This Month:
LTC: Family issue that falls on women
Long Term Care's great false start
What you need to know about the Pension Protection Act and navigating the new LTC rules
Don't let clients get blind-sided by unexpected LTC costs
Skip CLASS, enroll in LTCi instead
MISSED OPPORTUNITY: 91% of Americans say financial professionals don't discuss LTCi
Age up for employer sponsored group LTCi
Can anyone really ignore Long Term Care insurance anymore?
Making the case for LTCi
Planning for longer lives: LTCi and the longevity challenge
Americans lack realistic LTC plan
Tax-favored 1035-Exchange long term care insurance premium payments? NOT YET!
Most Americans have no plan to pay for LTCi
LTCi being purchased by younger clients
LTCi better understood, but myths persist
Linked benefits: a two word strategy for protecting your client's future


LTC: Family issue that falls on women

by Shawn Britt, CLU

Shawn Britt, CLU, is director of advanced sales with Nationwide Financial Services in Columbus, Ohio. She can be reached at britts@nationwide.com.

Long term care (LTC) is definitively a women's issue. While men will indeed be part of the long term care story, they usually participate as the cared for. Women on the other hand often start out as the care taker, but need care themselves in the end. If you look at the following statistics, this picture becomes clearer.

At age 75, 74 percent of men are still married, while only 38 percent or women have a spouse. Women comprise 75 percent of the unpaid caretakers force, and without a spouse to provide care, the caretaker usually becomes the daughter or daughter-in-law.

While adult children and parents should have discussions about potential LTC needs that could arise, these conversations too often take place at the eleventh hour. By then, the parent is either uninsurable, or delay in taking action puts the parent at an age where premiums are too high to be palatable.

Issues the family faces

Unfortunately, families attempting to save money often think they can handle care themselves. Mom cares for dad, and then the adult children care for mom. Sounds good on paper, but there are many issues families should consider, which include:

True (and typical) story

Yvonne has been a caretaker for years, and it has definitely affected her life. Though she has three brothers, she is the only daughter. Several years ago, Yvonne's unmarried brother had a long terminal illness for which she was the primary caretaker. Her retired mother helped a lot at first, but the stress had an impact on mom's health, leaving Yvonne to do the major care-taking duties. Yvonne tried hard to juggle work and her brother's doctor appointments and treatments, but ultimately, Yvonne had to give up her career. After this brother passed away, another brother moved in with her mother to help take care of her. That worked for a while, but now, he too is ill with serious heart problems. Yvonne is now caring for her mom and brother. The third healthy brother offers to help but lives over an hour away, and he is not skilled at cooking, laundry, or cleaning, so Yvonne has to take care of her mom's household as well as her own. Yvonne changed careers to one with more flexible hours, but lost precious time and money in building her career, college savings for her two kids and retirement assets when she lost her previous job. Being a caretaker has affected Yvonne emotionally and financially.

This family story and its consequences are all too common.

Women who provide care for a chronically ill spouse are six times more likely to suffer symptoms of depression and if care duties are more than nine hours per week, the increased risk for coronary heart disease doubles.

Women may lose out financially as well when balancing work with care-giving of family members. Loses average $565,000 in lifetime earnings, plus loss of Social Security and pension benefits.

Solutions

Traditional LTC policies, familiar to most clients, focus on long term care only. While these policies offer an array of features, most policies are a "use it or lose it" proposition, which leaves many consumers cold.

Long term care riders on life insurance and annuities offer an alternative asset based solution.

Annuities/LTC combos vary among companies, but essentially double or triple guaranteed income benefits from assets that have accrued if qualifying LTC needs occur. These products may be a good choice for clients who must stretch what they have to last a lifetime and will pay either income or LTC benefit.

Life insurance/LTC combos work differently. A smaller amount of dollars paid today in the form of premium creates a larger amount of money that can be used as death benefit and/or long term care benefits. This pool of money, usually a multiple of dollars paid in, is available as soon the policy is issued. A solution of this type may be better suited to clients who have enough income to live on, but are looking for a LTC solution that can fit in with legacy planning. The death benefit becomes available while the client is living to pay qualifying LTC expenses, and any unused death benefit is paid to the beneficiary, upon the death of the insured.

Benefit pay-out options ñ indemnity vs. reimbursement

Benefit options may be just as important a consideration when thinking about the stress and time required from family members to coordinate the collection of a parent's benefit.

Reimbursement plans are sometimes less expensive to purchase, but require more work. The benefit will be the lesser of the maximum qualifying benefit or actual LTC costs incurred. Any costs on the bill not specific to long term care may not be covered. In addition, bills and receipts must be submitted each month to the company, then, qualifying costs are reimbursed, either to the facility or to the contract owner for bills already paid. This monthly administrative duty is likely to fall with the daughter or daughter-in-law.

Indemnity plans, while sometimes more expensive, provides a much simpler policy on which to collect. This option will simply provide a check each month for the full amount for which the client qualifies, whether they need it all or not. No bills or receipts need to be submitted and any excess benefits may be used for any other expenses, offering more flexibility of use. The client needs to qualify before LTC benefits are paid out and HIPPA plays a role as to how much LTC benefit can be paid out.

All family members can benefit from proper LTC planning, women in particular. When funds are available to provide professional care, the patient gets better quality care, and the wife or daughter are better able to maintain their own physical and financial health to live a longer more quality life.

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Long Term Care's great false start

It will solve the longevity risk and protect a client's nest egg,
so why are so few buying it?

by Terry L. Truesdell

Terry L. Truesdell is president and CEO of the National Long Term Care Network, an alliance independent brokerage agencies specializing in LTCi. He can be reached at 913-385-7899 or at terrytruesdell@nltc.com .

Long term care insurance (LTCi) is a product many insurance industry leaders believed would become an exciting new frontier for the insurance industry. As Baby Boomers began experiencing their parents' long term care needs and realized the realities of paying for that care privately, it seemed only logical that consumers would readily embrace LTCi as a part of their financial plan for retirement. Year after year insurance carriers and their distribution channels have gone through an annual planning ritual, assuring each other "this is the year" LTCi sales will really take off. But the excitement and anticipation of great things to come has yet to perform to anyone's expectation. Sales stalled even before the economic downturn.

How is this situation possible? Even as many Baby Boomers have dealt with their parents and grandparents long term care needs first hand, only a small percentage (under 10 percent) of those who should have long term care insurance have actually purchased it. Last year the U.S. Department of Health and Human Services estimated that about 70 percent of individuals over age 65 will require at least some type of long term care services during their lifetime. It would appear LTCi sales would be increasing at a record pace, but that is not the case. In the last several years, sales have dropped more years than they have risen. Although some distributors and producers have figured out how to get a bigger piece of the LTC insurance sales pie, the real problem is that the LTCi industry continues to share a smaller pie.

I'm struck by how some of the challenges associated with health care reform contain lessons for the long term care insurance industry.

One of the impediments to both health care reform and growing a larger potential LTC insurance pie is our all-or-none approach. One of the pillars of health care reform is the belief that total coverage should be a "right" of everyone living in the United States and that health insurance should cover everyone for everything. As a society we love things that are black and white�gray, not so much. Of course, if everyone has a right to it, and it has to cover everything, that's perhaps the most expensive way to proceed.

Again, America's approach to solving things often pursues a be-all, end-all solution. Health care reform and long term care insurance are no exception. As we considered health care reform and health care insurance with a black or white approach, either a nationalized system or keeping the status quo, we soon realized that the discussion need to focus on the many solutions in between. The greater good indeed fell into that gray area. The same can be said for the purchase of private long term care insurance. Purchasing a modest policy today with plans to purchase another policy in the future may be the most realistic way to get sales back on track.

Within this context, we must ask what will happen when CLASS (Community Living Assistance Services and Supports) is implemented. With only a small percentage of eligible Americans estimated to participate, most question if CLASS is being included as a solution for covering future LTC costs or being used as a $73 billion cost savings off-set for the health care reform bill. Few would disagree that the Feds track record for running any type of cost effective social program has been anywhere close its original cost and future affordability. Consider that CLASS' financial problems will be compounded by this fact: other government-run programs don't give working citizens the right to opt-out of paying. As proposed, CLASS will.

Some argue that CLASS will make private long term care insurance sales more difficult. I don't agree. Other lines of insurance have had to deal with the issue of government plans for decades. Do people not purchase disability insurance because Social Security has their own program for disabled workers? Do people not buy life insurance because of Social Security's family survivorship benefits, or not buy Medicare supplements because of Medicare? When the dust settles and we know how CLASS will work, our industry may have an unprecedented opportunity.

How you age, where you will live, the options available to you in your retirement years are by nature "gray" topics. So is the inflation rate for increases for future home or facility care. What's not gray is the fact that a large majority of us will need care and the money necessary to pay the costs. This financial liability, which always comes at the time when most Americans cannot pay it, will become a family challenge for many. Buying long term care insurance makes a lot of sense... that everyone agrees on. At claim time, any amount of money provided by LTCi is better than not having bought the policy.

As new versions of traditional LTCi policies enter the market at higher price points, producers continue to exit the market; their "home run or back to the dugout" approach has become even more difficult. I also believe one possible reason long-term care insurance sales haven't taken off is the "selling down" strategy most producers embrace. We start by offering the richest policy design and, if that doesn't sell, something less expensive is offered. In contrast, most sales trainers in other industries teach the technique of showing entry-level products or benefits, then selling up. With products entering the market priced to focus on less-expensive base benefits, some with pools of money rather than benefit periods, multiple sales or using future purchase options might be a solution whose time has come.

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What you need to know about the Pension Protection Act
and navigating the new LTC rules

by Tom Riekse Jr., CEBS, ChFC

Tom Riekse Jr., CEBS, ChFC is managing principal at LTCI Partners, a brokerage general agency specializing in long term care insurance. He can be reached at tom.rieksejr@ltcipartners.com .

Long term care (LTC) planning is quietly evolving into an established, mature part of the financial planning and advice process. An often overlooked provision of the 2006 Pension Protection Act (PPA) will make sure this trend continues and accelerates.

The part of the PPA that impacts LTC relates to "hybrid" long term care insurance (LTCi) policies and 1035 exchanges. We'll discuss those details later in this article.

More important than the tax details, however, is the impact the PPA may have on how advisors approach LTC planning and LTCi. It should help to expand the market beyond the current buyer, who is typically someone who has had personal experience with LTC and understands first-hand the devastating financial and emotional impact it has on individuals and families.

Marketing LTCi in the past

Most people who currently have LTCi bought traditional health insurance-based LTC products, often sold by specialists. The specialists knew that traditional LTCi paid excellent renewal rates and anticipated building a nice career from selling these plans. The products sold were annual pay policies, with many moving pieces and riders that could be customized. But many of the plans sold from the 1980s through the early part of the 2000s were also subject to rate increases, and newer product series were much more expensive. In addition, health underwriting meant many consumers were declined, and since sales were often made to couples, both applicants would typically be lost when that happened. Advisors who didn't specialize in LTC became frustrated with the long application process as well. The result, stagnant sales in a market that should have been growing.

At the same time, a parallel market of so-called linked or asset-based LTCi products developed. With these products, clients purchased a single-premium life/LTC insurance policy, with a typical initial premium of $50,000 to $100,000. If they needed LTC, they could access the policy value through the accelerated benefit feature. For an extended LTC need, an extension of the benefits rider helped leverage the initial policy value by increasing the LTC benefit to $150,000 or $200,000, for example.

On the other hand, if the client died, there was a death benefit and if they changed their mind, a return of premium feature. These products appealed to banks and wirehouses who knew there was a need for LTCi, but were put off by the complexity and low first year compensation of individual products. Because they were familiar with their clients' financial picture, they could recommend a reposition of cash into a combination product.

However, there were problems related to this approach as well. For one, many clients were entering a period in their life when they needed less life insurance, not more. Also, the LTC premiums embedded in the linked products required an annual 1099 for the premium value. Finally, because minimal up-front health underwriting was typically done, the underwriting success ratio was problematic as well.

Limited pay traditional LTCi plans constituted yet another option.

Pension Protection Act

With the implementation of the PPA, three major changes took place. First, the treatment of qualified LTCi within a life/LTC product changed. Second, the rules for annuity/LTC products became more favorable. Finally, 1035 rules changed. Here is a breakdown of these three changes:

Although these new exchanges are allowed, it may be some time before the infrastructure at the carrier level is built to accept them. Also, many advisors have suitability and compliance issues with their broker-dealer with which they must contend.

Once the products and exchange capabilities become commonplace, it will be more likely that consumers and advisors will consider both traditional and linked-products when looking at LTC.

For example, let's assume that the annual pay level premium with a leading carrier for a 55-year old single person buying $200 per day coverage for a three-year benefit period with three percent compound inflation is $1,935. Sounds reasonable for $200,000 of LTC protection that inflates over time, but there are other ways to pay as well:

As you can see, there are many ways to pay premiums. With that in mind, a few questions might come up. When might one method be better than another? Well, if the client is concerned about future rate increases, the single pay and 10-pay plans will lower or eliminate the chance of that happening. Are they a C-Corporation business owner? They might want to consider running the 10-pay or 20-pay premiums through their business and deducting the total premium. Do they have a life insurance or annuity they no longer have use for? Perhaps a 1035 exchange into a single premium LTC plan is the way to go. Are they planning on self-insuring for LTC and want a safe place for that money? The single premium life/LTC plans offer that flexibility plus leverage money for LTC needs. Does the client still have children in college? They may want to consider the graded premium so that premiums are more affordable now and hit a level premium amount at age 65.

All-in-all, the Pension Protection Act creates more options for people wanting to plan ahead for LTC. With more ways to fund LTCi, and expanded tax-free payouts, advisors have more ways to structure attractive LTCi options for their clients.

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Don't let clients get blind-sided by unexpected LTC costs

by Malcolm Cheung

Malcolm Cheung is vice president of Long Term Care for Prudential. He can be reached at malcolm.cheung@prudential.com

The hit movie "The Blind Side" dwelled on the key role left tackles play in protecting the quarterback in football. But what if the player who lines up opposite the tackle is bigger than expected? You better have a Plan B.

Retirement savings are critical for providing protection and peace of mind, with stakes that are a lot higher than a simple win or loss on a football Sunday. Are your clients' financial assets substantial enough to do the job? The answer depends on the kind of

expenses they will face, and one of the biggest wild cards is long term health care costs. How can insurance advisors help? When it comes to retirement security, your customers can't afford a blind spot. Start with a blunt discussion of risk.

A recent study commissioned by Prudential Financial found that average out-of-pocket health care costs for a typical couple from age 65 until death came to $197,000 (on a present value basis), or $260,000 with nursing home costs included. But the study, conducted by the Center for Retirement Research at Boston College, also found there is a five percent chance that couple will pay $311,000 or $570,000, respectively. The problem: most households haven't accumulated that much in total assets as they head into retirement, let alone adequate set-asides for health care.

Of course, nobody can say for certain what one particular client's care costs will be, but savvy financial professionals can drill down on an individual's health, family history, financial position and risk tolerance to help come up with the best plan to meet future expenses.

Clients, for example, should know that married couples age 65 and over spent an average $7,600 in Medicare premiums and co-payments in 2007. But they should also be aware that such averages mean little when it comes to their particular exposure to exceptionally high expenses. And nowhere is that volatility more pronounced than with long term care, which can run the gamut from part-time assistance provided by a health aide in the home to time spent in an assisted living facility or nursing home.

Consider the biggest "x-factor" in long term care costs: nursing home care. The average annual expense for a private room in 2008 was $79,205, or almost four times the cost of part-time care in the home, according to a 2008 Prudential long term care cost study. Furthermore, there is substantial variation in private room costs from state to state: Alaska topped the list at $183,595 a year, while Texas was lowest at $60,590.

These costs are only going to increase as Baby Boomers age and demand for facilities grow. In 30 years, the American Council of Life Insurers estimates, the annual cost of a nursing home stay could exceed $270,000. Obviously, extended time requiring this kind of care could quickly exhaust a client's retirement savings.

When employee benefit plan participants were surveyed last year, one in three workers said they either didn't expect to require long term care or didn't have a plan to offset the costs. This is a bigger gamble than you might think. About one-third of the people who turn 65 this year will need at least three months of nursing home care in retirement, 24 percent will need more than a year and nine percent more than five years, according to the Center for Retirement Research study.

Of course, the balance of uninsured health care costs declines with age. But the CRR study found that such costs remain substantial even at advanced ages. At age 85, for example, couples face an average remaining lifetime cost of $140,000 (on a present value basis), or $203,000 with nursing home care included. There is a five percent chance, however, that those numbers could exceed $266,000 and $477,000, respectively.

How do clients plan to pay for this care? Many workers expect Medicare to pick up the tab, but nursing home coverage is limited to 100 days or less under this program, and coverage is usually only provided if there is a prior hospitalization for an acute medical condition. Medicaid does cover almost half of the cost of nursing home care, but coverage is subject to stringent income and asset tests. Most clients will have to deplete their financial resources to qualify, which is not a palatable option for those who want to retain control of spending decisions or pass on assets to their family.

So, in your role as a financial professional, you've discussed long term care exposure and coverage limits with your clients. What now? The earlier you present options to your customers before they approach retirement, the better. Identifying and building assets while a client still has earning power is critical.

Workers can consider the creation of retirement medical saving accounts, which offer tax advantages for legitimate health care expenditures. Another option is a variable annuity, which provides guaranteed income and, in some instances, permits access to the underlying funds for medical emergencies or other unanticipated costs. Advisors should also discuss long term care insurance, which is more affordable the younger you are at policy purchase. If offered by an employer, workers can typically apply for group long term care coverage with no, or limited, medical underwriting.

Your clients don't know what life is going to throw at them in retirement. But you can help allay some of their concerns if you give them the facts about long term care, tailor a plan that suits their financial resources and risk tolerance, and help make adjustments on the fly if their situation changes. That's a winning game plan for a secure retirement.

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Skip CLASS, enroll in LTCi instead

by Jay Drucker

Jay Drucker is Vice President at American General Life Companies. He can be reached at jay.drucker@americangeneral.com .

My 77-year-old mother still works 40 hours a week; she loves her job and interactions with students. If we're lucky, my wife and I will be around as long as my mom and continue to enjoy our independence well into our 80s. Americans are living longer than ever, so chances are good. In fact, there's a 39 percent chance that at least one member of a 65-year-old couple will live to age 90. But will we be able to maintain our independence? That's where the statistics don't play in our favor.

A 2005 study found that close to 70 percent of people turning 65 years of age will need some long term care before they die. And women will need this care more than men. An estimated 79 percent of women currently turning 65 will need long term care, compared to 58 percent of men.

The recently signed national health care legislation includes Title VIII: Community Living Services and Support (CLASS) Act. "Establishing a Voluntary, Self-Funding Long-Term Insurance Choice for American Families," as the legislative description runs, promises to provide clients a shiny new option to take care of themselves and enjoy the flexibility of being able to receive that care at home.

The bottom-line promise of the CLASS Act is to help enable elderly and disabled people to stay out of nursing homes. As a Baby Boomer, I can vouch that the concept of staying independent as we grow older is incredibly powerful for millions of Americans, including your potential clients.

They don't want their only option for assistance to be a nursing home. They don't want to be a burden to their children or healthier spouse.They want the right amount of assistance to help them take care of themselves, preferably in their own homes.

But will the CLASS Act work? If I opt-in to CLASS and keep working long enough to receive benefits, what will I receive, and will it be enough for my needs? No one's sure. The details of CLASS, the benefits and premiums, are yet to be determined, and no one can tell us what the program will look like. In addition, CLASS only covers people who are actively employed. What about my wife? She volunteers 30 hours a week in the community, but is not actively employed, and therefore unable to participate in CLASS. What about those whose retirement horizon is only a few years away? They may not be in the workforce long enough to qualify for CLASS.

It's a disservice to let our clients be lulled into waiting for the CLASS Act before they begin contributing to an LTC plan. We need to position our potentially long-lived clients for successful, independent futures with their own LTC insurance.

Here are five points I believe will be most successful in helping our clients understand the significance of obtaining LTC now.

AGING IN PLACE

The most robust and attractive features in LTC policies are the ones that allow people to stay at home as long as possible. Cash benefits provide flexibility in terms of making it possible for a loved one to care for you. Stay-at-home support benefits, which help pay for home modifications, durable medical equipment and caregiver training, make the home a safe alternative for prolonged independence.

Showing your clients how they can prepare for an extended retirement period and potentially stay in their own home is very powerful.

THE GAP YEARS

The CLASS act is a big unknown. We won't know plan designs and costs until 2012, and that's an estimated date. People are frozen in a "gap mode" waiting for CLASS to start, and while they're waiting they're uncovered. And actually, it's a seven year gap, since CLASS benefits won't kick in until after five years into the program. Seven years without coverage is seven years too long. Clients should act now and not wait.

RISING COSTS

As traditional health care costs go up, plus the costs of specialized care needed by the increasing "oldest of the old" population, people are making decisions about where their disposable income will go. It behooves our clients to invest some of their disposable income into an LTC policy, thereby guarding their nest eggs or future income streams.

And speaking of costs, we don't know what CLASS premiums will cost. We only know that premiums will be determined by the Secretary of the Department of Health and Human Services to preserve the program's solvency for 75 years.

If you needed a car, would it make sense to say: "I'm not going to choose a car now; I'm going to wait until 2012. I have no idea how much the 2012 car will cost or even what it will do, plus I won't be able to drive it until 2017. But still, that's the car for me!"? No, that wouldn't make sense. Waiting to commit to CLASS as the LTC policy of choice doesn't make sense, either.

"BOTH" VS. "EITHER/OR"

It's a false choice to think of CLASS and privately funded LTC insurance as "either/or." If your clients are genuinely and strongly interested in opting into CLASS, they should exercise the "both" scenario and obtain their own private LTC insurance policy now and possibly add CLASS to their portfolio when it's available. While CLASS provisions are still being molded, private plans will return benefits whether or not your client has a public plan.

MOTIVATIONS FOR INSURING WHAT WE VALUE

LTC insurance is like everything else. Do your clients insure their lives, their cars and their homes? How do we put a price on peace of mind? Not only is insurance a personal safety net, we usually buy it because we don't want our spouses and children to have to worry about us or about their futures. Insurance brings the comfort of knowing we're protected, and our loved ones are protected, and that can be worth more than what we spend to acquire it.

Longevity is having a significant impact on us, from the massive Baby Boomer population, to the "sandwich generation" of adults caring for aging parents while still raising children. The laws of supply and demand indicate that with more aging people needing care, and fewer workforce caregivers available, costs and quality are going to be issues.

We need to help our clients understand none of us should depend solely on a well-meaning legislation with "details to be determined" to provide for our long term care. We need to "insure" that our long term care is provided for us � by us.

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MISSED OPPORTUNITY

91 percent of Americans say financial professionals don't discuss LTCi

While the vast majority of Americans acknowledge the importance of planning for their retirement and long term care, only nine percent say their advisor has actually discussed the issue with them.

In fact, according to a recent Age Wave/Harris Interactive survey, sponsored by Genworth Financial companies (Genworth), America Talks: Protecting Our Families' Financial Futures, 91 percent said their financial professional has not broached the topic of how to fund potential long term care costs.

Although this issue is currently top of mind with the American public, many are still not engaging in open conversations, even with their own families, about the kind of long term care they would prefer, or could afford, if they needed it in the future. According to the survey, 65 percent say that fear of upsetting family members is the biggest barrier to talking about long term care plans.

"Discussions about long term care represent a major tipping point for advisors," said Colleen Goldhammer, Senior Vice President of Sales and Distribution for Genworth. "Yet many are missing a tremendous opportunity to talk to their existing clients, and strengthen relationships, by facilitating these difficult family conversations," she added.

Conversation Starters

To help get this emotional and sometimes difficult conversation started, there are three key topics advisors should suggest, to help their clients engage in these family discussions:

In addition, the survey found that 92 percent of spouses, or partners, had not discussed all three of these long term care topics with each other; 95 percent of parents had not discussed them with their adult children, and 96 percent have not had these talks with their parents.

Candid discussions about long term care planning can play an important role in mitigating the financial and emotional risks an unexpected illness can impose on families. Unfortunately, many people are caught by surprise when faced with decisions about the care of a relative, when time is short, and long term care options are limited. It's likely that advisors have already spoken to their clients about the many key risks to retirement income, like market volatility and rising healthcare expenses. Now they have the opportunity to educate them about the options for protecting their nest egg from the threat of the rising cost of care.

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Age up for employer sponsored group LTCi

Purchasers of true group long term care insurance tended to be slightly older in 2009 and an increasing number selected less costly policy features according to the American Association for Long-Term Care Insurance (AALTCI) annual study of group (employer sponsored) long term care insurance. The organization's research was based on an analysis of nearly 66,000 new purchasers.

"Costs for health insurance and other employee benefit programs increased dramatically last year so it's not surprising that employees were older and more cost-conscious when it came to long term care coverage," says Jesse Slome, executive director of AALTCI, the long term care insurance industry organization. According to the annual study, over a third (37.2 percent) of new group buyers were age 55 or older compared to 28 percent for the prior year (2008). "Younger employees likely decided they could postpone the decision," Slome suggests.

Nearly half (45.4 percent) of new enrollees selected daily benefit levels of $149 or less, about an eight percent increase compared to the prior year. "While there was an increase among those selecting less costly options, there was a slight increase in those selecting more costly plans offering daily benefits of $200 or more," Slome adds. "In addition, there was a slight increase in the number of new enrollees selecting longer benefit periods, which are more costly."

According to the Association study, the most common benefit period selected remains five years. Some 66.1 percent of buyers selected coverage designed to pay benefits for at least five years (up from 61.0 percent the prior year). Unlike individual long term care insurance policies where nearly half of buyers (64.5 percent) purchased a five percent annual inflation growth option, only 15.4 percent selected this option with the vast majority (83.6 percent) selecting an option enabling them to increase benefit levels periodically in future years.

The Association study also examined new claims beginning during the year. Some 6.4 percent of new claims were initiated by individuals age 59 or younger. Only 1.8 percent of claims made against individual LTC insurance policies were by individuals age 59 or less. Nearly half (49 percent) of benefit dollars paid for new group policy claimants were for home care with only 30 percent for nursing home care.

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Can anyone really ignore LTCi anymore?

by Phyllis Shelton

Phyllis Shelton is President of LTC Consultants, Hendersonville, Tenn. She can be reached at 888-400-1118 or at phyllis@ltcconsultants.com .

What does it say about a person whose favorite photo collection right now is the AARP magazine covers? Kevin Costner, Richard Gere, Clint Eastwood, Sally Field, Ron Howard...with this list, I don't mind telling you the person is me. I also don't mind telling you that I just watched It's Complicated, and cheered for 60 year old Meryl Streep cast as the same age as Alec Baldwin, who is only 51. And believe it, Tina Turner still has those legs at age 71! Let's face it, many Baby Boomers today just look a lot better than our counterparts a generation ago.

While the improved physical aspects of the Baby Boomer may cause us to smile gratefully, what about the rest of our existence? Are we better off spiritually, mentally, emotionally and financially?

Research from McKinsey & Co. finds that the average American family will face a savings gap of $250,000 at the time of retirement. Even with payments from Social Security and pensions, as well as personal savings in 401(k) and other retirement plans, the average family will have only about two-thirds of the income it will need.

And this from Terry Savage, Chicago Sun-Times financial columnist in her 2009 book:

What's the greatest risk in your financial plan? We've seen how a stock market crash can devastate retirement plans. But the greatest risk is not the longevity of this bear market, or even another bear market. It's the devastating cost of long term care.

As Baby Boomers transition from the accumulation phase to the distribution phase, advisors are in demand to construct an income stream that will last 20 or 30 years and even longer. Is there enough in the proverbial nest egg? Can a financial plan that guarantees one won't outlive her money be constructed for people who spend more years in retirement than they work?

The answer is absolutely not, if the need to plan for long term care is ignored. Let's take the gloves off. Do we care about our clients or not? Do we care about the person we see at the grocery store, sit next to at church, or see at PTA meetings and ball games? Our neighbors, our friends, and yes, our family? Are we talking about how essential it is to have this need taken care in order to enjoy retirement? Because planning for an income to last 30 years means you don't want to have a bump in the road.

Here's a news flash. Long term care isn't a bump in the road. It's an earthquake. The resulting crater will swallow the best-laid retirement plan.

I agree 100 percent with Harley Gordon that long term care insurance is really income protection, not asset protection. The person with $3,000,000 who plans to earn five percent in retirement income of $150,000 had better have a great plan if $75,000 has to pay for caregivers, starting next month because he or she had a severe stroke. If the growth rate over the last 20 years continues, long term care costs will triple in the next 20 years. Will your client's income triple in the next 20 years?

When your client denies that anything will ever happen, try asking when the last time was that his nightly news reported on a non-celebrity having a massive stroke? Not exactly news, since at least 700,000 people in the United States have a stroke every year, with one out of four being under age 65.

My favorite cousin while I was growing up was Carolyn. I loved it when she baby sat me because she would show me her beautiful dance dresses. She had every color and was the best dancer I'd ever seen. Her brown eyes sparkled with happiness when she danced and she always had her most beautiful smile for me. She had a massive stroke at age 61 and has been paralyzed on the right side of her body and without speech for eight years. Her mind is fine. I know she remembers those dancing days.

What about the client who has $5 million dollars and can self-insure? Since when has any financial planner ever told a client to forget about homeowner's insurance and pay full price for replacing a home? For hospital and doctor costs? For real estate, art, jewelry, and to be sure and pay top dollar for the new swimming pool?

I think there is a misconception about just how many Americans have several million dollars. According to a 2009 report from the Financial Research Corporation, only about 10 percent of households 45 to 74 have over $500,000 in investable assets. Less than five percent have over $1 million.

That means that most people need our help and it's our job to be sure they understand they need our help. Since when do we wait for people to walk up to us and say they need life insurance, disability income insurance or retirement planning services? The difference here is that long term care insurance can be much easier to prospect for because if you are a Baby Boomer, you will find that most of your peers are experiencing it with a family member and have learned the hard way that it isn't covered by anything else except Medicaid, which brings a plethora of limitations.

I continue to believe that long term care is the real health care crisis in America and we only have a few years to get it to the masses in time to make a difference. Here are three ways it can be done:

Worksite LTCi

In 2008, 51 percent of the long term care insurance policies were bought at work. That's a combination of true group and multi-life, but multi-life is driving the bus with a growth rate of 47 percent from 2007 to 2008. Network with employee benefit specialists to break into this market. Since most employees are now going through LTC with a family member, they are hungry for the great news that there is a way their own children don't have to go through it with them. And amazingly, most employees aren't complaining about the economy. They are just appreciative that their employer cared enough to make LTCi available. The secret to participation rates of 20 percent or more is a six to eight week pre-education program that gets the employees to the employee meetings, then offering personal consultations for employees and family members after the meetings.

Partnership LTCI

Using the Partnership as an additional incentive will increase worksite LTCi sales. Network with other professionals to increase individual sales by doing retirement planning town hall meetings in your area and working in the Partnership message that families can protect assets and avoid estate recovery. Titles like "Don't Bet the Farm - Is Your Family Protected?" are effective in rural areas as many families have no clue that a farm that has been in the family for generations can be jeopardized by estate recovery.

Combo Annuity/LTC products

Now Americans can exchange older non-qualified annuities for these combo products and pull the gain out tax-free for qualified long-term care expenses. Network with annuity marketers to get into this market and to help the annuity marketer learn how to be sure the LTCi benefits are meaningful.

When AHIP tells us that 57 percent of people over 50 report they've never been approached to buy long term care insurance, I know we can do a better job, and the best news of all is there's never been a better time or more needed time to talk about planning for long term care.

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Making the case for LTCi

by Joseph Catalano

Joseph Catalano is senior vice president, Distribution & Marketing, John Hancock Long Term Care Insurance. He can be reached at jcatalano@jhancock.com.

I don't think that many of us were sorry to see 2009 end, with its market turbulence and record unemployment. Staggering 401k losses made for an uncertain future and left all of us feeling jittery. But as bad as the year may have been, it did lay the groundwork for what is sure to be strong growth in the long term care (LTC) insurance market.

The Matter of Need

First, there is the simple matter of need. The distribution branch of the industry, including the most respected broker dealers and wire houses, has long recognized the financial risks posed by a long term care event. We all know that the cost of care is high, with current nursing home confinements averaging almost $75,000 annually and even home health care estimated at about $55,000 a year. The annual cost of nursing home care in 30 years is projected to be $250,000. It's probably safe to say that that few clients are in a position to meet these costs without a significant impact on their estates, particularly when the Medicaid loopholes were significantly reduced with the passage of the Deficit Reduction Act in 2006.

Finally, the social fabric that once supported care has frayed, with family members often living miles apart. Many sons and daughters are busy with careers or childrearing responsibilities, sometimes both. In any case, most people are unwilling to burden their children with having to provide for their care.

As a result, not only do the most respected distributors believe LTC insurance as a "must-have" in any comprehensive financial plan, they actually view its introduction as part of their fiduciary responsibility to their clients. There are some in the industry that take it a step further and view the failure to recommend LTC insurance as a potential malpractice risk. They fear that an individual whose estate has been consumed by long term care expenses could hold the producer liable for these losses, with the courts deciding that they did not perform appropriate due diligence during the estate planning process. But the real reason to sell LTC insurance is not to avoid litigation, it's about responsibility, trust, and growing your book of business by capitalizing on the opportunities.

The Baby Boomers Wake Up

I'm talking about the 78.2 million baby boomers who may need care within the next 20 years. The first wave celebrated their 60th birthdays in 2006 and nearly 8,000 reach that milestone every day. This is the group that benefited from a stock market that didn't seem to have a ceiling. They were living the good life and had every reason to think that the future would be bright. Unfortunately, the world changed in October 2008, when the Dow lost 1,800 points in the first week and started a dive that would take many boomer nest eggs with it.

Today, many of the boomers are being forced to reassess their financial plans and are taking a second look at LTC insurance. Before the crisis of the financial markets in 2008/2009, they may have been able to self-insure against a long term care risk. Now, they're looking at ways to protect their remaining assets from a possible long term care event. That's what makes LTC insurance an ideal part of a comprehensive retirement plan. It's insurance protection that can be counted on to help provide for their long term care needs, regardless of the ups and downs of the market.

The Flight to Quality

The boomers aren't the only ones who've changed. The LTC insurance industry itself has evolved over the years. Some companies departed after having incorrectly priced their product lines. Their departure left many producers frustrated and embarrassed since they were the ones recommending these companies in the first place. Even worse, those consumers who had been paying premiums for years wondered if they would be left high and dry at claims time.

Then if you add in the concerns surrounding the financial crisis, you can understand why we've experienced a flight to quality unlike any seen before in this industry, with producers choosing to work with carriers that have the ability to demonstrate the highest level of financial strength and stability. So the companies that were uncommitted, or who got into the market for a quick profit have mostly exited, leaving behind a more consolidated and dedicated carrier group to meet the long term care needs of the American public. That's good news for producers and their clients, alike.

The Message from Washington

There are other positive developments that should boost LTC insurance sales, courtesy of the federal government. The first is The Pension Protection Act (PPA), which is broad legislation that includes provisions to encourage individuals to purchase LTC insurance, by introducing certain tax advantages involving Life/LTC and Annuity/LTC combination products and 1035 exchanges. The PPA signals the government's recognition that LTC coverage represents important and solid consumer value.

The other piece of legislation that may have an even greater impact in the long run is the passage of The Community Living Assistance Services and Supports (CLASS) Act of 2009. Currently included in both the Senate and House versions of the pending health care legislation, the CLASS Act is sure to raise awareness among all Americans of the many issues surrounding long term care.

Although the coverage is limited and is mainly intended to provide a minimal home care benefit to the working disabled, it still sends a powerful message about the importance of long term care preparedness. We will simply need to educate the public on what it does, and more importantly, does not provide. If the health care bill is ultimately passed and continues to include the CLASS Act, it will be one more way to start the LTC insurance conversation with your clients.

The Multilife Opportunity

Now that we've entered a new year, it might be a good time for you to consider reinvigorating your practice. A great way to do that is to consider the sale of multilife LTC insurance to employers with fewer than 1,000 employees. LTC insurance has been very popular with large employers, but the small to mid-size market remains mostly untapped. A recent John Hancock survey of small business owners revealed that although they are interested in LTC insurance as an employee benefit, only 57 percent have been approached by their broker or consultant about this topic.

If you haven't thought about entering the small to mid-size employer market, there are some good reasons to consider it. Once you sell an employer on LTC insurance, you gain access to the entire employee population and their eligible family members as well. Think of it as one sale leading to many, without the constraints of the Do Not Call legislation and the barriers that apply to one-on-one sales in the individual market. You'll find that employers will be very receptive to the product once they learn that the product has advantages for them and their employees.

Looking Ahead

All good sales people are tuned into their clients' needs. The most successful make their mark by staying ahead of the competition. This means being committed to developing an expertise in products they know their clients will value. LTC insurance is one of those products.

LTC insurance addresses the issues of an aging population by providing protection to cover a risk that few can self-insure, while providing an affordable way to help your clients protect their assets and preserve their independence, especially if they decide to purchase it during their working years. On top of that, the government continues to send signals that the purchase of private LTC insurance is a prudent way to prepare for a possible long term care event.

So if you're looking for the next big thing, look no further, and consider adding LTC insurance to your portfolio of products. If you already sell LTC insurance, my suggestion is to get ready for the ride ahead and keep an eye out for new opportunities, like the small business market, and get your message out to those who need to hear it.

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Planning for longer lives: LTCi and the longevity challenge

by Nancy P. Morith, CLU, CASL

Nancy P. Morith, CLU, CASL, LTCP, heads the Princeton, N.J. based firm of NP Morith, Inc., and serves as an adjunct faculty member of The American College in Bryn Mawr, Penn. She is an Associate Editor for the Journal of Financial Service Professionals and can be reached at Nancy.Morith@TheAmericanCollege.edu.

As if planning for a successful retirement after the recent economic meltdown weren't hard enough! As financial advisors we need to help our clients regroup and stretch those resources that remain and help rebuild the asset levels for those still actively at work. Well, not to be a total spoil sport here, but� there's more to deal with than just currently reduced circumstances.

Increased longevity

Because of advances in medicine, people are living longer. The average life expectancy in 1900 was 47 years; in 2000 it reached 76.9 years. More significantly, in 2000 a woman who attained the age of 75 could expect to live another 12 years and an 85-year-old woman that year could expect to live another six and a half years. Men had slightly shorter life expectancies.

People are afraid of outliving their money. Adequate cash flow for living expenses must be maintained for a longer period of time than previously thought necessary. Also, assets must be prioritized for liquidation should additional financial resources be required.

Link between age and the need for long term care

The greatest single predictor of the need for long term care is advancing age. Approximately one-fifth of Americans over age 65 need assistance with every day activities but this climbs to more than half of the population when you look at those 85 and older.

Long term care is very costly (average annual nursing home cost in 2008 is almost $80,000 for a private room.) With the number of people requiring long term care services projected to double by 2030, we can expect some inflationary pressure on all long-term care costs.

Since neither Medicare nor private medical expense insurance covers custodial care services, there is a need for advisors to create a plan for financing these costs, should they arise. Without a good financing plan, the need for long term care could effectively torpedo a client's retirement and estate plans.

The difficulty with putting a long term care plan in place

Here's the problem with long term care planning, however. While planning for retirement is a pleasant thing for most clients to entertain, planning for frailty and old age is not. Even death is easier for most people to contemplate since it is a certainty and no one has yet escaped the Grim Reaper. Frailty and the need for daily assistance, however, is not something people like to think about, let alone plan for. And since there exists a statistical probability that they might escape the need for care (no matter how abysmal the probability is), many people will collapse into a state of denial and not do any planning. By the time a person's body starts to give signs that just maybe this once-young body will start to age after all, it may be too late or too expensive to obtain insurance coverage.

Additional risks for the aging Boomers

There is a close link between advancing age and the need for not only long term care services but also acute and chronic skilled medical care services. In 2006, per capita health expenditures were about $6,800 in our country. But if we separate out those 65 and over, per capita health expenditures for the elderly were over $18,000 in that year. Fidelity Investments does a health care cost estimate every year and for a 65-year-old couple retiring in 2009 they are estimating out-of-pocket retirement health care costs of about $240,000. This figure does not include long term care and does assume that they have Medicare coverage. The figure includes Medicare premiums, cost-sharing items and deductibles, as well as services not covered by Medicare and dental expenses. Part B Medicare premiums are already much higher than just a few years ago and are now based on the Medicare beneficiary's income, the higher the income, the higher the premium.

It is estimated that by the year 2030 the over-65 population will more than double, largely due to the aging of the baby boomers. Even if there were no further advances in expensive medical technology, the boomer population bulge by itself would cause an enormous increase in the amount of medical dollars spent on the elderly. Both Medicare and Social Security are already facing some very severe solvency issues. Changes to either or both of these programs, which seem likely, could significantly affect planned retirement cash flow and also increase medical expense obligations. This could bring about a double whammy, reduced income and increased expenses.

And yet, another cloud looms on the horizon, increased taxes. There's also be the possibility that the government may have to increase its revenue, as well as decrease its spending in some areas in order to try to get back to a balanced budget. The main revenue source for our federal government is the income tax. Is there any more "stretch" in the client's retirement plan budget?

The planning challenges

It seems clear that there are several factors converging to make retirement planning more challenging.

Protection from long term care costs

Although retirement planning clients may find it difficult to contemplate ever needing assistance with daily activities or being cognitively impaired to the point of needing supervision, it is essential that their accumulated resources be protected from what would be a very rapid erosion if long term care services were needed and no funding plan existed. Just as we consider several sources, both public and private, to put together the total required for retirement income needs (Social Security, pension, personal savings, etc), perhaps we should do the same for long term care funding needs.

Several long term care financing sources are shown below. The ultimate long term care plan might be any of the following or a combination of several.

There is no rule that states that any one of these sources must be the one and only option chosen. Several sources might have to be chosen to come into play sequentially or simultaneously.

The bottom line is that in order to enjoy our later lives, we're all going to need "more" and it's going to have to last longer than we may originally have planned.

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Americans lack realistic LTC plan

Confusion, misinformation often prevail

by Debra Newman, CLU, ChFC, LTCP

Deb Newman, is the founder Minnesota-based Newman Long Term Care in Richfield, Minn. She is secretary of the LIFE Foundation's board of directors. She can be reached at DebN@newmanltc.com.

Sitting in their offices day in and day out, most people are dreaming of those days in the future when they will be free to take off to Paris on a whim, spend their afternoons honing their golf swing or painting the next Mona Lisa. But they not only dream, they save money to make sure these dreams will be realized during these go-go years of retirement. But few people want to think about, and not enough Americans hear from their agents about, the need to plan for the slow-go and no-go years of retirement.

A new survey recently released from the Life and Health Insurance Foundation for Education (LIFE) brings this to light. Even though seven in 10 people will need long term care once they are over the age of 65, LIFE found nine in 10 Americans don't have a realistic plan to pay for these expenses.

One-fourth of the survey respondents say they will rely on family and friends, while others mistakenly believe their health insurance or government programs such as Medicare will pay their long term care costs.

These results illustrate that most people are confused about how they will pay for long term care services and underscores what I hear so often in my own practice. Recently, I was speaking to a group of 50-year-olds and asked them to raise their hands if they believe they will live to 65. Every hand in the room went up. I then asked, "Now if you live to 65, what is the chance you will need long term care in your life?" Very few knew they are facing a 70 percent chance. My next question to them was, "So what is your plan?"

Their plan is to rely on family to take care of them. That's when I ask them to consider this scenario: They are age 85, need long term care, and they have decided that their kids are their long term care "plan." And I ask, "What will your family look like then?" Your kids will now be 65. And guess what? They are planning on retiring and enjoying those work-free years.

That's when they come to understand, I need a realistic plan. Long term care insurance doesn't replace your family because they will be part of your plan, but it gives them some tools to help you receive the type of care you want without worrying about how to pay for it. The consequences of not planning for long term care is similar to not having life insurance, not planning will hurt your family the most.

Using the Power of Stories to Overcome Objections

When speaking with clients, I never argue objections. Instead, I use the power of a true story to help bring home the point.

Objection #1: I don't need it because my family will take care of me.

Sure, your family will go to extreme measures to take good care of you, but think about how you are uprooting and changing their lives because you didn't plan. Then, I tell them a story.

I recently read a local newspaper article about an affluent, well-known family in my community. Mom and dad were in their 80s and wintered in Florida. Dad was the sole caregiver for his wife who had Alzheimer's disease. After six years of caring for her, the dad shot and killed her and then himself in Florida. I read the article, and thought he must have felt isolated, weary, depressed, and for whatever reasons he didn't seek help.

When someone has a long term illness, it is an emotional journey, not just a financial one. You can get sucked into the caring process and not even realize how your life has gradually changed. The outcome for this couple would have been different if they had established a plan together before she became ill. This may have allowed him to obtain the best care available for her and permitted him to continue to have a life separate from her illness, without guilt.

Not only does long term care insurance give everybody the peace of mind to know that you have a plan, but it also says, "I give you permission to hire someone else to help me."

Objection #2: I have enough assets to pay for LTCi should I need it.

It's true, you may have enough money to pay for long term care should you need it, but it reminds me of a story. I had a client with $10 million in assets who told me she wanted long term care insurance. I asked her why she felt she needed it. She said, she wanted to make sure if she could no longer make decisions for herself because she had a disease like dementia, she wanted to make sure she would have the highest quality of care available without her heirs worrying about how they were spending their inheritance on her care.

Objection #3: I don't need long term care insurance yet.

I often tell clients with this objection that they're right, not many people buy it at age 40 or 50, but that it reminds me of a story. I use one of the LIFE Foundation's realLIFEstories. It is about real-estate executive, Barry Shore, 55, who was vacationing abroad when he began to experience severe flu-like symptoms. Five days after returning home, he began to feel extremely weak and could barely hold a book in his hand. Within hours he had lost all movement in his body. Barry was diagnosed with Guillain-Barr� syndrome, a nervous system disorder that strikes suddenly and ruthlessly, though many patients make a full recovery within months.

In Barry's case, it has been several years and he still struggles to walk and has been unable to return to the workforce. Throughout the ordeal, one thing Barry and his wife, Naomi, haven't worried about is money. With the help of their insurance agent, they had put in place a smart insurance plan. Disability insurance payments now replace more than half of Barry's previous income. His long term care insurance provides more than enough to pay for 12 hours a day of in-home care as well as physical, occupational and water therapy not covered by his medical insurance. And a provision his insurance agent added to Barry's life insurance policy waived his premium payments once he became disabled, saving him thousands of dollars.

Agents need to understand it is not just their responsibility to discuss with their clients their plans for the go-go years of retirement, but even more importantly, the slow-go and no-go years. It takes courage to talk about their plans for these tougher times in their life, but with the power of realLIFEstories you can overcome this challenge.

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Tax-favored 1035-Exchange long term care insurance premium payments?

Not Yet!

by Henrik Larsen, MBA, CLTC

Henrik Larsen, MBA, CLTC, is VP, Marketing of Advanced Resources Marketing, a national distributor of Long Term Care insurance based in Boston, Mass. He can be reached at 800.269.2622 or at hlarsen@armltc.com.

The Pension Protection Act (PL 109-280) [PPA], signed by, then, President Bush on August 17, 2006, includes very important provisions regarding qualified long term care insurance [LTCi]. These provisions took effect on January 1, 2010 and they could potentially revolutionize the LTCi industry by creating a tax-favored funding mechanism for this type of insurance.

However, despite the intent of the PPA of 2006, many questions still remain and most [disturbingly, not all] insurance companies are so concerned that they have opted to await further clarification from the Internal Revenue Service [IRS] before embarking on the large marketing and sales opportunities presented by the PPA.

So what are these important provisions of the PPA?

As of January 1, 2010, PPA established the tax-free 1035 exchanges (Internal Revenue Code (IRC) section 1035 exchanges) of life insurance, endowment, and annuity contracts for LTCi policies.

Further, most insurance companies believe this to include partial 1035 exchanges to pay the premium for new or existing LTCi policies.

Prior to January 1, 2010, the IRC did not allow tax-free 1035 exchanges for LTCi policies.

In other words, these provisions would not only allow for the tax-favored treatment of funding LTCi policies; they allow funding from already established funds amounting to trillions of dollars. Insurance companies welcomed these provisions as they saw an opportunity to recoup [by means of LTCi premiums] a significant portion of the distributions from life insurance, endowment, and annuity contracts.

Shortly after the enactment of the PPA, the insurance companies contacted the IRS for clarification on a number of issues but since these provisions were not to take effect until January 1, 2010, there was plenty of time on both the IRS' as well as the insurance companies' part. We are now three weeks into January, 2010 and the clarifications glare by their absence.

For the purpose of this article, I will exclusively describe the remaining issues surrounding the 1035 exchange from annuity contracts to LTCi policies since this particular transaction has been paid the most attention. The issues and concerns that need clarification can be categorized into three:

Partial 1035 Exchange

Mr. Jones owns a deferred annuity contract from insurance company ABC. He wants to buy an LTCi policy from company XYZ and fund the premium by partial 1035 exchange from his annuity contract.

The first problem is that a 1035 exchange must be initiated for every premium that is due. For practical reasons, this excludes the option of paying the premium monthly and it will represent problems for quarterly, semi-annual and even annual premiums

The root of the problem is that insurance company ABC has no incentive to expedite the process and many annuity contracts allow for a 60-day period of the insurance company to release the funds.

If Mr. Jones is underwritten and approved for LTCi coverage, but the funds are missing, the policy cannot take effect and Mr. Jones will have to be re-underwritten once the funds are made available. Of course, Mr. Jones can just pay the premium from his regular checking account, but that somewhat defeats the whole purpose.

Assuming we somehow resolve these issues, we now find ourselves one year later, and the renewal premium is due. The process starts all over. The one difference is that instead of risking that the policy does not take effect, Mr. Jones now faces the potential of the policy lapsing if the premium is not made; remember, somebody needs to initiate each 1035 exchange. Who?

The insurance companies need to establish a process whereby partial exchanges can flow in an orderly manner. Such a clearing mechanism has not been established as the IRS has ruled neither for nor against proposed suggested guidelines put forth by the insurance industry.

[Full] 1035 Exchange directly to an LTCi Policy

Mr. Jones owns a deferred annuity contract from insurance company ABC. He wants to buy an LTCi policy from company XYZ and fund the premium by 1035 exchanging his annuity contract to the LTCi policy.

Initially, the easiest way to accomplish this is to 1035 exchange to a single-pay LTCi policy. Only a few insurance companies have such an option, and those who do, are conscious to make sure that such payment options only constitute a small portion of their portfolio. In other words, if a significant portion of LTCi sales represent single-pay policies such options will vanish.

Alternatively, this type of arrangement could be set up as a "period certain" or "for life" with or with out survivorship. These types of annuitizations would correspond to 10-pay or life-pay LTCi policies respectively. The problems surrounding these types of arrangements are to be found in the non-cancelable nature of LTCi policies. Specifically:

What happens if Mr. Jones wants to increase his coverage or if his policy is subject to a rate increase?

The increased premium needs to be split-billed as the distribution from the annuity only covers the original benefit. How does the LTCi insurance company account for [to the IRS] which portion of the premium originates from the annuity insurance company and which portion originates from the insured?

Currently, no LTCi insurance company provides for split-billing of individual LTCi policies.

What happens if Mr. Jones gets married and his premium is reduced due to the application of a spousal/marital/partner discount?

The annuity company is now distributing funds in excess of the LTCi premium due. To whom is that distribution paid and how is it taxed? If the excess distribution is made to the LTCi company how do they account for the "excess premium" and how do they "refund" the excess premium to the insured? Most importantly, how does Mr. Jones make sure that he files his tax-return appropriately to make sure he is taxed on the excess distribution?

Full 1035 Exchange to an LTCi policy by means of a SPIA

Mr. Jones 1035 exchanges his deferred annuity from insurance company ABC to a Single Premium Immediate Annuity [SPIA] with insurance company XYZ. The distribution from the SPIA funds the LTCi premium also issued by insurance company XYZ. This arrangement potentially alleviates many, if not most, of the issues previously listed. However, this "dual 1035 exchange arrangement" is still pending IRS guidance.

This type of arrangement using a SPIA as a conduit is heavily promoted by in particular one LTCi company, however most larger insurance companies have taken the prudent approach of awaiting IRS guidance despite the obvious marketing and sales opportunities.

In conclusion, the PPA allowed for significant tax-favored ways whereby annuity owners could funds LTCi premiums. However, before we recommend they do so, let's make sure we cross all the "Ts" as in Tax-advantages, and dot all the "Is" as LTC"I". These advantages will come soon enough to benefit us all, but until the IRS release their guidelines, let's not make our clients famous. "All good things come to he who waits."

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Most Americans have no plan to pay for LTCi

Even as the average annual cost of a home health aide now tops more than $40,000 and private nursing home care is approaching an average cost of $75,000 a year, a survey by the LIFE Foundation finds nine out of 10 Americans do not have a realistic plan to pay for these expenses. Nearly one in four say they will rely on family and friends, while others mistakenly believe their health insurance coverage or government programs such as Medicare will help pay their long term care costs.

Released to coincide with Long Term Care Insurance Awareness Month in November, the LIFE survey asked Americans what they would rely on most to help pay for long term care services if they found themselves in need of assistance with the basic tasks of daily living, such as bathing, eating and dressing. Here's how Americans responded:

"These survey results illustrate that most people are confused about how they will pay for long term care services, which is a scary thought considering 70 percent of Americans who reach age 65 will need such care at some point in their life," says Deb Newman, CLU, ChFC, LTCP, president of Newman Long Term Care and a LIFE Foundation Board Member. "Health insurance will not cover long term care services and government programs like Medicare and Medicaid have many limitations."

To help increase awareness of the important role of long term care insurance, LIFE reviews some of the common misconceptions people have regarding funding sources for long term care:

Health Insurance - Typically only provides coverage for medical care and does not pay for custodial services for people who can no longer take basic care of themselves.

Medicare - A government-sponsored health insurance program for older Americans. It does not pay for most forms of long term care; it only covers short-term rehabilitation after you have been hospitalized for at least three days, are homebound under a physician's care or are eligible for Hospice services.

Medicaid - Pays for long term care services, but only for those with very limited assets who fall within their state's determined poverty level.

Social Security - The monthly benefit for the average retiree stands at $1,153, which is a fraction of what most long term care services cost.

Savings - Though the savings rate has begun to improve, the majority of Americans likely do not have an adequate amount of savings to cover the high cost of long term care services.

To help people start thinking about long term care insurance, the LIFE Foundation answers five basic coverage questions:

How much coverage do you need and for how long? It's important to determine how much the policy will pay for covered service. To determine an adequate amount, start by assessing the average cost for long term care services in your area by using LIFE's Cost Estimator at: www.lifehappens.org/longtermcarecost.

How long are you willing to wait for coverage to kick in? The longer you are willing to wait before benefits begin to be paid out, called an elimination period, the more affordable your policy's premiums. Typical elimination periods are 30, 60 or 90 days.

What types of services are important to you? Most of today's policies will cover any number of care preferences and settings, whether services are provided at home by a health aide, offered in an assisted-living facility or nursing home. Find a policy that will be as flexible as possible so that any type of care will be available to you when you need it.

How important is it to have a policy that keeps up with inflation? Inflation protection is one of the most critical components of a long term care insurance plan because it helps your coverage keep pace with the rising cost of care.

Does your policy qualify for a new state-run long term care Partnership Program? Recently, federal and state governments have begun cooperating on long term care insurance Partnership Programs. These programs offer asset protection to policyholders with Partnership- qualified long term care policies.

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LTCi being purchased by younger clients

Eight million Americans now own long term care insurance according to a study released by the American Association for Long Term Care Insurance to mark the occasion of Long Term Care Awareness Week in November.

The study reported that the average age of buyers dropped below 60 for the first time. "The average age of Americans purchasing individual long term care insurance protection is now 58," states Jesse Slome, the Association's Executive Director. "That's a significant change from as recently as 2000 when the average age was 67." Increased public understanding of the importance of planning prior to retirement and lower costs available at younger ages are factors impacting the trend.

A significant finding of the study, which compiled data from leading long term care insurers, was that women accounted for slightly over two-thirds (66.3 percent) of individuals currently receiving benefits under a long term care insurance policy. "Insurers pay over $3.3 billion in yearly long term care insurance benefits and 68.7 percent of these payments benefit women," Slome added. "Long term care planning is especially important for women who are single, married, divorced or widowed because they are far more likely to need long term care (than men) and, as the study now reveals, far more likely to benefit from their insurance protection."

Key results of study:

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LTCi better understood, but myths persist

by Sandra Timmermann, Ed.D.

Sandra Timmermann, Ed.D. is Director, MetLife Mature Market Institute. She can be reached at stimmermann@metlife.com.

Five years ago, the MetLife Mature Market Institute used a nationally representative survey to measure public awareness and knowledge of long term care. We decided to do it again in 2009, making the assumption that five years later, Americans would be better informed about these issues than they were in the past. The oldest baby boomers are now in their 60s, more and more people are providing care for elderly parents or other loved ones, and the debate about health care is in the news on a daily basis. Surprisingly, respondents to the survey didn't do as well as anticipated.

While Americans have increased their understanding of some long term care issues over the past five years, only 21 percent scored 70 percent or higher on the quiz. On average, the respondents correctly answered just over half of the 10 quiz questions, unchanged from 2004. Also, based on attitudinal questions which we added to this year's survey, most are not taking appropriate steps to protect themselves from potentially catastrophic expenses.

What People Know and Don't Know About Long Term Care

On the bright side, we found that many respondents understand what long term care is, and how much it costs. They recognize that long term care could be the result of a variety of causes such as Alzheimer's disease, an accident, or a chronic or disabling condition. Not surprisingly, older people (over age 60) are more knowledgeable about long term care than younger people (age 40 to 49). Caregivers also are more aware of some long term care issues than non-caregivers, which makes sense since they have confronted the realities of providing care themselves, choosing care options, and figuring out how to pay for services if needed.

Most of the results, however, were not as positive. Denial may be mixed with a lack of knowledge because only one in three individuals (35 percent) indicated that they believe they will need long term care in the future when the data suggests that 60 to 70 percent of 65 year-olds will need assistance at some point in their lives. Just over one-third know that most long term care services are received in one's home. While the number of respondents (37 percent) who do know this has increased since the 2004 survey (18 percent), there continues to be a very low overall awareness.

Paying for Long Term Care

There continue to be misconceptions about long term care insurance, although we found that there is a good understanding of what a policy covers. Almost nine in 10 (87 percent) of respondents were aware that a comprehensive long term care policy covers home, assisted living and nursing home care. What might be considered a major finding in regard to LTCi, however, is that the respondents did not understand that rates are based primarily on age. When asked "Long term care rates are primarily based on:", only 18 percent correctly answered "age". Nine percent said "income," one percent said "family history" and 71 percent said "all of the above."

Clearly, the need for more education about how rates are calculated is an important implication of this survey. Perhaps if more people had a better understanding of rates overall, and that the younger you are, the less expensive a policy is, they would have more of an incentive to purchase LTCi when younger. In fact, in the attitudinal questions, we found that two-thirds (67 percent) of those who do not plan to purchase long term care insurance state that the reason is that a policy is too expensive. This may be due in part to the fact that only a small percentage of people truly understand that rates are lower when policies are purchased at younger ages.

In addition, we found that people are still unable to identify which government programs or insurance pay for long term care. We asked: "In the event that you need extended care due to an accident or to a chronic illness, whether in you own home, in an assisted living facility or in a nursing home, what type of insurance would pay for your expenses?" Thirty-three percent said "Medicare/Medicare Supplement (Medigap)," 19 percent said "disability insurance," and 14 percent said "health insurance." Thirty-four percent said "none of the above," the correct answer. Again, this calls for continued education about financing long term care services. We did find that about six in 10 (64 percent) are aware that the immediate transfer of financial assets to your family would not allow you to qualify for Medicaid payment of long term care.

The Call to Action

Despite awareness of some key long term care issues, there still appears to be a lack of action to obtain coverage. Only nine percent indicate that they have a long term care policy, and of those who don't, only nine percent are planning to purchase one at some point. This is despite the fact that 35 percent say they believe they will need long term care services for themselves in the future.

Many of those surveyed (38 percent) responded that their spouse would provide for their primary long term care needs and 17 percent named their adult children. Thirty-five percent named a professional caregiver as their primary provider. While we didn't ask, one might conclude that those who indicated that family members will provide the care may find that their spouse or children will be unable to do so without help from a professional. Those who answered that a professional caregiver would provide the primary care may not have calculated the costs involved and how caregiving services would be paid.

Recognizing that this is simply a quiz and a quick test of some basics, what are the main implications that we can draw from the findings and what can financial service professionals do? In this economic environment, it may seem more difficult to convince customers and prospects that they need to protect their assets by purchasing long term care insurance. Yet several studies are indicating that consumers are looking for certainty in a volatile marketplace. This especially makes sense for those who are in mid-life and are closer to retirement. One way they can feel more secure is to know that unexpected expenses won't derail their financial plans.

Long term care insurance should be considered an integral part of any plan, but as this survey indicates, it is still misunderstood. With simplified products, a more holistic approach to planning, more government attention to the health care system, and with more awareness about long term care needs and LTCi, perhaps we will see more progress when we repeat this quiz again in a few years. Meanwhile, we hope that people will take the test on their own to see where they stand,and in doing so, they may increase their knowledge and take action to protect themselves and their families.

Readers can download a copy of the MetLife Long Term Care IQ: Removing Myths, Reinforcing Realities, as well as the LTC IQ: Questions and Answers and a consumer guide entitled Long Term Care Insurance: The Essentials, by going to the website of the MetLife Mature Market Institute, maturemarketinstitute@ metlife.com or writing to the MMI at 57 Greens Farms Road, Westport, CT 06880.

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2009 LTCi price index announced

A 55-year-old individual considering long term care insurance protection can expect to pay $723-per-year for a base level of protection if they are married or $1,060 if they are single, according to the 2009 Long Term Care Insurance Price Index published by the American Association for Long Term Care Insurance (AALTCI). Across various age groups, costs for coverage increased about two percent from the prior year.

The annual index measures costs for top selling long term care insurance policies that offer consumers approximately $115,000 in current benefits, with protection increasing yearly as the individual ages.

"A solid base plan of protection will grow in value to over $305,000 of protection 20 years from now," said Jesse Slome, AALTCI Executive Director. The study compares costs for different levels of plans that provide long term care benefits for three years or longer with a compound inflation option that increases the available insurance benefits by five percent compounded each year.

"For some age bands the cost of long term care insurance actually declined," Slome said. "What we did see is a far wider range of prices between insurers offering basically the same coverage."

According to the Association study, costs can vary by as much as 100 percent. This could reflect different benefits or simply the individual insurer's pricing assumptions. Consumers should compare policies or work with a knowledgeable insurance professional who can analyze for them, Slome said.

Lower interest rates impact costs

The cost for long term care insurance is closely related to interest rates that have significantly declined in recent years. Investment income comprises between 40 and 60 percent of the dollars used to pay eventual long term care claims. Premiums paid by policyholders make up the other portion and as interest rates have declined, insurers have found it necessary to raise premiums for protection. The industry paid out $5.8 billion in claims in 2008 to some 180,000 policyholders.

The cost of long term care insurance is directly related to how much protection you purchase, the age you first apply and your health at the time of application. Over half of all individual applicants are between ages 55 and 64, and one third purchase a daily benefit of between $100 and $149. The daily benefit amount equals either a cash benefit or a pool of money that the policyholder can access. Most insurers offer significant discounts when both spouses apply for coverage.

The survey compared costs for individuals age 55 with those age 65. A married individual purchasing $172,000 in current protection will pay about $20 a week ($1,084 per year) by qualifying for available good health discounts. By waiting until they are age 65, they'll likely pay $63 a week because they will need to buy more coverage to keep pace with inflation and will likely no longer qualify for the good health savings.

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Linked benefits

A two word strategy for protecting your client's future

by Scott L. Goldberg

Scott L. Goldberg is Vice President of Strategy & Marketing for Bankers Life and Casualty Company, Chicago, Ill. He can be reached at s.goldberg@banklife.com.

As a company specializing in serving the insurance needs of the retirement market, we've learned that two of the top concerns of our clients are: having adequate retirement savings and protecting their income and assets from the high cost of long term care.

Changes being brought about by the Pension Protection Act of 2006, and the desire to reach clients who are hesitant to buy stand-alone long term care policies, led to our developing a product that addresses both of those concerns.

The solution is to develop a linked benefit product, one that provides the benefits of a tax-deferred fixed annuity and a comprehensive, tax-qualified long term care policy in one product.

Coverage that's right for the times

Long term care insurance is a vital part of a complete financial plan. With the average cost of one year in a nursing home topping $76,000, according to the National Clearinghouse for Long Term Care Information, long term care costs can quickly drain a client's savings.

While clients are becoming increasingly aware of the need for long term care protection, they still are hesitant to purchase it, most often because of the cost and the possibility of never needing to use it.

Linked benefit products that combine long term care coverage with an annuity eliminate those barriers, because clients can still enjoy all the benefits of an annuity, including tax-deferred growth and the ability to withdraw money as needed, if they don't need long term care.

In the same vein, the linked benefit product works well for clients who are skeptical of purchasing stand-alone annuities. Annuities can help them accumulate assets for retirement. However, if the annuity policyholder needs long term care, they may face restrictions on how much they can withdraw from the policy without incurring a penalty.

Our design was crafted to maximize a client's long term care dollar with a company-paid benefit. When the client goes on claim for long term care, benefits are first paid from the annuity account value. Just like a deductible, this helps to hold down the cost of the product.

Once the account value has been exhausted paying for care, the company pays additional benefits according to the benefit structure selected by the client. The company-paid benefit can match (or double) the money paid out from the annuity account value to pay for long-term care services.

The company-paid benefit increases the appeal of the product, especially as a way to fund future long term care needs.

Products growing in popularity

Linked benefit products are becoming increasingly popular in the marketplace. Clients like the simplicity and the potential savings of having one policy to address multiple needs.

According to a series of focus groups facilitated by LIMRA International, consumers repeatedly mentioned the fact that combination plans would allow them to �get something for their premiums,� regardless of how events unfold.

The Pension Protection Act of 2006 included provisions that provide tax advantages to qualified long term care riders that are attached to nonqualified annuity products. Starting in 2010, the long term care rider charges will be deducted first from the annuity cost basis and, therefore, will not usually be considered taxable distributions to policyholders.

In addition, because the long term care rider is tax qualified, long term care benefit payments are tax-free.

These tax benefits give the linked long term care and annuity product a distinct advantage over other methods used to fund long term care insurance.

Identifying prospects for the product

This type of strategy is not only a win for the consumer, but for the advisor as well, providing a new way to approach long term care sales. In addition, they're now able to address our market's two top concerns with one sale. That, in turn, can simplify the buying experience for the customer who no longer has to grapple with understanding two separate products.

We expect that this concept will appeal to a number of prospects, including those who:

Long term care market penetration in the U.S. is under 10 percent according to a 2008 study by Conning Research & Consulting, and market potential is approximately $95 billion in premium. Products that link long term care coverage with life or annuity benefits give us a whole new way to reach this market.

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LTCi NOTES AND NEWS

Individual LTCi continues to drop in Q1

For the second consecutive quarter, individual long term care insurance premium experience double-digit declines, falling 34 percent in the first quarter, according to LIMRA's Individual Long Term Care Sales survey.

"Early indications suggest that individual LTCI sales have been hit harder by the recession than other insurance products," said Karen Fisherkeller, LIMRA associate analyst, Group and LTC Product Research. "A difficult product to sell under the most favorable circumstances, the majority of the companies experienced declines 10 percent or greater, as consumers feeling the economic crunch, tighten their belts."

Sales of new policies dropped 32 percent in the first quarter, totaling 48,438. This drop follows a 24 percent decline in fourth quarter of 2008.

In addition to fewer policies being sold, the average cost of coverage has declined in the first quarter of 2009. The average individual buyer in the first three months of 2009 is paying $2,129 during the first year of coverage, three percent less than the average first-year premium from the same period last year.

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