Transcript Long Term Care Insurance

Critical illness and long term care:
why you need a plan
Disclaimer
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The following information is being presented on the
understanding that it is for information purposes
only. Neither Sun Life Assurance Company of
Canada nor the presenter has been engaged for the
purpose of providing legal, accounting, taxation or
other professional advice.
No one should act upon the examples/information
without a thorough examination of the legal/tax
situation with their own professional advisors.
Agenda
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An inconvenient truth – Today’s health
care realities
The industry’s response – Basics of Critical
Illness and Long Term Care Insurance
Why you need a plan – A rational approach
to quantifying the risk
Talking to clients - Making an emotional
connection to the need
An Inconvenient Truth
Today’s Health Care
Realities
TM and c 2006, Paramount Classics, a division of Paramount Pictures, all rights reserved.
Health care costing
“an arm and a leg”
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For the last ten years,
health care spending has
outpaced both inflation
and population growth
30% of health care
spending ($44 billion in
2006) is funded privately
(via insurance and outof-pocket)
Health care spending to reach $148 billion this year, Canadian Institute for Health
Information, Media Release, December 5, 2006.
Health care costing
“an arm and a leg”
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Government home care
spending reached $3.4 billion
in 2003/04, an average annual
increase of over 9% from
1994/95
Even so, 65% of adults who
needed help with eating,
bathing or dressing did not
receive government-subsidized
home care
Public-Sector Expenditures and Utilization of Home Care Services in Canada:
Exploring the Data, Canadian Institute for Health Information, March 2007.
Kathryn Wilkins. "Government-subsidized home care" in Health Reports, Vol. 17, No.
4, October 2006, Statistics Canada. Based on 2003 statistics.
Care concerns
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Widespread use of anti-psychotic
drugs in nursing homes
Some facilities dispensing the
drugs much more often than
others, sometimes without
identifying obvious need for
them
Serious adverse events
associated with use of antipsychotics (risk of falls, hip
fracture, parkinsonism, death)
“Ont. bill covers anti-psychotics in nursing homes” Canadian Press, April 11, 2007
“Nursing homes with high antipsychotic prescribing rates more likely to dispense drugs
to residents who don’t need them”, Institute for Clinical Evaluative Sciences, Media
Release, April 09, 2007
Medical advances and increased
costs
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Increased prices for
newer drugs
Technological change
likely accounts for 25%
of health expenditure
growth in Canada
“Understanding Health Care Cost Drivers and Escalators”, The Conference Board
of Canada, March 2004
Our bottoms are on the line
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3 in 5 Canadian adults
are overweight or obese
More than 1 in 4
Canadian children are
overweight or obese
Health Reports, Statistics Canada, Vol. 17, No. 3, August 2006
Cancer incidence
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39% of Canadian women and
44% of Canadian men are
expected to develop cancer in
their lifetimes
30% of new cancer cases will
occur in young and middle-aged
adults.
Cancer incidence is rising in
young adults ages 20 - 29 and
females up to age 39.
About 1300 Canadian children
develop cancer each year
Canadian Cancer Society, National Cancer Institute of Canada: Canadian Cancer
Statistics 2007
Cancer incidence rates
Ages 0-64
230
220
210
200
190
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
Source: National Cancer Institute
- Cases per 100,000
- Age-adjusted
Survival rates improving
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Mortality rates have declined for
all cancers combined and for most
types of cancer in both sexes
since 1994 (exceptions are lung
cancer in females and liver cancer
in males)
Five year survival rate for breast
cancer is 86%
Five year survival rate for
prostate cancer is 92%
Canadian Cancer Society, National Cancer Institute of Canada: Canadian Cancer
Statistics 2007
5-year cancer survival rates
70%
65%
60%
55%
50%
45%
19952001
1992-94
1989-91
1986-88
1983-85
1980-82
1977-79
1974-76
Source: National Institutes of Health
Mortality rates – heart diseases
1100
1000
900
800
700
600
500
400
300
200
100
0
Female, ages 45-54
Female, ages 55-64
Source: National Cancer Institute - deaths per 100,000
2003
Male, ages 55-64
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1970
1950
Male, ages 45-54
Who will need care?
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At age 65, the lifetime
probability of
developing either a
need for help with two
or more activities of
daily living for at least
90 days or a cognitive
impairment is 44% for
males and 72% for
females
Cohen, Marc A., Maurice Weinrobe, Jessica Miller, and Anne Ingoldsby. "Becoming
Disabled After Age 65: The Expected Lifetime Costs of Independent Living," AARP
(American Association for Retired Persons) Public Policy Institute, 2005.
Who needs care?
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7.4% of Canadians age 65 and over live in
institutions
31.6% of Canadians age 85 and over live in
institutions
For those who live in private dwellings (not
institutions):
• 8.7% of men and 12.7% of women age 65 and
over receive personal care
• 30.5% of men and 38.5% of women age 85 and
over receive personal care
A Portrait of Seniors in Canada: 2006. Statistics Canada
Proportion of individuals age 65+
25%
Over the last 30
years, the
proportion of
individuals age 65
and over increased
by 23%. Over the
next 30 years, it’s
expected to
increase by 85%.
20%
15%
10%
5%
0%
1986
1996
2006
2016
2026
2036
Life expectancy
85
75
65
1990-92
Female
1980-82
Source: Statistics Canada
1970-72
Male
1960-62
1950-52
1940-42
1930-32
1920-22
55
A shift in risk
Incidence rate
Incidence of death
vs. critical illness
before age 75
Critical illness in males
Death in males
Critical illness in females
Death in females
Current age
Source: Munich Reinsurance Co., 2003
Source of financial risk
R
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Before
Today
Dying
Surviving
Life Insurance
Critical Illness
& LTC
Insurance
The Industry’s Response
Basics of Critical Illness
and Long Term Care
Insurance
Critical illness insurance
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Provides a tax free lump sum benefit upon
diagnosis of a covered condition
30 day survival period
Used at the client’s discretion
Optional ‘cost-recovery’ benefits: return of
premium on cancellation/expiry; return of premium
on death
Critical Illness Insurance
Definition
• No specific provisions in the Income Tax Act
• Critical illness insurance is NOT Life or Disability
insurance
• Can be illness or accident insurance – CRA
technical interpretation (2003-0026385)
CII – Individual Ownership
Premiums
• Are not tax deductible
• Are considered to be personal in nature
• Will not give rise to a credit for medical expenses
Benefits
• Received are non-taxable
Return of Premiums
• Non-taxable, both during lifetime and at death
CII – Corporate Ownership
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Employee as benefit payee - Premium is taxable
benefit for employee, employer deduct premium,
benefits non-taxable for employee
Shareholder as benefit payee – may not deduct
premium
Company as benefit payee – premium is capital
expenditure not a current expense, no deduction
Key Fact: CII benefits will not give rise to a credit to
the capital dividend account
Standard Critical Illness Offering
Feature
Options
Plan types
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T10, T20, T65, T75, T100
# of illnesses
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Range from 3 to 25+
Partial payouts
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Child Plans
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Return of Premium
•
Convertibility
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Usually 3-4 illnesses
• 10% to 25% of base, typically to a max.
of $50,000
Either as a rider or stand alone
• Additional child hood illnesses
At death (attachment)
• Expiry, and cancellation (attachment).
value is guaranteed
T10 can convert to T75 or T100
Return of Premium
40, MNS, $150,000, end of 15 years
Base Premium
$1,788
+
ROPC
Premium
$822
13.5%
5%
Benefit
$150,000
ROP
$39,150
Guaranteed
Note: Based on Sun T75, with ROPC at 15 years. Base premium includes annual ROPD
premium of $106.50. Interest rate calculations done on beginning of period basis.
Alternative
Investment
$18,624
Target Market
All that qualify!
“Primary market”
Ages 30-55
• Business owners / Professionals
• Families / Singles
• Mortgage protection
• Women
Ages 2-65
• Business owners / Professionals
• Families / Singles / Children
• Mortgage protection
• Women
SLF placement rates, 2006
Declined/
postponed
11%
Placed
77.5%
Not proceeded
w ith*
11.5%
2005 Industry placement rates ranged from 60% to
76%.
Source: Munich Re’s Critical Illness Survey 2006
*Not proceeded with includes: incomplete medicals, offers not accepted by the client, no reply, and clients choosing not to proceed with the application.
Claims Since Inception - % Paid
Heart Attack
14%
Stroke
5%
Cancer
70%
Others
5%
Coronary Artery
Bypass Surgery
4%
Multiple Sclerosis
2%
Munich Re’s Critical Illness Survey, 2006
Long term care insurance
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Provides a tax free benefit if you are unable to take
care of yourself (need another person to help you
perform two or more activities of daily living – e.g.
bathing, dressing or require continual supervision
due to mental deterioration)
Product details: three plan styles
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Reimbursement: reimburse expenses for eligible
services* received on a given day, up to a predetermined maximum
Indemnity: pay a pre-determined daily benefit if the
insured person receives any eligible service(s)* on
that day (even if the service(s) cost more or less than
the pre-determined daily benefit amount)
Income: provide an income when the insured person
requires care, without requiring a plan of care or
proof of service
*An individual plan of care is created for each
claimant. The plan specifies the types and frequency
(hours per day, days per week) of eligible services.
Customized plan design
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Benefit type(s) - comprehensive benefit, facility care
benefit
Benefit amount - from $150 - $2000 per week with or
without inflation protection
Benefit duration - 100, 150, 250, or unlimited weeks)
Waiting period - 30 day, 90 day (option of 0 day for facility
care if both benefit types selected)
Optional return of premium on death benefit
Payment period:
– Longer of 20 years or to age 55
– Lifetime
Primary question to determine whether
someone is eligible to claim:
Is the person dependent on another
person for care?
Two ways to be considered
‘physically dependent’
1. Needs continual supervision by another person for
protection from threats to their physical health and
safety as the result of deterioration in mental
ability from an organic brain disorder*
*Organic brain disorders cause physical changes in the brain
– Alzheimer’s, other forms of senile dementia, and brain
injuries (from accidents or from strokes) are examples of
organic brain disorders
Two ways to be considered
‘physically dependent’
2. Always needs substantial physical assistance or
stand-by assistance* from another person to safely
and completely perform 2 or more of the
“activities of daily living” – with or without the
aid of assistive devices
*Stand-by assistance means the other person must be within
arms reach of the insured person each time the relevant
activity of daily living is performed
Activities of daily living
• Bathing – washing oneself in a bathtub or shower
(including getting in and out of the bathtub or
shower) or by sponge bath
• Dressing – putting on, taking off, fastening and
unfastening clothing and medically necessary
braces or artificial limbs
• Feeding – ability to get food into the body through
the mouth or by a feeding tube
Activities of daily living
• Toileting – getting to and from and on and off the
toilet and performing associated personal hygiene
• Transferring – moving into or out of a bed, chair or
wheelchair
• Continence – ability to control both bowel and
bladder functions, or maintain a reasonable level of
personal hygiene (including caring for catheter or
colostomy bag)
Use of assistive devices
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An assistive device is a device or tool that assists users in
accomplishing day-to-day tasks
Home renovations (significant removal or replacement of
any part of an existing residence) are not assistive devices
Examples of assistive devices to aid with bathing and
dressing (most often, these are the first two activities of
daily living that are lost):
– grab bar, bath stool, hand-held shower head, longhandled brush, long-handled shoe horn, sock puller
Use of assistive devices
• If insured person can independently use an assistive
device to safely and completely perform an activity
of daily living, then she/he is not dependent on
another person for that activity
• If insured person uses an assistive device but also
remains dependent on another person, she/he is still
considered dependent for that activity
Tax treatment
• No specific income tax laws for long term care
insurance
• The following information is what we believe based
on current tax laws and current CRA interpretation
Tax treatment – individual
ownership
Can premiums be used when calculating the
medical expense tax credit?
• Only if the plan qualifies as a private health
services plan (PHSP)
• Income- and indemnity-style long term care
insurance plans do not qualify as PHSPs
• Reimbursement-style long term care insurance
plans may or may not qualify as PHSPs
Tax treatment – individual
ownership
Are benefits taxable?
• Cash benefits from income- or indemnity-style
long term care insurance plans should not be taxed
• Reimbursements made from LTCI plans are not are
not taxed
Tax treatment – individual
ownership
Are actual medical expenses eligible for the
medical expense tax credit?
• With income- and indemnity-style plans, actual
medical expenses may still be used when
calculating the medical expense tax credit
• With reimbursement-style plans, only expenses
that are not reimbursed are eligible
Placement rate (policies)
Placement rate and target market
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Target Market
<30 31- 40- 45- 50- 55- 60- 65- 70- 75+
39 44 49 54 59 64 69 74
Age
Source: Sun Life
Why you Need a Plan
A Rational Approach to
Quantifying the Risk
Cost of care
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Facility care:
– Waiting lists can be long (one or two years)
– Is this where you want to live?
Retirement homes:
– Accommodation can cost over $5,000 a month
– Personal care services may be in addition
Home care:
– Depends on level of care required
– Example:
• 2 hours nursing care 3 days / week at $40 / hour
• 2 hours personal care 7 days / week at $20 / hour
• 3 hours homemaking 4 days / week at $20 / hour
Total = $3,293 / month
The bottom line for your client
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
0
2
4
6
8
10 Years
• Today’s care cost: $3,293/month
• Monthly cost of care starting in 25 years (2% inflation): $5,403
• Taking lost interest of 7% into account, 5-year care need would
cost over $400,000
• 10-year care need would cost over $1 million
Sample lost wealth trailers
due to long term care withdrawals
Average assets under management
Number of clients
Per cent of clients withdrawing each year
Average number of years withdrawing
Average monthly withdrawal
$100,000
100
3.5%
2.5
$3,293
Inflation rate
2.0%
Investment return
7.0%
Average trailer rate
0.375%
Amount of lost trail
$583,018
Percentage of trail lost
Total difference had lost trail been invested
31%
$896,751
Asset or ‘stop loss’ protection
with critical illness insurance
• Do you have an asset protection strategy for
your investments?
• A personal financial health credit line?*
• Have you been shown a way to protect your financial
health if you were diagnosed with cancer, a heart
attack or stroke?*
* Alphonso Franco 2005 MDRT Speech
Asset protection with critical
illness insurance
A) Invest $50,000 yearly
Assume 5% annually
B) Invest yearly
*Less CI yearly Premium
Net Yearly Investment
$50,000
$ 7,930
$42,070
$2,505,673
$2,108,273
In 13 yrs $500,000 is
required to cover
expenses incurred
Due to a Critical Illness
$1,468,566
Plus
$198,250
ROP
40 yrs
45 yrs
50 yrs
55 yrs
60 yrs
65
*Sun Critical Illness Plan Level T75 – $500,000, AIB/ROPD/ROPC/E – 15 years
Stop Loss Protection Needs Analysis and Data Entry
Gender
Actual Age
Name of Client:
40
Annual Income:
Salary Increase:
Return of Premium C/E:
3.0%
15
Registered assets
Non-Registered assets
Starting balance:
$125,000
$35,000
Annual deposit:
$5,000
$0
Years of deposit:
25
Growth rate:
6.00%
Tax Rate:
Illness at age:
55
No of Months Inc needed:
6
Health care:
$15,000
Home care:
$2,000
Health Care Inflation Rate:
6.0%
Need Calculated:
6.00%
45.00%
CI Need
$
104,000
Smoking Status
m
$80,000
15
Non-smoker
Male
no
Impact of Illness
1,200,000
1,000,000
Asset Value
1,000,000
800,000
No w/d
831,000
$50k w/d
600,000
670,000
$100k w/d
400,000
$150k w/d
505,000
200,000
0
40
45
45.1
50
55
60
65
Age
Assumptions:
• $160,000 in assets at age 40
• $5,000 annual contribution
• withdrawal at age 45 due to illness
FACT:
• 85% of CI claims have occurred in
the first 5 years
Source: Munich Re’s Critical Illness Survey 2006
Portfolio Adjustment
Rate to Meet Original $1,000,000 Goal
Withdrawal
New Yield
% Increase
$ (50,000.00)
7.2%
18%
$(100,000.00)
8.5%
39%
$(150,000.00)
10.3%
69%
Original plan assumed 6.1% rate of return to meet
retirement target of $1,000,000 at age 65.
Talking to Clients
Making an Emotional
Connection to their
Need
The Myth…
It won’t happen to me!
The Reality…
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Each day in Canada, more
than:
– 400 are diagnosed with
cancer
– 190 have heart attacks
– 140 suffer strokes
Daily averages derived from the following sources:
Canadian Cancer Society, 2006
(http://www.cancer.ca/ccs/internet/standard/0,2283,3172_14423__langId-en,00.html)
Heart and Stroke Foundation, 2001
Heart and Stroke Foundation of Canada, Annual Report 2004
Multiple Sclerosis Society of Canada, 2006
Talking to clients about critical
illness insurance: questions you
should ask
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Do you know someone who
has had…?
Did they plan it?
Did the illness result in
emotional or financial strain
on the household or
business?
Would extra cash have
helped?
“Her husband is still not working. John lost his job in downsizing not
long before Amy got pregnant and was diagnosed with cancer. Since
then, it’s been difficult to concentrate on the job hunt…”
Talking to clients about long term
care insurance: what to ask
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What do you want to have happen when you
can no longer take care of yourself?
What quality of care do you want to
receive?
Where do you want to receive care?
How will your family cope, financially and
emotionally, with care-giving?
Do you want to use your savings and
investments for care?
Top 6 Industry Challenges
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Public awareness
Advisor training
Cost
Need
Underwriting
Standardized Definitions
Tyler’s story