Retirement Timing 4/15/2016

Transcription

1 1 There are four kinds of people in the world. Those who: Have been caregivers; Currently are caregivers; Will be caregivers; and Will need caregivers. - former First Lady Rosalyn Carter 2 Retirement Timing Closing the Retirement Expectations Gap: Variations in Demographics, Sources of Information, and the Implications of a Bad Guess, by Nevin E. Adams, JD and Jack L. VanDerhei, PhD. Journal of Financial Service Professionals / January 2014 Data Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., Retirement Confidence Surveys. 3 1

2 Reasons For Retiring Earlier Than Planned Closing the Retirement Expectations Gap: Variations in Demographics, Sources of Information, and the Implications of a Bad Guess, by Nevin E. Adams, JD and Jack L. VanDerhei, PhD. Journal of Financial Service Professionals / January Data Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., Retirement Confidence Surveys. 4 1 For those in the high-risk years of 80 plus: A recent AARP study projected a dramatic decline in the caregiver support ratio from 7 potential caregivers in 2010 to 4 potential caregivers in 2030 Who are your four people? 1 D. Redfoot, L. Feinberg, and A. Houser, The Aging of the Baby Boom and the Growing Care Gap: A look at Future Declines in the Availability of Family Caregivers. AARP Public Policy Institute. August % of working adults: Provide unpaid care for family members and friends Valued at $470 billion annually 6 2

3 Individual LTC Lives ,000 Life & LTC and Linked Benefits Lives = 582, , , ,000 = 212,000 Source: LIMRA (2015 Annual sales Include Companies Only Reporting Sales Annually) 7 Look Back: year years years years Number of ADL s changed to 4 in 2014 Proposal for constitutional amendment 8 For traditional LTCI, how stable are premiums on new blocks? 9 3

4 Six companies participated with these characteristics: Currently issuing new policies In market since before 2000 Provided pricing assumptions for a portfolio of benefits and issue ages for three issue dates (2000, 2007, 2014) Source: 2015 SOA Health Meeting, LTC Pricing Project Session 10 Source: 2015 SOA Health Meeting, LTC Pricing Project Session 11 Source: 2015 SOA Health Meeting, LTC Pricing Project Session 12 4

5 Voluntary Lapse Rates Investment Income Morbidity Mortality Commission Expenses Administrative Expenses Source: 2015 SOA Health Meeting, LTC Pricing Project Session 13 For new business, strong margins, better understanding of morbidity, and rockbottom lapse assumptions indicate relatively low probability of a rate increase (e.g. 10%) Source: 2015 SOA Health Meeting, LTC Pricing Project Session AHIP Survey of People Who Did Not Purchase LTC Most Cited Very Important Reason For Individual Not Buying Insurance 15 5

6 Overall Purchase interest doubled that of traditional plan, from 14% - 30% 14% 30% Effect strongest among 45 to 51 year olds, where interest tripled year olds 11% 36% year olds 20% 29% year olds 11% 24% A Study of Consumer Behavior, Results of the John Hancock 2012 Consumer Survey, Conducted by Forbes Consulting, LGroup TC /13 16 Key Price Point Thresholds 17 Claimants are only using 67% of their benefit Source Genworth In Depth Claims Data Study

7 Where are claims being paid? Industry averages: Home Care 52.1% Assisted Living 19.7% Nursing Home 28.2% Source: AALTCI Sourcebook According to Genworth claims data, more than 70% of their claimants are seeking home care services. 19 Minnesota Average Cost of Long Term Care Services Care Type 2015 Homecare Homemaker Services $53,768* Home Health Aide $57,200* Assisted Living Facility Private One Bedroom $41,613* Nursing Home Care Semi-Private Room $84,406* Private Room $96,021* *Source: Genworth 2015 Cost of Care Survey Executive Summary 20 Three Strategies For: Married Couple - Male/Female Age 55 Standard Health Goal: $1500/person annual premium 21 7

8 Case Study 1: No partnership protection Initial policy limit $460,000 Almost a half million dollars combined benefits immediately Initial reimbursement benefits $9000/month each In 30 years $9000/month each 22 Case Study 2: Initial Policy Limit $105,000 each Reimbursement Benefit Up to $4100 per month each Benefit Duration 2.1 years (25.6 months) Partnership Qualified Yes Inflation Protection Benefit 3% compound Lifetime w/buy Up Option Shared Benefit Yes Annual Premium $2, % compound inflation Partnership protection Initial policy limit $210,000 total Benefit in 30 years $509,724 Initial reimbursement benefit $4100/month each 23 Case Study 3: Initial Policy Limit $190,000 each Reimbursement Benefit Up to $5300 per month each Benefit Duration 3 years (35.8 months) Partnership Qualified Yes Inflation Protection Benefit 1% compound Lifetime w/buy Up Option Shared Benefit Yes Annual Premium $ % compound inflation Partnership protection Initial policy limit $380,000 total Benefit in 30 years $512,186 Initial reimbursement benefit $4100/month each 24 8

9 Company A Step-rated Compound BIO, Tailored BIO, Deferred BIO Company B Inflation in.25% increments (from 1-5%) or Buy-up options Company C 2% Compound Company D Flexible Increase Benefit, 1% and 2% 25 The Group Marketplace 26 MLINY

10 Benefits of all Linked benefit products Hybrid LTC Products Life and LTC Riders Reimbursement, Indemnity And Chronic Illness What you need to know 28 The LTC rider that can accelerate a portion of the death benefit for LTC needs That Death Benefit protects both beneficiaries at death and can provide funds to pay for LTC. It can provide options by providing funds to pay for care in setting of your choice Home health care, assisted living, adult day care, and nursing home 29 Built on a life insurance chassis, but are specifically designed as a LTC solution They may: Accelerate the death benefit Often include a secondary guarantee on the death benefit Some products offer Rate guarantees Money back guarantees More costly 30 10

11 Product appeal target market Large sum of discretionary money 1035 Exchange Other savings and/or investments Want a guarantee that their money will be paid out (no use it or lose it) No need for flexible premium payments Willing to commit large premiums early in the policy Not concerned with maximizing cash value 31 Life insurance contract is still optimized May not include an Extension of Benefits May not be a secondary guarantee on the underlying death benefit May be less expensive May be more flexible Can accelerate premium to 5 or 10 years 32 Product appeal target market Like the Hybrid concept, but not the large premium commitment Prefer flexibility in funding Leverage premium to maximize benefits Inclined to pay some LTC expenses out of pocket Need life insurance 33 11

12 LTC, Indemnity Riders, and Chronic Illness Riders Long Term Care Rider 7702B &101(g) May be marketed as long-term care insurance Pays Permanent and Temporary Claims Can be either Reimbursement model or Indemnity Chronic Illness Rider 101(g) May not be marketed as long-term care insurance Generally permanent condition is needed to qualify claim (condition must last the insured s lifetime) Commonly called accelerated access or accelerated benefit riders Indemnity only 34 Benefit Qualification Non Qualified/ Chronic Illness Qualified LTC Riders Indemnity Indemnity Reimbursement Cannot perform 2 of 6 ADLs, cognitive impairment Condition must be permanent Annual recertification required Cannot perform 2 of 6 ADLs, cognitive impairment Cannot perform 2 of 6 ADLs, cognitive impairment Benefit Pay Out Lesser of maximum monthly benefit or IRS per diem limit Lesser of maximum monthly benefit or IRS per diem limit Expenses incurred (limited only by the maximum monthly benefit) Payments in Excess of IRS Limit May create taxable event May create taxable event No adverse consequences Cost Comparison Higher as benefits can be accelerated for non LTC costs (some riders have no initial charge) Higher as benefits can be accelerated for non LTC costs ( rider cost can add 25%) Lower cost as benefits paid purely for LTC (Rider cost can add 8-11%%) 35 Non Qualified Qualified Indemnity Indemnity Reimbursement Rider rates Guaranteed Generally No * Generally No Yes Who can provide care Anyone Generally Anyone Qualified Care provider Who receives LTC funds? Owner Owner Owner or Care Provider Directly Tax Reporting Requirement 1099-LTC & 1040 & Schedule A & Form LTC & 1040 & Schedule A & Form LTC Informational only *Lincoln and Transamerica rider rates are guaranteed. **Some companies with indemnity riders allow for accelerations above the per diem limit, but those accelerations are subject to taxation to the extent they exceed actual costs incurred by the policyholder

13 Understand and know the details of the LTC Riders and Chronic Illness Riders you sell. Get and read sample contract. Free Chronic Illness is often not free. Claim can reduce DB and LTC benefit substantially. Know carriers rules regarding loans/ withdrawals when selling riders on cash accumulation products like CAUL, IUL or VUL. Claims can reduces policy values disproportionately vs some policies reduce values proportionately. In addition on some products cash value withdrawals and loans reduce benefit disproportionately. Potential consequences of family providing care. Is money paid to family member treated as income or a gift? Understand the consequences of third party ownership. Understand who does claims and tax administration. 37 Company B chronic illness rider is available free of charge Unless You Use it In the event of a claim, Company B death benefit is reduced by more than the amount of the claim Company A death benefit reduces only by the amount of the claim Female, Age 60, Preferred Non Smoker, $500,000 Death Benefit; 2% LTC claim effective year 10 Death Benefit Reduction Maximum Annual LTC Benefit Benefit Pool Lost Upon Acceleration Company A $120,000 $120,000 $0 Company B $120,000 $56,639 $63,361 Company B reduces the death benefit by the full $120,000, but the client only receives $56,639. The remaining $63,361 is lost! Company B s approach depletes policy CV much faster. Reduction equal to the amount of claim. Company A: Claims reduce cash value proportionally to reduction in death benefit. IULs: Male, 55, Preferred, $500,000 Death Benefit, 6% assumed rate of return 2% LTC Rider. Premium $15,000 for 10 years Cash Value Comparison: Assume 2% Acceleration, $10,000, for 12 months beginning in year 21 Before Claim After Claim (CSV Year 20) (CSV Year 21) Company A $231,493 Accelerate $181,360 $120,000 Company B $237,946 $130,

14 It depends Case facts Clients personal experience Clients assets Legacy desires The math Come to our next session for interactive case studies 40 14