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Searching for Long Term Care Alternative Funding Options Life Insurance: The Living Asset LTC Funding, LLC www.LTCFunding.com.

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Presentation on theme: "Searching for Long Term Care Alternative Funding Options Life Insurance: The Living Asset LTC Funding, LLC www.LTCFunding.com."— Presentation transcript:

1 Searching for Long Term Care Alternative Funding Options Life Insurance: The Living Asset LTC Funding, LLC

2 Life Insurance:The Living Asset Trusted senior advisors are alerting their clients and families that a valuable asset, their Life Insurance Policy, may provide a new funding source for Long Term Care costs.

3 The Search for Funding Options As of January 1, 2011, 10,000 Baby Boomers started turning 65 every day; a pace that will continue uninterrupted for the next 20 years 1.As of January 1, 2011, 10,000 Baby Boomers started turning 65 every day; a pace that will continue uninterrupted for the next 20 years 1. The US Government reports that 70% of seniors will require long term care services at some point in their lives 2.The US Government reports that 70% of seniors will require long term care services at some point in their lives 2. Less than 10% of seniors own private long term care insurance 3.Less than 10% of seniors own private long term care insurance 3. Long term care includes home health care, assisted living facilities, skilled nursing care and memory care facilities.Long term care includes home health care, assisted living facilities, skilled nursing care and memory care facilities. Every day 7,000 Americans Start Receiving Long Term Care 1.Pew Research Center, Dec Medicare.gov 3.National Bureau of Economic Research

4 National Average Annual Long Term Care Costs Skilled Nursing Facility$83,585 Assisted Living Facility$39,516 Memory Care$85,045 Home Health Care$43, Pew Research Center, Dec. 2010

5 The Role of the Family Care Giver A Family Care Giver is an essential part of the senior long term care process. By definition, a Family Caregiver is a spouse, adult children, other relative or friend that has a personal relationship with the patient and provides a broad range of unpaid assistance for an older adult with a chronic or disabling condition.

6 A Metropolitan Life Insurance Study 1 released in 2011 estimated nearly 10 million adult children over the age of 50 care for their aging parents. Currently, 25% of adult children, primarily Baby Boomers, provide this type of care to a parent. These family care givers are aging themselves, as well as providing care at a time when they also need to be planning and saving for their own retirement. The total estimated aggregate lost wages, pension and Social Security benefits of these caregivers is nearly $3 trillion, or approximately $300,000 per caregiver. The Role of the Family Care Giver 1. Metlife Mature Market Study

7 Many seniors and their families mistakenly believe Medicare and Medicaid were designed to provide care for all their long term care needs. Medicare/Medicaid and Long Term Care Coverage

8 The Medicare and Medicaid Long Term Care Myths Medicare covers only medically necessary care and focuses on acute care. It does not pay for the largest part of long term care services, such as help with bathing, eating, dressing or custodial supervision. Subject to certain qualifying conditions. Medicare will pay for skilled care up to 100 days maximum. Medicare and Long Term Care Coverage

9 Medicaid and Long Term Care Coverage Medicaid was designed for individuals who financially qualify due to their low income or limited assets. It is a state and federal partnership that pays for certain health services and skilled nursing care to seniors. It was not designed to provide long term care services for the general US population. If you are interested in exploring Medicaid availability in your state, it is wise to seek the counsel of an Elder Law attorney or Medicaid planner.

10 Private Market Long Term Care Options It is imperative that seniors and their families understand what potential long term care fundingoptions may be available to them. Trusted senior advisors such as a: Long Term Care Specialist CPA Financial Advisor Insurance Advisor Attorney Geriatric Care Manager or a Guardian will be the resources these families rely upon in weighing their long term care funding options. Before charting a care plan you must understand the familys financial situation.

11 Alternative Long Term Care Options Life Insurance: The Living Asset An owner of a life insurance policy can transfer, convert or sell the policy. 1An owner of a life insurance policy can transfer, convert or sell the policy. 1 The sale of a policy for more than its cash surrender value but less than the death benefit is called a Life Settlement.The sale of a policy for more than its cash surrender value but less than the death benefit is called a Life Settlement. This is a highly regulated transaction.This is a highly regulated transaction. The proceeds from a life settlement can be converted into a fund used to pay for long term care services.The proceeds from a life settlement can be converted into a fund used to pay for long term care services. 1. The Supreme Court Case of Grigsby v. Russell (1911) established a life insurance policy owners right to transfer or convert the use of an insurance policy.

12 Alternative Long Term Care Options Life Insurance: The Living Asset According to the National Association of Insurance Commissioners (NAIC) there is over $27 trillion of life insurance in-force today that is owned by approximately 150 million Americans. Most of these policy holders have no idea what their legal right of ownership is.According to the National Association of Insurance Commissioners (NAIC) there is over $27 trillion of life insurance in-force today that is owned by approximately 150 million Americans. Most of these policy holders have no idea what their legal right of ownership is. In a 2010 survey, 40% of seniors acknowledged they had lapsed or surrendered a life insurance policy, primarily because their life insurance needs had changed or in some cases felt their premium payments were not justified. 1In a 2010 survey, 40% of seniors acknowledged they had lapsed or surrendered a life insurance policy, primarily because their life insurance needs had changed or in some cases felt their premium payments were not justified August 2010 Insurance Studies Institute

13 What determines how much the life settlement will be? Age of clientAge of client Life expectancyLife expectancy Amount of Death Benefit (usually needs to be $50K+)Amount of Death Benefit (usually needs to be $50K+) Cost of the insurance (Premium payments)Cost of the insurance (Premium payments)

14 Eligible policies Whole lifeWhole life Universal lifeUniversal life Group lifeGroup life And even Term Life!And even Term Life!

15 Why would a client want to do this? Cannot afford the premiumsCannot afford the premiums No longer need the policy for its intended purpose.No longer need the policy for its intended purpose. So rather than surrendering or lapsing the policy – there is another option.So rather than surrendering or lapsing the policy – there is another option.

16 Conversion of Life Insurance into a Long Term Care Benefit Through a Life Settlement transaction, the owner of an in-force life insurance policy (term, convertible term, whole and universal life, group) may convert the death benefit into a long term care plan to assist in paying the costs associated with long term care. Typically, the minimum face value (death benefit) must by $50,000 or greater. This benefit is set up through an irrevocable trust by a third party and is administered by a third party administrator. In turn, the trust establishes a contract with the long term care facility or provider (home health, assisted living, skilled nursing care, memory center or life care community) as directed by the former policy owner. If the senior needs to change facilities, a new contract is established between the trust and the new facility. Importantly, in the event the policy seller dies prior to the trust being fully utilized, the funds remaining in the trust are distributed to the designated beneficiaries.

17 Life Insurance Fund to pay for Long Term Care Irrevocable trust Irrevocable trust Funds paid directly to the care provider Funds paid directly to the care provider

18 Benefit Example #1

19 Benefit Example #2

20 Benefit Example #3

21 Life Settlement Taxation IRS Revenue Ruling (Aug 2009): 1.Term policies: The aggregate amount of premiums paid above the cost of insurance or amount required to keep policy in force are considered the basis and are tax free. Amounts of the settlement received above the basis will have life settlement taxation as capital gains. 2.Whole life or universal life: Life settlement taxation of universal and whole life policies addresses the more complex nature of these policies. The amount paid in insurance premiums above the cost required to keep in-force (cost of insurance) has no life settlement taxation or in other words – is treated as tax free. The settlement amount up to the cash surrender value (less premium payments exceeding the cost of insurance) will be taxed as ordinary income. Taxes on life settlement proceeds above the cash surrender value will be taxed as capital gains. Consult a tax professional to determine whether taxes need to be paid on a life settlement transaction.

22 Life Insurance: The Living Asset Summary 10,000 Baby Boomers turn 65 each day for the next 20 years.10,000 Baby Boomers turn 65 each day for the next 20 years. 70% of Americans will need some form of long term care in their lifetime.70% of Americans will need some form of long term care in their lifetime. Less than 10% of seniors own Long Term Care Insurance.Less than 10% of seniors own Long Term Care Insurance. Health care costs continue to inflate and life expectancies continue to expand.Health care costs continue to inflate and life expectancies continue to expand. 25% of Americans over age 50 are acting as caregivers for families or friends.25% of Americans over age 50 are acting as caregivers for families or friends. The emotional and financial cost ($300,000) of being a caregiver is staggering.The emotional and financial cost ($300,000) of being a caregiver is staggering. Medicare and Medicaid were designed to provide LTC assistance to eligible Americans.Medicare and Medicaid were designed to provide LTC assistance to eligible Americans.

23 Life Insurance: The Living Asset Summary More than 150 million Americans own over $27 trillion of in-force life insurance.More than 150 million Americans own over $27 trillion of in-force life insurance. Supreme Court established (1911) that life insurance is an asset that can be transferred /sold in a secondary market.Supreme Court established (1911) that life insurance is an asset that can be transferred /sold in a secondary market. Life settlements allow individuals to sell, transfer or convert their life insurance into a Long Term Care benefit.Life settlements allow individuals to sell, transfer or convert their life insurance into a Long Term Care benefit. Settlement offers are determined by life expectancies and premium costs that are transferred to the purchaser of the Life Insurance Policy.Settlement offers are determined by life expectancies and premium costs that are transferred to the purchaser of the Life Insurance Policy. An LTC Benefit is funded through an irrevocable trust in the event the death of the insured, any remaining funds are paid to designated beneficiaries.An LTC Benefit is funded through an irrevocable trust in the event the death of the insured, any remaining funds are paid to designated beneficiaries. Professional tax counsel should always be consulted regarding Life Settlements.Professional tax counsel should always be consulted regarding Life Settlements.

24 This presentation was brought to you by LTC Funding, LLC and Trusted Senior Advisors, Long Term Care Facilities and Providers in Your Geographic Area. As stated earlier we have two core beliefs: 1.To ensure that every senior and their family (often the primary caregiver) has a complete understanding of what financial options may be available to them to assist in paying for long term care costs; and 2.To align seniors and their families with local trusted advisors and to provide assistance with identifying long term care facilities and providers in their area. If you do not have a local trusted senior advisor please contact us and we will have a senior advisor from your area contact you. LTC Funding, LLC Thank you from all of us at LTC Funding.


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