Transcript Solutions for Long-term Care – What They Are, How They

Solutions for Long-term
Care – What They Are,
How They Work and How
They Co-exist
Brought to you by the
Nationwide® Advanced Consulting Group
FOR BROKER/DEALER USE ONLY—NOT FOR USE WITH THE PUBLIC
NFM-11056AO (10/12)
Some Things You Should Know
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This presentation was not intended by the author to be used, by
anybody for the purpose of avoiding any penalties that may be imposed
on you pursuant to the Internal Revenue Code. The information
contained herein was prepared to support the promotion, marketing
and/or sale of life insurance contracts, annuity contracts and/or other
products and services provided by Nationwide Life Insurance
Company.
Federal tax laws are complex and subject to change. Neither the
company nor its representatives give legal or tax advice. Please talk
with your attorney or tax advisor for answers to your specific questions.
Investing involves risk, including possible loss of principal
Keep in mind that as an acceleration of the death benefit, the LTC rider
payout will reduce both the death benefit and cash surrender values.
Care should be taken to make sure that your clients' life insurance
needs continue to be met even if the rider pays out in full. There is no
guarantee that the rider will cover the entire cost for all of the insured's
long-term care as these vary with the needs of each insured.
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Some Things You Should Know
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When evaluating the purchase of a variable annuity, your clients should
be aware that variable annuities are long-term investment vehicles
designed for retirement purposes and will fluctuate in value; annuities
have limitations; and investing involves market risk, including possible
loss of principal.
This information assumes that the life insurance is not a modified
endowment contract, or MEC. As long as the contract meets the nonMEC definitions of IRC Section 7702A, most distributions are taxed on
a first-in/first-out basis. Surrender charges may apply to partial
surrenders. Loans and partial surrenders from a MEC will generally be
taxable, and if taken prior to age 59 ½, may be subject to a 10% tax
penalty. Loans and partial surrenders will reduce the cash value and
the death benefits payable to your beneficiaries, and withdrawals above
the available free amount will incur surrender charges. If your contract
were to lapse with a loan outstanding, the loan amount in excess of
basis will be treated as a distribution and all or a portion will be subject
to income tax.
The underlying investment options to a variable annuity or life
insurance product are not publicly traded mutual funds and are not
available directly for purchase by the general public. They are only
available through variable annuity/variable life insurance policies issued
by life insurance companies.
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Some Things You Should Know
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As your clients’ personal situations change (i.e., marriage, birth of a child or job promotion),
so will their life insurance needs. Care should be taken to ensure these strategies and
products are suitable for long-term life insurance needs. You should weigh your clients’
objectives, time horizon and risk tolerance as well as any associated costs before investing.
Also, be aware that market volatility can lead to the possibility of the need for additional
premium in the policy. Variable life insurance has fees and charges associated with it that
include costs of insurance that vary with such characteristics of the insured as gender,
health and age, underlying fund charges and expenses, and additional charges for riders
that customize a policy to fit your clients’ individual needs.
Not all Nationwide products and services are suitable for all clients or situations. There may
be products, issued by other companies, which better suit your clients’ goals. Be sure to
consider your clients’ objectives, their need for cash flow and liquidity, and overall risk
tolerance when using any strategy.
This information was developed to promote and support products and services offered by
Nationwide. It should not be taken as tax advice. It was not written or meant to be used by
any taxpayer to avoid tax penalties, and it cannot be used by any taxpayer for that purpose.
Life insurance and annuities are issued by Nationwide Life Insurance Company or
Nationwide Life and Annuity Insurance Company, Columbus, Ohio, member of Nationwide
Financial®. The general distributor for variable insurance products is Nationwide
Investment Services Corporation, member FINRA. In Michigan only: Nationwide Investment
Svcs. Corporation.
Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution
Not insured by any federal government agency May lose value
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Please Keep in Mind
• These products should be purchased first and foremost for the
purpose of life insurance
• LTC and Chronic Illness Riders may have an additional charge
• Death benefits are reduced dollar for dollar by the amount
accelerated for benefits (more than dollar for dollar with some products)
• Take care the underlying life insurance need is still met should
benefits for long-term care or chronic illness be accelerated
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Agenda
• Long-term Care Solutions– the status of:
– Traditional Long-term Care
– Combo LTC solutions
• Understanding the variety of Long-term Care
solutions and how they work
• Summarizing client profiles for each solution
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NFM-11056AO (10/12)
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Traditional LTC – Current Status
Growth in traditional LTC sales disappointing1
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Sales down 23% in 20092
Up 13% 2010
Policy count slightly down in 2011
Compound annual growth rate 3% between
2006-20112
• 14 companies have left the LTC market1
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LIMRA – U.S. Individual LTC Insurance Annual Review 2012 and American
of Long-Term Care Insurance, 2012-2013 Sourcebook,www.aaltci.org
2 Association
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Traditional LTC – Current Status
Concerns in traditional LTC market place1
– Significant premium increases on in-force polices
– Companies facing crisis
– What is contributing to this dilemma?
• Unexpectedly low lapse rates on LTCI polices
• Claim payouts doubled between 2006 & 20092
• People living longer – boomers joining parents
• Declining interest rates
– 40% to 60% claims revenue depends on
investment returns3
“Long Term Care Insurance May go the Way of the Dinosaur”, Investment News, March 18, 2012
Term Care Headache” – Financial Advisor Magazine, January 2011
3“Long Term Care Insurance May go the Way of the Dinosaur”, Investment News, March 18, 2012, Quote Jesse Slome, AALTCI
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2 “Long
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Living Benefit and Linked Solutions
• Combo products are catching the eye of
consumers
– Offers solutions without some of the pitfalls
• Sales of combo solutions continue to rise
– Asset Based LTC (linked solution)
• Sales increase in 2011 of 67%1
– Life Insurance with LTC Rider (living benefit solution)
• Sales increase of 29%1
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LIMRA – U.S. Individual LTC Insurance Annual Review 2012
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NFM-11056AO (10/12)
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Balancing LTC Solutions
• There are variety of solutions available to insure
long-term care risk
• There is no “one size fits all solution”
• It’s important to understand the all the solutions
available and the best fit for each solution.
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Traditional long-term care insurance
Asset based long-term care insurance
Life Insurance with LTC Illness Riders
Life Insurance with Chronic Illness Riders
Annuities with LTC riders
• Who is best served by each product and how do
each of these solutions work?
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Traditional LTC Insurance
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The most economical solution in general
Covers long-term care only
State Partnership policies (protect assets from Medicaid)
Most flexible and customizable of the plans
– Nursing home, Home health care or mixed percentage
– 2 years to lifetime coverage
• lifetime coverage now only offered by a few companies
– 0 to 360 day elimination periods
• Cost-of-living adjustment (3% to 5%)
– Simple or compound
• Indemnity and Reimbursement plans available
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Traditional LTC Insurance, (cont.)
• Customization can get expensive, especially when
including
– Long benefit periods
– Short elimination periods
– Cost of living adjustments
• Possible loss of premiums
• Subject to rate increases
– Premium costs may not be guaranteed
– Policy holder may have to settle for less coverage to maintain
a premium amount
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Asset Based LTC Insurance
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Main concern is long-term care
For people with “sleeping assets” to re-position
Usually purchased with a single premium
Life Insurance chassis used
– Primary focus of benefit is on long-term care
– Death benefit provides cost recovery
• State Partnership policies available
• Elimination period often pre-determined
– Products vary from 0 to 90 days
• Cost-of-living adjustment available
– Usually 3% or 5%, simple or compound choices
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Asset Based LTC Insurance, (cont.)
• Purchases buckets of money
– Small LTC/death benefit bucket PLUS larger LTC only bucket
• Death benefit is usually ⅓ of the total LTC benefit
– Upon going on claim, the death benefit is accelerated first
– Once the death benefit is exhausted, LTC portion kicks in.
– Any unused LTC portion is lost at death.
• Hypothetical Example:
• Plan has $100K DB/LTC benefit plus $200K LTC only benefit which
equals a total of $300K available for LTC
• $120K is used for LTC prior to death
• Death benefit is $10,000 (guaranteed residual) –
NOT the remaining $180,000 of unused LTC benefits
• Offers return of premium feature and has cash value
• Reimbursement plan
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NFM-11056AO (10/12)
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Life Insurance with
Long-term Care Rider
• Rider (for additional charge) allowing acceleration of death benefit
for LTC expenses
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Long-term Care Riders - Section 7702B products
– Pay temporary and permanent LTC claims
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Life Insurance/LTC linked products
– Need for life insurance for financial protection/legacy planning
– Long term care concerns
• Provides a beginning to long-term care planning for young people
– Puts a plan in place to help with unforeseen tragedies
• Benefit options pre-determined or limited
– Usually a percentage of death benefit each month
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NFM-11056AO (10/12)
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LTC Solutions – Life Insurance with
Long-term Care Rider (cont.)
• Elimination period may be pre-determined
– Depending on company – 0 to 100 days
• Permanent life insurance – may have cash value
• Death benefit and/or long-term care
– Someone receives the benefit
– Benefit for LTC is set at issue
• Indemnity and reimbursement plans may be available
• May be guaranteed for life of insured
• Full death benefit paid with possible residual death
benefit exceeding original DB
• A variety of base insurance products and premium
payment options are available
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Life Insurance with Chronic Illness Rider*
• Death benefit and/or chronic illness coverage
• Section 101(g) chronic illness product
– Is not long-term care and cannot be referred to as such
– Can only pay PERMANENT claims
• Suited for people with a life insurance need who
understand the limitations of a chronic illness claim
• Indemnity plan – not LTC so can’t reimburse*
• May be guaranteed for life of insured
• No residual death benefit exceeding original DB
• If rider is charged for, benefits set at issue
• Products that charge for the Chronic Illness Rider
– The rider is underwritten
– The benefits are set at policy issue
* This presentation addresses Accelerated Death Benefit Riders for Chronic Illness built on NAIC ADB Model
Regulations and does not include the rare incidence of products built on NAIC LTC Model Regulation
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LTC Solutions – Life Insurance with
Chronic Illness Rider, (cont.)
• Products offering “No Charge” Chronic Illness Rider
– No underwriting, available to all (included with policy)
– Death benefit is discounted at acceleration of benefits
• Age, gender, rate class, cash value, discount interest rate
• Remaining DB is forfeited when C.I. benefit is elected
Age at
Election
Death
Benefit
C.I Benefit Amt
Elected for Male
Death Benefit
Male Forfeited
C.I Benefit Amt
for Female
Death Benefit Amt.
Female Forfeited
70
$100,000
$65,266
$34,734
$56,665
$43,335
75
$100,000
$71,868
$28,132
$63,651
$36,349
80
$100,000
$78,755
$21,245
$71,515
$28,485
85
$100,000
$84,562
$15,438
$79,147
$20,853
Numbers from company issuing this type product. Assumptions are a $500,000 policy with $50,000 of cash
value, 7% interest rate at election . Election is 20% of death benefit $100,000.(maximum election 24%)
FOR BROKER/DEALER USE ONLY—NOT FOR USE WITH THE PUBLIC
NFM-11056AO (10/12)
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LTC Solutions – Annuities with
Long-term Care Rider
• Annuities can now provide tax free LTC benefits
• Annuity/LTC solution may be best when:
– Client has limited resources to work with
– Client has insurability issues
• May or may not underwrite
– If not underwritten, an exclusion period will apply
• Usually have an elimination period
• Many variations of how benefit is paid
– May double (or triple) contract value for benefit purpose
– May double (or triple) guaranteed income
• May have a time limit, benefit limit or pay for life
• In general, provides the least leveraging for benefits
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Summarizing Client Profiles
• Traditional long-term care insurance
– Only concerned with LTC expenses
– Needs an economical solution (rate increases are a risk)
– Protect current assets (Partnership plans)
• Asset based long-term care insurance
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Primary concern is LTC
Have asset to re-purpose for LTC
Objects to “use it or lose it’ LTC polices (wants cost recovery)
Not concerned with legacy planning or estate enhancement
• Life Insurance with LTC
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Wants a death benefit - Looking to enhance legacy to loved ones
Has Long-term concerns – wants full LTC coverage
Looking for flexible premium payment options
Like idea of a policy that has purpose beyond life insurance need
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NFM-11056AO (10/12)
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Summarizing Client Profiles (cont.)
• Life Insurance with Chronic Illness Riders
– Death benefit is primary concern
– Chronic illness protection secondary
• Client understands this solution will only provide benefits for
a permanent chronic illness
– If rider is included with policy (no charge), client understands:
• a portion of death benefit will be forfeited upon going on claim
• Annuities with LTC riders
– May have limited assets to invest
• Provides income stream that can convert to LTC coverage
– May be uninsurable for life insurance and/or long-term care
– Understands there may be limited LTC coverage compared to
other solutions
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NFM-11056AO (10/12)
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Questions?
Independent Dealer:
Financial Institutions:
Wirehouse/Regionals:
Nationwide Agents:
Nationwide Financial Network:
Brokerage General Agency:
1-800-321-6064
1-800-893-5399
1-800-720-1511
1-888-333-4202
1-877-223-0795
1-888-767-7373
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