product has gone through major changes in the past 20 years • Rate increases due primarily to: • Higher than expected number of claims • Low lapse rates • Declining interest rates • Strict underwriting • High new business premiums

35. Traditional Long Term Care Insurance • Redesigned products in 2016 • 3% compound inflation • 5% inflation was the choice 20 years ago • 5-10 year benefit periods • Unlimited benefit options were popular 20 years ago • Quick issue worksite products • 10-pay option • Short Term Care • For less than 365 days

36. Worksite LTCI - “Element” from • All Plans Include: • 2% Compound Inflation Protection • Informal Care • Waiver of Premium • Increase Coverage Option • Refund of Premium up to Age 65 • 1st Day Home Care • 90 Service Day Elimination Period • Shared Benefit is an available option on all plans Select Underwriting Category only.

38. Traditional Long Term Care • Traditional Long Term Care Insurance from NGL • 10-pay premium option • Single Pay • Return of Premium • Great for Corporate sales!

39. Sales Tip:LTCI Return of Premium • The refund is included in the beneficiary's gross income and is taxable, to the extent it was either excluded from the owner's income or deducted by the owner • ROP must be included as income in the year it is received

40. 2019 Tax deductions for Traditional LTCI • C-Corporations get a 100% premium tax deductions • S-Corps (most likely to follow the individual deduction limits) • Individuals • Age 40 or less $420 • 40-49 = $790 • 50-59 = $1,580 • 60-69 = $4,220 • Age 70+ = $5,270 http://www.aaltci.org/long-term-care-insurance/learning-center/tax-for-business.php/

41. Financing Extended Care with Life Insurance or Annuities Pension Protection Act

42. According to 2013 Gallop survey of Non-Qualified Annuity owners:79% intend to use their annuity as a financial resource to avoid being a financial burden on their children73% intend to use their annuity as an emergency fund in the case of a catastrophic illness or for nursing home care Annuities

43. Pension Protection Act Existing annuity (funded with after-tax dollars) $50,000 basis + $100,000 gain ____________ $150,000 cash value Taxes owed on gain which is withdrawn first Withdrawal Long-term care expenses 1035 Exchange $150,000 Withdrawal HIPAA qualified PPA eligible annuity Beginning January 1, 2010, income tax-free as a reduction of cost basis

44. 1035 Exchanges to purchase LTCI protection may offer significant tax advantages • 1035 Exchanges from Life or Annuity: • to a LTCI policy that permits a 1035 exchange • It should be noted that not all insurers will accept a 1035 • Benefits of a 1035 Exchange • A 1035 exchange defers the internal build up of gains associated with the life insurance or annuity policy • Because of the tax-free nature of LTCI, the 1035 exchange effectively ensures that the taxable gain disappears entirely

45. Annuities with a long term care or chronic illness rider • Single premium option — Use existing assets, such as a CD, savings or another annuity, as a one-time-only premium payment and avoid ongoing, non-guaranteed premium payments • Tax-free benefits — Pay no income tax if you use your annuity for qualifying long-term care expenses, regardless of the deferred gain (subject to monthly maximums, and premiums funded after-tax)

46. Example of Life Insurance contract to pay for qualified LTC expenses

47. Non Traditional Resources

48. INTRODUCING IncomeAssuranceSM Immediate Need Annuity • Guaranteed source of monthly income to use for any purpose including: • Living expenses, Medical expenses, cost of extended care Income for life Monthly income guaranteed for as long as the annuitant lives Adverse health may benefit client Medical underwriting usually allows greater benefits than traditional, non-underwritten SPIAs • Life income provides guaranteed monthly payments during the lifetime of the annuitant, no matter how long he or she lives. Monthly income payments will stop upon the death of the annuitant and, therefore, the total amount of payments may be significantly less than the premium paid for the annuity. There is no minimum amount of guaranteed income payments.