How the Current Status of Living Benefits and Long-Term Care Products are going to affect the Client s Estate Planning Process

Transcription

1 2013 Estate and Financial How the Current Status of Living Benefits and Long-Term Care Products are going to affect the Client s Estate Planning Process Joe Wellman Assistant vice president living benefits distribution Agenda In the news Canadian population landscape Canadian Living benefits market The living benefit risk DI/CI/LTC Dealing with disability insurance Dealing with critical illness insurance Dealing with long term care 1

2 This is our job with permission from BPB insurance & financial services Our Canadian population Estimate : population for , population age 65 and over 5,186,800 population age 0 to age 64 29,971,505 working-age population age 15 to age 64 24,030,500 Source: /pub/ x/ /part2-eng.htm 4 2

3 Canadian Living Benefits insurance Insurance industry by no of individual policies Inforce 2012 sales Disability insurance 795,236 79, , ,195 Critical illness insurance Source: LIMRA s Canadian individual DI and CI insurance sales survey YTD through fourth quarter Group Long Term disability coverage Canadian Life And Health Insurance Association Inc. APPENDIX 1: INCOME REPLACEMENT 2008 Group long term disability income plans Number of person covered Premiums or premium equivalents ($M) Group Insured Plans 9.4 million 4,466.1 Uninsured or Administrative services Only contracts (ASO) Life insurers administered Uninsured plans ASO TPA administered 1.06 million N.A. 80 Source: CHLIA 2008 Health Benefits results for Canada 3

4 Rate increase boost CI Sales!!!!! 7 Renewable vs. Limited pay (T75) vs. Permanent (T100) 8 4

5 Long term care 9 The living benefits risks in no particular order! Short or long term disability Critical illness Long term care How much money are you willing to risk? Source: investment Executive.com/-/having the risk comverssation R.F.P. 10 5

6 Dealing with short and long term disabilities "Photographer/GetStock.com" Increasing self-employment 3,000 Self-employment in Canada: ,500 Self-employed (persons x1,000) 2,000 1,500 1, million 2.7million 0 Source: Statistics Canada. Table Labor force survey estimates (LFS), employment by class of worker, North American Industry Classification System (NAICS) (accessed: November 22, 2012) 6

7 Dealing with short and long term disability insurance Ask the question.. What is your, Income Replacement Ratio? 13 What s your income replacement ratio? How much of your income would be replaced in the event of a disability? Example: Gross annual income $120,000 Group long-term disability (LTD) non-taxable monthly benefit $3,000* Income replacement ratio: $3,000 x 12 $120,000 X100% = 30% *Based on 66.66% of before-tax earnings with $3,000 benefit maximum 7

8 The shortfall 12,000 $ 10,000 8,000 6,000 Individual disability insurance top-up 4,000 2,000 0 Gross monthly income Net monthly income* Non-taxable group LTD plan** Group LTD plan maximum *Assumes average tax rate of 29.66% **Group LTD non-taxable benefit is based on 66.66% of before-tax earnings with $3,000 benefit maximum Potential earnings Total potential earnings to age 65 assuming 2.5% increase every year Age $30,000 $50,000 $70,000 $90,000 $120,000 $150, $2,022,077 $3,370,128 $4,718,179 $6,066,230 $8,088,306 $10,110, $1,647,846 $2,746,410 $3,844,975 $4,943,539 $6,591,385 $8,239, $1,317,841 $2,195,135 $3,073,189 $3,951,243 $5,268,324 $6,585, $1,024,733 $1,707,888 $2,391,043 $3,074,199 $4,098,932 $5,123, $766,340 $1,277,233 $1,788,126 $2,299,019 $3,065,359 $3,831, $537,958 $896,596 $1,255,235 $1,613,873 $2,151,831 $2,689,789 8

9 Focus on the potential benefit to 65 (75) Age 40yrs earnings $120,000 per annum Potential earnings to at 65 $4,098,932 Potential benefits to age 65 $2,367, *assume 2.5% annual cost of living increase to age 65 Potential benefit to age 65 - $3,1 71,695 *Assumes a cost of living rider is included in the policy with a 2.5% increase annually. 18 9

10 Potential benefit to age 65-2,367,133 Individual disability insurance plans (non-cancelable) Policy cannot be cancelled or modified by insurer Premium cannot be raised by insurer Benefits cannot be reduced Type of individual policies Non-cancellable Guaranteed renewable Cancellable 1 Group long-term disability plans Master contract can be terminated Rates are not guaranteed May lose coverage if there s a change in employer or association Benefits are based on earnings at time of claim 19 *Assumes a cost of living rider is included in the policy with a 2.5% increase annually. Non-cancelable means the policy/premium cannot be modified by the insurer unless otherwise specified by the contract (i.e. void due to misrepresentation, healthcare professional rider premium or integration of benefit with other insurance). Potential benefit to age 65 - $2,367,133 Individual disability insurance plans (non-cancelable) Regular occupation/any occupation Regular occupation Own occupation Presumptive disability Catastrophic disability Definition of total disability Any occupation Regular occupation Own occupation 2 Group long-term disability plans Regular occupation/any occupation *Assumes a cost of living rider is included in the policy with a 2.5% increase annually. 10

11 Potential benefit to age 65 - $2,367,133 Individual disability insurance plans (non-cancelable) Loss of time** Loss of duties** Loss of income** Vocational rehab, if available (voluntary) Definition of partial disability Partial Residual/ Proportionate Group long-term disability plans Loss of time Loss of duties Loss of income Vocational rehab (generally mandatory) 3 21 *Assumes a cost of living rider is included in the policy with a 2.5% increase annually. **These are the criteria used to establish a partial disability benefit. Dealing with critical illness insurance Mouse test cuts cancer guessing game TUMOUR IMPLANTED Tom Blackwell Mr. Panov 57 was given months to live he and his physician wife turned to the U.S. to have his tumor removed Source: National Post Wednesday, June 19,

12 Your clients lifetime needs change the risk stays the same!...critical Illness Insurance Providing them critical illness insurance solutions that change with them 1. The young family market 2. The mid life market 3. The retirement market Buy term Convert to level Return-ofpremium Paid-up options 23 Young family market 1. Meet Harry Male married age 32 Mortgage liability Two income earners Daycare Maintaining a standard of living Savings 24 12

13 Finding prospects your clients Do your clients have the old type of mortgage insurance, or the new type? Critical illness insurance needs analysis tool Corresponds directly with Capital entries requirements on Immediate expenses Income replacements 26 13

14 Your recommendation 10-year renewable term to 75* $250,000 benefit amount Premium $76.56 month at age 32 $ month at age covered conditions and loss of independent existence = 25 covered conditions * LifeAdvance, age 32, male non-smoker, $250,000 one-time lump sum benefit, standard risk,10-year renewable term to 75, convertible to 65, loss of independent existence rider, second event rider The above example is not a complete illustration. Source: Concourse illustration, Zoom Level coverage compared to group coverage 28 14

15 Wealth preservation a critical illness insurance strategy - RRSPs Should RRSPs be used as an emergency fund? Strategy: protect RRSPs from health interruptions tool Canadians received almost $28 billion in income tax refunds in 2009 Average income tax refund was $1,650 Strategy: use your income tax refund to purchase a critical illness insurance policy Source: CRA Annual report to Parliament pg Protect your RRSPs from health interruptions calculator Prospect Age 40. Plans to retire at age 65 Has a critical illness at age 50 put out for 1 year Needs $100,000 from his RRSP program to mitigate CI costly challenges RRSP contributing $5000/ann, 5% growth and a 40% tax bracket at illness 30 15

16 What would happen to Harry s RRSPs? See important notes for more details 31 Your options when not protected Could you get back on track? Let s say you suffer a critical illness, are not protected, dipped into your RRSP. When you recover, you see you ll retire with $358,962 less than you planned. What options are available to you? Increase your contributions to $23,443 per year? Continue your current contributions until you are 78yrs Continue your current contributions until 65. Your RRSP is only 44% of what you planned. You have to cut back your lifestyle 32 16

17 The mid-life market Will they still need coverage? Mortgage free Tuition free Will their retirement dreams be impacted? 33 Setting up a lifetime CI strategy for wealth preservation If Harry knew he was to suffer a serious illness, how much critical illness insurance coverage would he plan to own for the future? 34 17

18 Your recommendation.. Convert $100,000 to T100 from Harry s $250,000 term to age75 and set up a lifetime wealth preservation strategy *Premium $ per month *Source $100,000, T100 CI 20 yr ROP LOIE 2 nd Event Zoom version October 24, Plan today, provide for tomorrow $100,000 Critical illness insurance lifetime protection 4.1% Annual premium payments for 20 yrs If healthy over the next 20 years Harry will receive premiums back Note: This is for illustrative purposes only. Please refer to the actual policy for complete details

19 Introducing the CI IRR and reduced paid up calculator $ $ $82, % $21, Value of return-of-premium calculator Reward for staying healthy! Return of premium - premiums in 20 yrs $29, Total premiums in 20 yrs $89, Equivalent rate of return 9.12% 38 19

20 Critical illness insurance options during retirement.. age Full withdrawal 2. You Partial need peace of mind withdrawal You need options If you make it this, far 3. without Paid-up claiming the odds option are you might. 4. Maintain contract in force Option 1 - Full withdrawal terminates policy $82, Invest it, create income or spend it 40 20

21 Option 2 - Partial withdrawal resulting in reduced coverage The amounts shown under the partial withdrawal are not guaranteed, and are likely to vary upward or downward. The factors used to determine these amounts are affected by a number of variables such as interest rates, morbidity and mortality. Zoom illustration version Option 3 - Paid up keeps coverage no longer pays premiums Residual cash benefits The amount shown under the paid-up benefit is not guaranteed, and is likely to vary upward or downward. The factors used to determine this amount is affected by a number of variables such as interest rates, morbidity and mortality. The above example is not a complete illustration. Zoom illustration version

22 Harry s lifetime critical illness insurance strategy At age 32 he had a plan in place to help protect his family and home Low premium Suitable critical illness insurance At age 50 he had a plan in place to help protect their retirement income Conversion benefit Return of premium options Now at age 70 he and his wife have policy features that provide options 43 Dealing with the long term risk CHLIA REPORT ON LONG-TERM CARE June 2012 Excerpt (pg2) According to Statistics Canada, the chances of requiring long-term care are; one in ten by age 55 three in ten by age 65 and, five in ten age 75 Source: Statistics Canada: Health expectancy in Canada 44 22

23 CHLIA REPORT ON LONG-TERM CARE June 2012 Excerpt (pg 2, 3) The following examples illustrate the importance of age-related health issues and put the aging of our population in context. Currently: 225,000 Canadian turn 65 each year; about 7 per cent of Canadians age 65 and over reside in health care institutions; one in 11 Canadians over the age of 65 is affected by Alzheimer s disease or a related dementia about 50,000 strokes occur in Canada each year, with stroke being the leading cause of transfer from hospital to long term care. Source: Statistics Canada 45 Insurance safety net holds fast Dr Frank Szatkowski This video is based on the experience of a United States resident. The cost of healthcare in the U.S. may differ and there may be some differences in product features for Canadian living benefits products. This video is based on the experience of a United States resident. The cost of healthcare in the U.S. may differ and there may be some differences in product features for Canadian living benefits products

24 The human body does not come with a 100 yr warranty on the body parts! Loss of limbs Alzheim er s Aortic surgery Lifethreatening cancer Loss of speech Major organ failure on waiting list Major organ transplant Aplastic anemia Kidney failure Stroke Motor neuron disease Bacterial meningitis Heart valve replacement Severe burns Multiple sclerosis Benign Brain tumor Parkinson s disease Occupational HIV infection Heart attack Blindness Paralysis Deafness Coma Coronary artery bypass 47 Remember by completing your client s estate analysis you are preparing them to live.in addition to preparing them to die. 24