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Published byJulia Brady
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Is Long-Term Care Insurance Part of Your Financial Planning And Asset Protection Strategy? © JTR 2004 Revision Presentation Provided By: J.T. RYAN & Associates, Inc. IPGs Long Term Care Partner
What is long-term care (LTC)? No longer able to live independently Prolonged physical illness Disability Cognitive impairment © JTR 2004
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 © JTR 2004
Whats 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 © JTR 2004
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 © JTR 2004 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 © JTR 2004 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 Im covered by Medicare Not designed as a long-term care product Pays 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 $ next 80 days Pays $0 beyond 100 days © JTR 2004
Medicare, Medigap and LTCI Medicare Federal Government Health Insurance Program Medigap Private Health Insurance Medicare Out of Pocket Costs LTCI Private Disability Insurance Help with Daily Living Part A: Hospital Services Inpatient hospital care Some SNF care Hospice care Some home care Most people get Part A at age 65 as a result of paying Medicare taxes while working. Part B: Medical Insurance Doctors services Outpatient hospital services Laboratory services Physical therapists Some 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 Benefits Part A coinsurance Part B coinsurance Some offer Extra Benefits Skilled nursing coinsurance Part A deductible Part B deductible Part B Excess Foreign travel emergency At home recovery Basic and extended drug benefit Preventive care Assistance with daily activities Bathing Dressing Eating Toileting Continence Transferring Cognitive Impairment Memory Orientation Reasoning Care provided in: Nursing facility Assisted living facility Alzheimers facility Adult day care center Home care © JTR 2004
Who funds the cost of LTC? 10% Insurance companies 14% Medicare 32% Family income, savings and investments 44% Medicaid 43% Funded by States 57% Funded by Federal Government Must have spent down assets to poverty level © JTR 2003
Why do people buy LTCI? Protect assets Preserve independence Quality of care choices Avoid depending upon family and friends © JTR 2004
Families and care-giving 84% of working caregivers changed work hours Lost an average of $659,000 in compensation Within two years suffered serious illness ©JTR 2004
Protection for financial security Auto insurance Home insurance Health insurance Life insurance Long-term care insurance? ©JTR 2004
Without Insurance ©JTR 2004 LTC expense could totally deplete a $500,000 nest egg in five years. Assumptions: 1. Family savings of $500,000 including retirement income and savings 2. Household living expenses of $50,000 annually plus 3% annual inflation 3. Nursing home expenses of $66,065 annually plus 5% annual inflation 4. 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? © JTR 2004
What determines the policy costs? Age Health status Daily benefit Benefit period Elimination period Type of care – facility, home or integrated Inflation protection Other benefits Discounts that may apply © JTR 2004
Premium examples © JTR 2004 Purchased Today at Age Daily Benefit Period Inflation Protection Annual Premium 40$100Lifetime5% Compounded$ $100Lifetime5% Compounded$ $100Lifetime5% Compounded$ $100Lifetime5% Compounded$ $100Lifetime5% Compounded$ $100Lifetime5% Compounded$3325 Assumptions: Standard health status Elimination Period of 100 days 100% Home Care No discounts applied Indemnity payment method
Whats 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 & Poors © JTR 2004
What else is important? Type of care Nursing facility Assisted living facility Alzheimers facility Continuing care retirement community Home care International Combination or integrated © JTR 2004
The tax issue © JTR 2004 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 © JTR 2004
Inflation options © JTR 2004
Reimbursement payment method Covers care in a facility Covers home care by certified providers Covers supplies approved by certified providers Can be more flexible if care coordinator used Does not reimburse if paid by another source Stretches pool of funds © JTR 2004
Indemnity payment method Monthly or daily cash payment Covers care in a facility Covers home care Care can be provided by informal caregivers Incidental charges covered Premiums more costly Greater flexibility © JTR 2004
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 © JTR 2004
Why indemnity? 70% of Alzheimers patients live at home 75% of care provided by unpaid caregivers 66% ADL assistance by family and friends © JTR 2004
Other important options Return of Premium Survivor benefit Payment Options Flexibility for retirement income changes Shared Care A solution to rising premiums © JTR 2003
Shared Care A solution to escalating rates for new clients Offers a less costly policy Provides significant benefit period Allows one spouse to use anothers benefits If spouse dies, remaining benefits go to survivor © JTR 2004
MetLife Indemnity Comparison Shared 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 Daily Benefit Annual Premium Years To Age 80 Premium Paid Year 1 40$100$86140$34,440 Year 5 45$130$126835$44,380 Year 10 50$160$178030$53,400 Year 15 55$200$270125$67,525 Year 20 60$260$445820$89,160 Year 25 65$340$825215$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. Single2. Standard health rating 3. MetLife Value Plan with Indemnity Option4. $100 Daily Benefit equivalent adjusted at each age purchase day Elimination Period6. 5- year Benefit Period 7. 5% compounded Inflation Option8. No discounts applied © JTR 2004
The risk of waiting At age 65, 23% uninsurable At age 75, 31% uninsurable © JTR 2004
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? Whats important in a policy? © JTR 2004
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