Transcript White Color Resource - Crossroads Financial Group, Inc.

Long Term Care Insurance
Opportunities Under The
Pension Protection Act
Presented by:
DJ Mormile
Long Term Care Insurance Underwritten by
Genworth Life Insurance Company,
Richmond, VA
FOR PRODUCER USE ONLY. NOT FOR PUBLIC USE OR DISTRIBUTION.
©2010 Genworth Financial, Inc. All rights reserved. Genworth, Genworth Financial and the
Genworth logo are registered service marks of Genworth Financial, Inc.
50127 03/15/10
Consumer LTC Strategy
All Consumers Fall into One of 3 Categories
Long Term Care Insurance Purchasers 7% Market Penetration*
–
–
Recognize need for LTCI protection and willing to purchase a traditional
policy as solution
Solution = traditional LTCI policy
Self-Insuring
–
Expect to use existing assets to fund LTC need
Don’t like idea of paying premiums if they never have a long term care event
–
Solution = Linked Benefits Product
–
Medicaid
–
No private insurance solution
93% of the Market is Uncovered by Traditional LTCI
* LIMRA, 2008 “The 2007 Individual Annuity Market”. Outside of Surrender Charge figures based on Genworth Financial
companies’ experience as of 09/30/2009. Actual industry may be different.
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
1
Overview
•
•
•
Pension Protection Act
Total Living Coverage Annuity (TLCA)
Total Living Coverage (TLC)
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
2
Long Term Care Insurance Under the PPA
Current 1035 Rules*
Life

New 1035 Exchange Rules
Life
1035 New Tax Free Options:
Annuity 
Annuity
• Annuity

LTCI

Annuity
• Life

LTCI
• QLTCI

LTCI
Life
Annuity to Life is not Allowed
New, Tax Advantaged Opportunities For LTCI Planning
Non- Qualified
Annuity With
Gain
LTCI**
LTCI Benefits
Tax Free LTCI
Benefits
Tax Free Exchange
*Endowment Contracts may also be exchanged for other endowment contracts, annuity contracts or QLTCI, but are mostly legacy contracts.
**Traditional Long Term Care Insurance (LTCI) or Linked Benefit Annuity Products with a QLTCI Rider.
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
3
PPA – LTCI Planning Options
Non-Qualified Annuity Funding Of Traditional LTCI
Non-Qualified
Deferred Annuity
Gain
•
Before
2010
Basis
Non-Qualified
Deferred Annuity
Gain
•
2010
Partial Withdrawal (Annual)
– Portion of withdrawal that is
gain is taxable as ordinary
income *
– Additional 10% penalty on
gain may apply if younger than
age 59½ *
Partial 1035 (Annual)
– No taxable event to owner
Basis
Traditional
LTCI
Traditional
LTCI
– Gain/Basis is pro-rated
A partial 1035 exchange from an annuity contract may incur surrender charges. Any surrender charges incurred
should be considered prior to engaging in any 1035 exchange strategy.
Fund LTCI Without Immediate Tax Consequences
*Partial withdrawals from non-qualified deferred annuities bought after August 13, 1982 are taxed as ordinary income to the extent of gain in the contract
(LIFO). Partial withdrawals from contracts entered into before that date may be treated as first coming from principal (FIFO).
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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PPA – LTCI Planning Options
SPIA Funding Of Traditional LTCI
SPIA
Income
Gain
•
Before
2010
Basis
– Income may be part gain and
part return of premium
(Exclusion Ratio) until the
premium is recovered
Traditional
LTCI
– Portion of income that
constitutes gain is taxable as
ordinary income
SPIA
Gain
•
2010
Basis
Income
– Payments irrevocably assigned
from SPIA carrier to an LTCI
carrier may be reported as a
tax-free 1035 exchange*
Traditional
LTCI
* Based on our interpretation of current tax law, we can report SPIA payments directly funding long term care
insurance as taxable amount $0.00 (zero), unless the IRS issues instructions requiring different reporting.
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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PPA – LTCI Planning Options
Using An Annuity To Pay For Long Term Care Expenses
Self Funding w/
Non-Qualified
Annuity
Gain
Basis
Withdrawal
– Gain withdrawn to pay long term
care cost taxed as ordinary
income*
Long Term Care
Expenses
– Limited to Account Value
Linked Benefit
Annuity
Gain
Basis
LTC Rider
LTC Benefits
– Benefits paid to reimburse for
covered LTCI expenses are not
taxed
Long Term Care
Expenses
– Many linked benefit annuity contracts
allow the contract holder to leverage
initial premium for larger covered LTC
benefits
Exchange A Non-Qualified Annuity With Substantial Gain For Income Tax
Free Covered LTC Benefits
*In some cases, long term care expenses paid out-of-pocket may be deductible as unreimbursed medical expenses for federal income tax purposes
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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Questions Begin A New Conversation
1. If you were to have an extended health care need, what is your
written plan of care?
2. What is the first asset you would liquidate to pay for long term
care?
3. Does your current annuity or life policy or CD also provide LTC
coverage in case you ever need it?
A lack of tangible answers is the beginning of
CHANGE
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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An Asset Allocation Approach…
•
To solving the LTC problem
TLC Portfolio
– Which assets would you allocate first?
LTC Coverage
Typical Portfolio
Cash Reserves
Cash Reserves
Stocks
Bonds
IRAs
Annuities
Mutual Funds
Real Estate (home)
Life Insurance
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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TLCA Highlights
•
•
•
•
•
•
•
- Fast, easy underwriting process
- Simplified underwriting
- Long term care discounts for couples
- Optional inflation protection
- Waiver of monthly charges for home and facility care
- Privileged Care® coordination services
- No-lapse guarantee
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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Basic Information
•
Interest Rate
– Guaranteed never to be less than 3.0%
– Interest rates (initial & renewal) will be guaranteed for at least one year
– Credited from the policy effective date
•
Issue Ages
– 18 - 79
– Age nearest birthday
•
•
Backdating the policy effective date is not permitted.
1 Year Deferral on LTC Coverage
– LTC expenses are not covered and the elimination period cannot be
satisfied during this period
– LTC charges are deducted from the AV each month, including during the
deferral period
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
10
Policy Charges
•
LTC Rider Charges
–
•
Deducted from the AV each month beginning on the policy effective date
Surrender Charges
–
–
None on withdrawals due to covered care or LTCR charges
For other withdrawals or cash surrender:
Policy Year
1
2
3
4
5
6
7
8+
% of Policy Value
7%
7%
7%
6%
5%
4%
3%
0%
Note: There is a 10% annual free withdrawal amount
Up to 10% of the prior anniversary’s AV (or single premium in the first policy year) can be
withdrawn without a surrender charge
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
11
How TLCA Works
Annuity policy value
Example (with no inflation)
LTCR coverage maximum
$300K (3x leverage factor)
$100K single premium
2 Years
Policy years
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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How TLCA Works (continued)
Example (without inflation; claims begin)
LTCR coverage maximum
$300K (3x leverage factor)
Annuity policy value
$100K single premium
2 Years
Policy years
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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Linked Benefit Annuity Example –Tax Benefits
Linked Benefit
Annuity (3%)
Traditional
Annuity (3%)
Linked Benefit
Annuity (3%)
Initial Premium (Age 65)
$100,000
$100,000
$100,000
Account Value (Age 80) 1
$155,797
$128,372
$122,335
$55,797
$50,0185
$48,7995
Tax Liability (36% Marginal
Rate) 3
($20,087)
($18,006)
($17,568)
Amount Available To
Beneficiary In The Event Of
Death 4
$135,710
$110,366
$104,767
Amount Available For a
Long Term Care Event 4
$135,710
$300,000
$415,786
Product Examples
Taxable Gain
2
1
Assumes that no withdrawals have been taken and may or may not be available in the market
2
Based on distribution of death proceeds at age 80
3
Actual client tax liability may vary based on whether, for example, he or she itemizes deductions or owes state and local taxes.
4
Amount available for an LTC event or to the beneficiary in the event of death. The benefits are not cumulative.
5
Larger gain due to basis reduction each year by LTC rider charges within the Linked Benefit Annuity
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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w/ 5% Compound
Total Living Coverage (TLC) – What Is It?
A life insurance product that combines
the features and benefits of universal life insurance
and long term care insurance.
TLC Is Designed To Be There When Needed
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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TLC Key Advantages
• No principal risk with Return of Premium Benefit
• Residual Death Benefit
• Informal Caregivers (HC is 75% of claims, 45% informal) other than family
• Preferred Health & Couples Discount (85% of TLC Sales have a discount)
• Optional Inflation Protection – 3% or 5% Simple or Compound
• Waiver of Monthly Deductions when on claim
• Guaranteed Minimum Benefits
• One-time Elimination Period (0-day for HC, 90-day for Facility)
• International Coverage
• Privileged Care® Coordination Services
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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Hypothetical Example
• Initial premium
• Initial premium leveraged
• Initial premium leveraged
• Safe
2+ times
6+ times
• Retain control
• Income tax free
• Flexible
• 15-year ROP
• Win-win!
• Tax free LTC benefits
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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2 + 4 Example Summary
HOW TLC WITH EXTENSION OF BENEFITS WORKS
CLIENT PAYS
$100,000
Initial Premium
TOTAL LTC BENEFITS
BENEFITS PAID
MONTHLY FOR 6 YEARS
PLUS GUARANTEED
DEATH BENEFITS
$629,520
Total LTC Benefit
Maximum Monthly
Benefit = Specified
Amount ÷ 24 Months
Death Benefits would be
any specified amount
NOT used for LTC
$209,840
Specified
Amount
$419,680
Extension of
Benefits
If the client doesn’t
need LTC benefits,
the specified amount
(accelerated benefit)
would be paid as a
death benefit
+
YEAR 1
$8,743 per month
______
YEAR 2
$8,743 per month
Or if specified amount
is reduced below
Residual Death Benefit*
YEAR 3
$8,743 per month
$20,984
YEAR 4
$8,743 per month
YEAR 5
$8,743 per month
Residual
Death Benefit
YEAR 6
$8,743 per month
If the client’s monthly
benefits are less than
the maximum, the
benefit payout period
could last longer than
72 months
*The death benefit paid is any remaining specified amount that was not used for a long term care need or the $20,984 Residual Death
Benefit, if greater.
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
18
The Opportunity
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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Annuity Linked Benefit Market Assessment
Nonqualified Fixed Annuities
• $300 Billion Assets as of 2007
• $96 Billion Outside the
Surrender Charge Period
$96
$204
•Source – LIMRA, 2008 “The 2007 Individual Annuity Market”
•Outside of Surrender Charge figures based on Genworth Financial companies’ experience. Actual industry may be different.
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
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LTCi / TLC Split Ticket
True Case – Broker in NH
Typical LTCi Sale
Step One
Step Two
Step Three
Step Four
Call from Client
62 year old
Existing Couple–
Call BGA for LTCi
Quote for 62 year old
Couple- preferred
health
Meet with clients,
review need for
LTCi, do fact find,
present traditional
LTCi solution
Clients objects to
original premium
but still want
coverage so
broker asks “how
much can you
afford” and calls
BGA for quote to
match
affordability
want LTCi
FACT FIND
•Married Couple – preferred health, non smoking
•2 children finished college and both working
•Would like to leave something to children in estate if at all possible
•Worried about needing LTC as mother currently in nursing home
•Would be able to pay annual premiums out of interest off CDs,
however may need to buy new truck in next year or so
•Currently working; however, worried about budgeting for annual LTCi
premiums once retired and living off reduced income
•Small pension plan so will probably need to annuitize IRAs for income in
retirement
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
FACT FIND
Cash Value Life Insurance
Policy 1 - $40,000 Him
Policy 2 - $35,000 Her
NQ Annuity- 200,000
CDs - $144,000
IRAs - $123,000
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LTCi / TLC Split Ticket
Enhanced Sale using TLC
Privileged Choice
$4,500 monthly LTCi
60 months
5% Compound Inflation
Cost $4,400 Annual premium
Or Reallocate
FACT FIND
Cash Value Life Insurance
Policy 1 - $40,000 Him
Policy 2 - $35,000 Her
1035 Cash Value Life Insurance Policy TLC (Total
Living Coverage) Each
#1 DB- 80, 000 LTC 240,000- Him
#2 DB- 70,000 LTC 210,000
NQ Annuity- 200,000
CDs - $144,000
IRAs - $123,000
AND 1035 $100,000 into TLC Annuity
50,000 Deposit- 150,000 LTC Each
360,000- 390,000 LTC Coverage
OR Even Add 4 yr Priv Choice Traditional LTC
4500 Per Month 2 yrs 3% Cpd - <$2000 Per Year.
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
22
Important Information
This presentation outlines the tax treatment of funding long term care
insurance premiums through a 1035 exchange from an annuity. However,
prior to engaging in a 1035 exchange, your clients should carefully consider
a number of factors including the features and crediting rates of their current
product, applicable surrender charges, any new surrender charge period on
the purchase of a new product, as well as the various features of the new
product.
While the assignment of an immediate annuity to fund a long term care
insurance policy is in effect, any right to accelerate or commute payments
or to receive payments under the assigned portion of the immediate annuity
contract will be subject to the assignment. The right to receive annuity
payments under any unassigned portion of the immediate annuity contract
will not be affected. The assignment will end upon the cessation or
suspension of premium under the LTCI policy (whether due to filing of an
LTCI claim or termination of the LTCI policy.
•
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
23
Important Information
Long term care insurance underwritten by:
Genworth Life Insurance Company, Richmond, VA
Genworth Life Insurance Company of New York, 666 Third Avenue, 9th Floor, New York, NY 10017. Only
Genworth Life of New York is licensed to conduct business in New York.
•
•
•
Annuities Issued by:
Genworth Life and Annuity Insurance Company, Richmond, VA
Genworth Life Insurance Company, Richmond, VA
Genworth Life Insurance Company of New York, 666 Third Avenue, 9th Floor, New York, NY 10017. Only
Genworth Life of New York is licensed to conduct business in New York.
•
•
•
•
All guarantees are based on the claims-paying ability of the issuing insurance company.
•
The Genworth Financial companies developed these materials to help you understand the ideas discussed.
Any examples are hypothetical. They may not reflect your client’s particular circumstances. Your clients
should carefully read their contract, policy and prospectus(es), when applicable. What we say about legal or
tax matters is our understanding of current law. We are not offering legal or tax advice. Tax laws and IRS
administrative positions may change. We did not develop these materials for use in avoiding any IRS penalty
and neither you nor your clients may use it for that purpose. Insurance companies' tax reporting practices
may vary. Your clients should ask their independent tax and legal advisors for advice based on their
particular circumstances. We reserve the right to change the information reporting described herein to
comply with forms and instructions issued by the Internal Revenue Service.
•
Genworth, Genworth Financial and the Genworth logo are registered service marks of Genworth Financial, Inc.
Long Term Care Opportunities Under The Pension Protection Act of 2006
For Producer Use Only. Not for public use or distribution.
24