1. Brad Tisdale, MS, CES, CLTC June 27, 2018
Long-Term Care: Planning Ahead and Planning for Now UCSB Emeriti/Retiree Center
Brad Tisdale, MS, CES, CLTC
June 27, 2018

2. What Causes People to Need Care?
Typically due to normal aging and frailty
However, a long-term care event can happen to anyone at any age.
Our reality: 40% of people who need care are under age 65 (USA Today)
Temporary

3. What Is Reality of Needing Care?
For the general population, 70% of those who turn age 65 will need care at some point in their lives
For the individual, the chance of needing care is either zero (0%) or 100%
American Association for Long-Term Care Insurance

4. Home Care, Adult Day Care and Assisted Living
Where is Care Provided
Home Care
Adult Day Care
Assisted Living
Nursing Home Care
Nursing Home Care
13%
87%
Home Care, Adult Day Care and Assisted Living
Source: “Facts and Trends: The Nursing Facility Sourcebook”, American Health Care Association, 2001 & “Older and Younger People with Disabilities: Improving Chronic Care Throughout the Life Span”, Mental Health.About.com, January 2, In Washington: Adult Day Health Care

5. What Does Care Cost Today?
The Average Cost for Someone receiving 8 hours of home care per day…
$30 per hour
$240 per day
$7,200 per month
$86,400 per year
Will these costs be higher or lower in future?

6. What Pays for Care Monthly Income (cash)
Only 3 Things Pay for Long-Term Care Services
Monthly Income (cash)
If not enough income, you liquidate assets to cover the shortfall
If low income and assets: Medi-Cal
Long-Term Care Insurance

7. Long-Term Care Insurance
Paying for care is about cash flow
An LTC Policy is like a big checking account
You choose how much is initially in the account
You choose the monthly benefit amount
You select the interest rate on the account
Riders

8. What Are These LTC Numbers?
$9.23 Billion
$2.6 Million
$1.592 Million

9. LTC Insurance Two Types of Long-Term Care Insurance
Stand-alone (traditional) LTC
Private insurance
CalPERS
Hybrid or Linked Benefit LTC
Life Insurance chassis
Annuity chassis

10. Policy Benefit Triggers
Assistance with 2 Activities of Daily Living
Bathing
Dressing
Toileting
Transferring
Continence
Eating
Supervision due to a Cognitive Impairment
Due to aging, frailty, accident or illness

11. Stand Alone Long-Term Care Insurance
Pay an annual or monthly premium until needed
Premiums based on age, health and selected benefits
Reimburses expenses up to monthly maximum for:
Home and Community Care
Facility Care (Assisted Living, Residential and Skilled)
Economical retirement protection
“Pennies on the Dollar”
No cash value or death benefit

12. Stand Alone Long-Term Care Insurance
Private Insurance:
Regulated, Dept of Insurance oversight
Reinsurance
Low risk investment strategy (80% long-term bonds)
Cumulative increase of 20%-60% on some blocks of business
Policies priced much higher today, NAIC rate stabilization
CalPERS (CA State Employees, Teachers)
Non Regulated program, Board of Director oversight
“Self Funded” Program
High risk investment strategy, 65% stock market
Multiple rate increases since 2002, latest was 85%
Class action lawsuit in progress
Lower premiums and more liberal underwriting than private
Good option for those who may not health qualify for private

13. Hybrid/Linked Benefit Policies
Built into a life insurance or annuity policy
HIPAA and Pension Protection Act Compliant
Policies can be funded with
Savings, money market, CDs
Cash in existing Annuity or Life Insurance policy
IRA Money
Always pay a benefit
Single, Limited or Lifetime Premiums
Premiums do not increase

14. Examples of Life Ins with LTC Benefits
Self Funding with Leverage
60 Year Old Single Female with 2 children, retired CPA
Repositioned $100,000 into single premium Life Policy with LTC Benefits
Total Life/LTC Benefits -- $549,000
Monthly Benefit -- $21,960
Liquidity – Cash Value in 20 years of $92,000
Result
Predictable stream of income to pay for care
Payout to beneficiary if care not needed
No material change to her balance sheet
No ongoing out of pocket premium expense

15. Examples of Life Ins with LTC Benefits
Repurpose Existing Life Insurance, 70/68 Year Old Couple
$75,000 of Cash Value in his life policy; $3,000 yearly premium
Used Cash Value and Premium to purchase Life with LTC Benefits
Annual Premium of $6,400 for continuing LTC Benefits
Premium guaranteed not to increase
Result
Joint Policy with Unlimited Long-Term Care Benefits for each
Monthly Benefit of - $4,400
3% Compound Inflation on LTC Benefits
$109,642 Death Benefit if Care not needed (second-to-die)
Net New Expense for Long-Term Care Benefits was $3,400 per year

16. Long-Term Care Annuities
A Pension Protection Act (PPA) compliant long term care annuity
It has HIPAA long-term care benefit triggers
2 of 6 ADLs
Cognitive Impairment
1035 Exchange funds from existing annuity
Withdrawals non subject to income tax when used for qualified long-term care expenses

17. Long-Term Care Annuities
A great option for those with:
Low cost basis non-qualified annuities
Cash value in a life insurance policy
Cash earning little or nothing in CD or Money Market
Money safe, liquid and growing tax deferred
Funds pass to a beneficiary if care not needed

18. PPA Compliant LTC Annuities
Great for those who are older or have health issues
No Exam or Medical Records:
Answer NO to:
Alzheimer’s/Dementia
Parkinson’s
Paralysis
Dialysis
Organ transplants
ADL limitations and supportive equipment

19. Pension Protection Act Case Study from 2010
Couple Ages 66 and 65
Felt Stand-Alone LTC insurance was too expensive
May not have health qualified for Stand-Alone LTC
Husband had an existing non-qualified annuity with low basis, it was not needed for income
Annuity value of $214,000 with a $40,000 basis
Issued 1985 and out of surrender

20. Pension Protection Act Annuity Example
He did a 1035 Exchange to a Pension Protection Act compliant annuity for long-term care
This Created a NON TAXABLE bucket of money to pay for care if needed
Added his wife to policy as second insured
Current Long-Term Care Value is $301,000
Monthly Benefit of $8,700 for one or both of them
3.65 compounding inflation on LTC value
Cash Value passes to beneficiary if no care needed

21. What About Those… Who are receiving care now?
They have no LTC insurance
Concerned about running out of money
How can they cover the gap between monthly income and monthly cost of home care or facility care?

22. Those Who Need Care Today
Care Plan with Lifetime Income
Immediate Needs Annuity
Age and Gender
Current health and medications
ADL needs
Cognitive issues
More health issues means greater monthly income for life
Cannot be medically declined

23. Those Who Need Care Today
Medically Underwritten SPIA
Example:
Annuitant: Male, age 82
Condition: Dementia
Monthly Income Desired: $3,000 for life
Immediate Care Single Premium: $150,00
Traditional SPIA (no health review): $210,162

24. Those Who Need Care Today
Is there any life insurance in force on the person who needs care?
Permanent life insurance
Term life insurance
Group life insurance

25. Structured Settlement of Existing Life Insurance Policy
Convert a death benefit into cash to pay for long-term care Use cash to fund an Immediate Needs Annuity

26. LTC Insurance Landscape
Stand Alone Long-Term Care
Ages 40-65
Business Owners
Life Insurance with Long-Term Care Benefits
Ages 40-75
Don’t want “use it or lose it” LTC policy
Have assets on the sideline to leverage
Can fund with cash value from an existing policy
PPA Compliant LTC Annuities
Age 50-75
Won’t health qualify for stand-along LTC or Life + LTC policy
Have existing annuity with low basis
Immediate Needs Annuity
Age 70-95
Already receiving care and in poor health

27. It’s the Wildcard! Long Term Care…
Is it possible you could live a relatively long life?
If so, is it possible you may become frail at some point and need care over a number of years?
What will providing care look like financially, physically and emotionally your family and loved ones?
What plans have you made for this eventuality?

28. What Are These LTC Numbers?
$9.23 Billion
$2.6 Million
$1.592 Million

31. LONG TERM CARE IS NOT A PLACE, IT IS AN EVENT
PLANNING AHEAD ALLOWS YOU
TO MANAGE THAT EVENT FROM A
POSITION OF STRENGTH!

32. Review and Questions