Long-Term-Care Insurance Leaves Customers Groping

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Long-Term-Care Insurance Leaves Customers Groping

Postby htdrag11 » Tue Jul 02, 2013 11:56 am

Just want to share one of the issues facing us boomers today, from WSJ.

http://finance.yahoo.com/news/long-term ... 00000.html
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby CaliJim » Tue Jul 02, 2013 12:08 pm

Genworth Financial Inc., with about a 33% market share of long-term-care policies sold to individuals, said in May that it is seeking premium increases averaging more than 50% to stave off more losses in its oldest policies.


Informative article. Thanks for posting the link.

The long-term-insurance industry now is shrinking, premiums are soaring and there is no fix in sight. At the same time, government safety-net programs, already under cost-cutting pressure, are bracing for demand from more of the 77 million aging baby boomers.


Seems like the best advice for younger investors is to plan to be in a position to provide for one's own long term care through savings, or family resources. And older investors may want to consider an SPIA if their wealth is on the margin of what they need.

This brings into focus the recommendation for realistic retirement planning, and a 20%+ saving rate during the accumulation phase.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby mamarachel » Tue Jul 02, 2013 2:39 pm

CaliJim wrote:
Genworth Financial Inc., with about a 33% market share of long-term-care policies sold to individuals, said in May that it is seeking premium increases averaging more than 50% to stave off more losses in its oldest policies.


Informative article. Thanks for posting the link.

The long-term-insurance industry now is shrinking, premiums are soaring and there is no fix in sight. At the same time, government safety-net programs, already under cost-cutting pressure, are bracing for demand from more of the 77 million aging baby boomers.


Seems like the best advice for younger investors is to plan to be in a position to provide for one's own long term care through savings, or family resources. And older investors may want to consider an SPIA if their wealth is on the margin of what they need.

This brings into focus the recommendation for realistic retirement planning, and a 20%+ saving rate during the accumulation phase.


^^ Which makes diversifying to an HSA and cash-flowing current medical very appealing to me. Even at the expense of my 401K. It doubles up as an emergency fund, and is tax-free at withdrawal for medical, yet tax deductible at contribution. Seems like a win-win if your health is good now.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Alan S. » Tue Jul 02, 2013 2:50 pm

The LT care market is dysfunctional and in crisis at this point. That means personal savings may be a better solution for many, or for those with a below average amount of assets, hoping that Medicare will take care of you at some point. Of course, other solutions may develop if the insurance markets get any worse, so you could wait and see what comes out of this crisis before acting.

Re location could be the answer in many cases. There are a few states mostly in the NE where a nursing home will cost more than double what it will cost in lower cost states such as LA, AK and generally in the South. Reducing the costs by 50% or more is a much more economical solution than paying ridiculous premiums because you need high limits in certain states. And of course, with these massive increases, you will shudder every time you receive a mailing from these insurors.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Bobbybell » Tue Jul 02, 2013 2:59 pm

Since 2002, I have told everybody that if they buy LTCi, price increases are possible. I told them if they bought from NY Life, MassMutual, or Northwestern Mutual, it wasn't very likely that they would ever have a price increase. If they bought from another company, they needed to plan on large price increases.

Unfortunately, I have been proven correct on the latter. I hope that I end up proven correct on the former.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Calm Man » Tue Jul 02, 2013 4:31 pm

[quote="Bobbybell"]Since 2002, I have told everybody that if they buy LTCi, price increases are possible. I told them if they bought from NY Life, MassMutual, or Northwestern Mutual, it wasn't very likely that they would ever have a price increase. If they bought from another company, they needed to plan on large price increases.

Unfortunately, I have been proven correct on the latter. I hope that I end up proven correct on the former.[/quote

I doubt you are correct although for those who hold policies it would be nice. These companies are not immune from the factors that all others face although it might be nice to think they had it figured out better. If they did, then I assume their premiums were a lot higher before than the others.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Dan999 » Tue Jul 02, 2013 4:44 pm

Our company signed up for a Unum LTC program for employees with the option to buy added coverage, which I did.

We got notice today the rates were going up 75%. We have not had a rate increase since we bought the policy about 7 years ago. But wow what a shocker.

Unum had a reputation at the time for not raising rates..

All I can say is be prepared for big rate increases as the boomers ger older.

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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby BruDude » Tue Jul 02, 2013 4:45 pm

Bobbybell wrote:Since 2002, I have told everybody that if they buy LTCi, price increases are possible. I told them if they bought from NY Life, MassMutual, or Northwestern Mutual, it wasn't very likely that they would ever have a price increase. If they bought from another company, they needed to plan on large price increases.

Unfortunately, I have been proven correct on the latter. I hope that I end up proven correct on the former.


Mutual companies are usually priced 30-100% higher than the competitive carriers so it's like having a built-in rate increase in the first place, and there's still no guarantee that rates won't increase.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Raybo » Tue Jul 02, 2013 4:55 pm

I had LTCi for several years while I was working (drove a very dangerous highway to work and wanted to insure for the space between medical insurance and life insurance!) and kept it for a while after I was retired. After the second rate increase in two years, I let it lapse.

It would be interesting to try and figure out when LTCi is a good buy and under what rate increase assumptions that breaks.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby htdrag11 » Tue Jul 02, 2013 7:58 pm

Friend of mine has Genworth for about 10 years, paying about $4k; he would see a 50% increase. Being retired, he is having 2nd thoughts.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Bobbybell » Wed Jul 03, 2013 8:59 am

The statement about those large mutuals being priced 30-100% higher is a gross generalization at best. When I was selling lots of LTCi, NYL and NML were more expensive than companies like Genworth and Hancock, MassMutual was often the least expensive. This was especially true for healthy people under the age of 60 with lifetime benefits.

The higher price of NML and NYL is a little misleading because they do pay dividends. So, the end result is that instead of having price increases, their clients have actually been paying less over time.

There are legitimate reasons other than initial pricing why I told my clients that price increases should not be expected with those three mutuals.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 9:37 am

It isnt a gross statement. Its actually fairly reasonable and why some of the cheaper polices have seen increases of up to 90% in the last 2 years bc they were so much cheaper to begin with. Now wether or not they will be cheaper in the end is unknown when you take into consideration both cost increases (one might think more so for non mutuals which is probably true but definitely not guaranteed) and dividends (which only the mutuals offer the possibility of).

With the mutuals you have to believe that they have done a better job pricing the product or concerned the non mutuals wont make good in the future to really justify the costs. If the mutuals have correctly priced things out then you have a better idea of your ongoing costs which could even be less with divideds. This should avert one of the major problems where people get stuck and forced to surrender when they most need the policy given you would hope people can more easily appreciate known costs as oppossed to unknown cost increases. If the mutuals havent priced it correctly then they really only have two options which is to increase prices/offer decreased benefits or to eat the loss by in essence taking profit from some other product. I dont see them doing the later since the mutuals arent in a good position to decrease those dividends further.

what legitimate reasons do you have that you didnt list?

The problem is that insurance companies dont have enough skin in the game with ltci.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Levett » Wed Jul 03, 2013 10:36 am

dhodson commented: "why some of the cheaper polices have seen increases of up to 90% in the last 2 years bc they were so much cheaper to begin with."

That is surely one of the key problems as the original article points out when it discusses "rate stabilization."

If I were shopping, I would want to see if "rate stabilization" is in effect in my state.

Lev

P.S I have yet to have a premium increase on my LTCI purchased in 1999, but my initial premium was one-third higher than the quotes from two other vendors who are still in the LTCI business and who have, indeed, imposed rate hikes.

Of course, it's foolish not to expect some rate hike(s) down the line as the cost of care continues to rise even above the 5% compounded rider.

Lev
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby mullery » Wed Jul 03, 2013 10:55 am

I know how most Bogleheads feel about permanent life insurance, but has anyone who is looking at a LTC policy considered purchasing a hybrid life policy with a "chronic illness accelerated benefit" rider instead? The rider allows you to access a portion of the death benefit for LTC costs. With the cost of LTCi going up and the fact that there is a good chance it will never be used, it seems these hybrid policies might be more attractive. If you never use it for LTC, the death benefit would pass to your beneficiary. You also have the flexibility to use the cash in the policy for anything else during retirement. I don't think either of these is true for most LTC policies.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 11:05 am

Levett wrote:dhodson commented: "why some of the cheaper polices have seen increases of up to 90% in the last 2 years bc they were so much cheaper to begin with."

That is surely one of the key problems as the original article points out when it discusses "rate stabilization."

If I were shopping, I would want to see if "rate stabilization" is in effect in my state.

Lev

P.S I have yet to have a premium increase on my LTCI purchased in 1999, but my initial premium was one-third higher than the quotes from two other vendors who are still in the LTCI business and who have, indeed, imposed rate hikes.

Of course, it's foolish not to expect some rate hike(s) down the line as the cost of care continues to rise even above the 5% compounded rider.

Lev


The cost of health care has little to do with the increased rates. Remember that most polices are limited on what they pay (almost nobody sells unlimited polices at this point), thus health care can go to whatever cost it wants but the insurance company is only on the hook for the limits of the policy which is already built in.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 11:08 am

mullery wrote:I know how most Bogleheads feel about permanent life insurance, but has anyone who is looking at a LTC policy considered purchasing a hybrid life policy with a "chronic illness accelerated benefit" rider instead? The rider allows you to access a portion of the death benefit for LTC costs. With the cost of LTCi going up and the fact that there is a good chance it will never be used, it seems these hybrid policies might be more attractive. If you never use it for LTC, the death benefit would pass to your beneficiary. You also have the flexibility to use the cash in the policy for anything else during retirement. I don't think either of these is true for most LTC policies.


This has been discussed many times. You may wish to search. In essence combo products are the worst since you can find a seperate ltci and whatever permanent product (annuity or life insurance) for cheaper then the costs of the combo products. There isnt anything given away for free with the combo products. They only look good until you actually do the math. Since as you know, permanent insurance and annuities arent typically recommended, there isnt really any advantage.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby mullery » Wed Jul 03, 2013 11:20 am

dhodson wrote:This has been discussed many times. You may wish to search.


Thanks dhodson, I will search the forums to see what I can find on this subject.

dhodson wrote: In essence combo products are the worst since you can find a seperate ltci and whatever permanent product (annuity or life insurance) for cheaper then the costs of the combo products.


My thoughts on your response...

According to what I have read you can usually purchase such a rider for an additional 20% or so above the usual life premium. I don't see how that incremental cost makes the hybrid product more expensive than a LTCi policy + a separate life policy. Also, when combining a life policy with a LTC rider aren't your premiums guaranteed depending on the structure of the contract? If so, that seems better than purchasing a LTCi policy and waiting for the premiums to go up at any time by any amount. The threat of rising premiums on LTCi policies was the primary concern of this thread in the first place.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 11:32 am

mullery wrote:
dhodson wrote:This has been discussed many times. You may wish to search.


Thanks dhodson, I will search the forums to see what I can find on this subject.

dhodson wrote: In essence combo products are the worst since you can find a seperate ltci and whatever permanent product (annuity or life insurance) for cheaper then the costs of the combo products.


My thoughts on your response...

According to what I have read you can usually purchase such a rider for an additional 20% or so above the usual life premium. I don't see how that incremental cost makes the hybrid product more expensive than a LTCi policy + a separate life policy. Also, when combining a life policy with a LTC rider aren't your premiums guaranteed depending on the structure of the contract? If so, that seems better than purchasing a LTCi policy and waiting for the premiums to go up at any time by any amount. The threat of rising premiums on LTCi policies was the primary concern of this thread in the first place.


This is why you havent really done the math. To begin with lets just pretend we are talking about a whole life combo product. There isnt anything special about using the cash surrender value for ltc. You can use cash surrender values for whatever. You need to be very precise about what actually triggers the benefit, how much benefit you obtain, and what that does to the death benefit. Once you really look at those factors you will realize that again there is no free lunch and that your idea on incremental cost isnt accurate.

For instance moneyguard is one of those combo products that is mentioned by agents as great. Look at the analysis for dshibb in this thread.

http://www.fatwallet.com/forums/finance ... /?start=80
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Bobbybell » Wed Jul 03, 2013 11:45 am

dhodson wrote:It isnt a gross statement. Its actually fairly reasonable and why some of the cheaper polices have seen increases of up to 90% in the last 2 years bc they were so much cheaper to begin with. Now wether or not they will be cheaper in the end is unknown when you take into consideration both cost increases (one might think more so for non mutuals which is probably true but definitely not guaranteed) and dividends (which only the mutuals offer the possibility of).

With the mutuals you have to believe that they have done a better job pricing the product or concerned the non mutuals wont make good in the future to really justify the costs. If the mutuals have correctly priced things out then you have a better idea of your ongoing costs which could even be less with divideds. This should avert one of the major problems where people get stuck and forced to surrender when they most need the policy given you would hope people can more easily appreciate known costs as oppossed to unknown cost increases. If the mutuals havent priced it correctly then they really only have two options which is to increase prices/offer decreased benefits or to eat the loss by in essence taking profit from some other product. I dont see them doing the later since the mutuals arent in a good position to decrease those dividends further.

what legitimate reasons do you have that you didnt list?

The problem is that insurance companies dont have enough skin in the game with ltci.


I sell almost no LTCi now, but in the past, I sold hundreds of policies. The vast majority of those were with MassMutual because they were priced similar or less than the competition. The point with that is that the assumption that the mutuals were more expensive might be "reasonable", but in the past, at least as it pertained to one company, it simply wasn't true. The MassMutual policies were not participating policies. In other words, they won't pay a dividend.

I've probably sold policies with every LTCi company other than NYL and NML. When I sold a policy from a company other than MM, I told my clients to expect future price increases. When I sold a policy from MM, I explained that price increases were possible, but that I didn't expect them to ever raise rates on existing clients.

If someone wanted to know why I believed that price increases were unlikely for people who bought MM, NML, or NYL policies, these are the reasons that I gave to them :

1)They didn't sell any LTCi in the '80s and '90s. The companies that did sold policies at prices that were too low and with underwriting that was too lax.

2)MM was very quick to raise rates on NEW policy holders. (NML and NYL chose to enter the market with very expensive pricing.)

3)These are very giant companies, but their LTCi sales were very small. LTCi sales and their associated profits/losses were going to be too small to have any meaningful impact on the company.

4)There are no stock holders demanding more profit.

5)In general, price increases should try to be avoided unless absolutely necessary. The problem is that price increases will always cause more healthy people to drop policies than unhealthy people.

6) The policies sold by the mutual companies were primarily sold by career agents. Because of this, the vast majority of the policy owners own other products from the company and/or will be buying additional products. Price increases would hurt their other businesses.

In short, even if they lose money on LTCi, price increases make no sense for these companies.

As I said, going all the back to 2002, the price increases are possible, but I don't expect them to happen.

Please, everyone, keep in mind that I am no way advocating the purchase of LTCi today nor am I advocating for one company over another. If I could go back in time, I would have sold even more LTCi when I did, but, in general, I don't recommend the purchase today.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby letsgobobby » Wed Jul 03, 2013 12:02 pm

in general, I don't recommend the purchase today.


That leaves a major problem for middle class and upper middle class consumers: they can't afford to buy insurance, and they can't afford not to.

The poor have no assets and will be on Medicaid in a flash regardless. The rich will pay for their needs. Everyone else spends down their life savings, their inheritances, and the legacies they hoped to leave to their kids.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 12:07 pm

for many of those items especially 1 and 2, it assumes they have priced the polices correctly. sure they didnt dive in but there isnt great evidence that they are right at this time.

for 3 (and many of the other points) you are assuming that they will make the other non ltci policy holders eat the loss. Sure its a small factor and may not change the values much on their other polices but the fact remains that some change will need to happen and they will need to square that away if anyone looks deeply at the issue. You are hoping that in essence the whole life policy holders lose a dime and dont care. It may happen that way but if the image gets out that they are sticking even a dime to the other policy holders instead of the ltci policy holders, it might be a problem PR wise. Someone will make that call when and if the polices turn out to be money losers.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 12:11 pm

letsgobobby wrote:
in general, I don't recommend the purchase today.


That leaves a major problem for middle class and upper middle class consumers: they can't afford to buy insurance, and they can't afford not to.

The poor have no assets and will be on Medicaid in a flash regardless. The rich will pay for their needs. Everyone else spends down their life savings, their inheritances, and the legacies they hoped to leave to their kids.


to be frank, the poor get a fine deal bc of course they arent paying for it. I dont know why the middle and upper middle expect that they should have inheritances/legacies to give out. I expect to pay for my care if necessary and spend most if not all of my money while alive.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby mullery » Wed Jul 03, 2013 12:12 pm

Dhodson, what you are saying makes sense. I understand the math and the "no free lunch" mentality. The death benefit is reduced as the policy holder uses money to cover LTC costs. This makes sense since you are removing value from the policy. Reading through some of the other Bogleheads threads and the link you provided, the analysis in these threads always seems to assume LTC will in fact be needed. What if it isn't needed? What if I get to 80 years of age, am in good health, and am essentially self-insured with other assets. I suppose I could just keep paying the LTCi policy premiums in that case since I can certainly afford it. If I had a CV life policy with a LTC rider, I could use the cash in the policy for something else or just leave it for my heirs. Isn't this where the life+rider option has some merit?

What concerns me are the uncertainties surrounding LTCi policies and the fact that they are becoming very expensive. It's not like term life insurance, which is inexpensive and can be guaranteed for long periods of time. LTCi starts out much more expensive (due to actuarial reasons) and can continue to go up at any time. When faced with a major premium increase, a LTCi policyholder can become trapped and be forced to pay the higher premium, take a reduced benefit, or cancel the policy. If they have been paying into the policy for 10+ years, cancelling seems like a very bad idea since they have lost all the premium up to that point and now have no coverage to show for it. Assuming LTC is still a concern, they would most likely have to pay the increased premium.

I don't think I would even consider a LTCi policy right now due to these factors. I don't want to be hit with a 50% or higher premium increase years down the road. The fact that I had paid so much into the policy would likely force me to swallow hard and either pay the increased premium or take a reduction in coverage if I couldn't afford the increase.

Thanks for your responses dhodson.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby stan1 » Wed Jul 03, 2013 12:13 pm

letsgobobby wrote:
in general, I don't recommend the purchase today.


That leaves a major problem for middle class and upper middle class consumers: they can't afford to buy insurance, and they can't afford not to.

The poor have no assets and will be on Medicaid in a flash regardless. The rich will pay for their needs. Everyone else spends down their life savings, their inheritances, and the legacies they hoped to leave to their kids.


How about this: if your kids want a legacy they can bring you into their house and care for you themselves.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby doug91 » Wed Jul 03, 2013 12:17 pm

I've actually just been looking at this through USAA, who reps John Hancock. Am I being naive that USAA's general trustworthiness would provide some insulation from rate shocks, or is it really up to John Hancock, and there's just as much or more risk with them than anyone else?
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 12:22 pm

This then gets back to is using permanent insurance or an annuity a good way to invest? If you had invested that money in a boglehead manner instead of the permanent insurance then you would have a lot more money. Have you looked at the return on such a policy over the 40-50 years (if purchased at 30 or 40 given your age 80 example) and the difference in money available? Would you invest with a group charging 3% AUM fees? While LTCi has many issues with it(and im not an agent or financial professional and of course all of this is my opinion), its still better to buy a seperate ltci policy and invest seperately then it is to buy a combo product. Heck at least this way if your policy doesnt cover enough bc of inflation/rise of health care etc, you likely have more cash available to pay the costs of care or to afford the rate increases in your policy to keep it in force.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 12:25 pm

doug91 wrote:I've actually just been looking at this through USAA, who reps John Hancock. Am I being naive that USAA's general trustworthiness would provide some insulation from rate shocks, or is it really up to John Hancock, and there's just as much or more risk with them than anyone else?


you should send them a secure email and ask if they have any say in rate increase requests. I bet they dont but i dont know. i use usaa myself for a lot of things but if im not mistaken JH has had some of the larger increases to date for ltci so im not feeling warm and fuzzy.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby doug91 » Wed Jul 03, 2013 12:32 pm

dhodson wrote:
doug91 wrote:I've actually just been looking at this through USAA, who reps John Hancock. Am I being naive that USAA's general trustworthiness would provide some insulation from rate shocks, or is it really up to John Hancock, and there's just as much or more risk with them than anyone else?


you should send them a secure email and ask if they have any say in rate increase requests. I bet they dont but i dont know. i use usaa myself for a lot of things but if im not mistaken JH has had some of the larger increases to date for ltci so im not feeling warm and fuzzy.


Yeah, I'll be more specific. The first time I asked the question, USAA said that rate increases were unlikely because of the number of state-level regulatory approvals that would be required, but the examples in the originally-linked article were about half from John Hancock, so obviously it's not *that* unlikely.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Bobbybell » Wed Jul 03, 2013 12:43 pm

dhodson wrote:for many of those items especially 1 and 2, it assumes they have priced the polices correctly. sure they didnt dive in but there isnt great evidence that they are right at this time.

for 3 (and many of the other points) you are assuming that they will make the other non ltci policy holders eat the loss. Sure its a small factor and may not change the values much on their other polices but the fact remains that some change will need to happen and they will need to square that away if anyone looks deeply at the issue. You are hoping that in essence the whole life policy holders lose a dime and dont care. It may happen that way but if the image gets out that they are sticking even a dime to the other policy holders instead of the ltci policy holders, it might be a problem PR wise. Someone will make that call when and if the polices turn out to be money losers.



Are you arguing just to argue? If they lose money, others will eat the loss. If they make money, others will benefit since these aren't participating policies. From the perspective of someone who owns a participating whole life policy from MassMutual, the loss or gain on LTCi policies shouldn't have any different impact than the losses or gains on any of the other investments that the company makes.

The bottom line is that it doesn't really matter that much if they are right or wrong. Their exposure is simply too small for it to make any real difference to the profitability of the company.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby letsgobobby » Wed Jul 03, 2013 12:54 pm

I'm not trying to turn this into a moral discussion, which would be off-limits anyway.

We have a savings problem in this country already. To the extent we can persuade current workers to save more, we have to persuade them they will benefit from those savings in the future. But now we are telling them that if they save more, they can primarily look forward to spending that money on their long term care. If they don't save the money, they'll still get long term care, only 'someone else' will pay for it.

It strikes me that if word of this gets out, it will be a disincentive to saving more.

Similarly, some states are encouraging the purchase of LTCI policies to unburden them from future Medicaid costs. But if LTCI isn't affordable, or isn't available, the states are going to pick up the costs anyway. The rational response is to save less money, not more.

*All of the above is somewhat facetious and exaggerated to make the point.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Ged » Wed Jul 03, 2013 12:56 pm

mullery wrote:According to what I have read you can usually purchase such a rider for an additional 20% or so above the usual life premium. I don't see how that incremental cost makes the hybrid product more expensive than a LTCi policy + a separate life policy. Also, when combining a life policy with a LTC rider aren't your premiums guaranteed depending on the structure of the contract? If so, that seems better than purchasing a LTCi policy and waiting for the premiums to go up at any time by any amount. The threat of rising premiums on LTCi policies was the primary concern of this thread in the first place.


The hybrid policies I was quoted all involved a 6 figure up front payment. This was not practical for me because it would require a large tax hit for the money I withdrew to make that payment. Plus these plans did not qualify for tax deductions like the straight payment plans, nor did they tie into state partnership arrangements.

Ultimately it is very hard me to see a case for LTCi. If you can afford the payments and risk that the payments will increase substantially you probably have enough resources to self-insure.

If you don't have enough resources you probably can't afford the payments.

I imagine this will create a booming business in various trust plans to shelter assets.
Lack of planning on your part does not constitute an emergency on my part.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 1:03 pm

Bobbybell wrote:
dhodson wrote:for many of those items especially 1 and 2, it assumes they have priced the polices correctly. sure they didnt dive in but there isnt great evidence that they are right at this time.

for 3 (and many of the other points) you are assuming that they will make the other non ltci policy holders eat the loss. Sure its a small factor and may not change the values much on their other polices but the fact remains that some change will need to happen and they will need to square that away if anyone looks deeply at the issue. You are hoping that in essence the whole life policy holders lose a dime and dont care. It may happen that way but if the image gets out that they are sticking even a dime to the other policy holders instead of the ltci policy holders, it might be a problem PR wise. Someone will make that call when and if the polices turn out to be money losers.



Are you arguing just to argue? If they lose money, others will eat the loss. If they make money, others will benefit since these aren't participating policies. From the perspective of someone who owns a participating whole life policy from MassMutual, the loss or gain on LTCi policies shouldn't have any different impact than the losses or gains on any of the other investments that the company makes.

The bottom line is that it doesn't really matter that much if they are right or wrong. Their exposure is simply too small for it to make any real difference to the profitability of the company.


your basic argument is that is a drop in the bucket so who cares. Im on board with most of that but that doesnt mean there isnt some PR issue to the others eating the loss. It also assumes the amount they continue to sell will remain a drop in the bucket. I think it will but dont know that for sure given the fewer providers out there. For losses and gains for their other products, it does make a difference. They show that difference in dividends. Here you chose a non participating so no dividends. Again its small but it isnt zero. You want to call that arguing to argue. Id say its a very very fine difference. I dont know if it will make any larger than a very small differnce mostly bc i cant value the PR factor or predict if it will always be just a drop in the bucket.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Iorek » Wed Jul 03, 2013 1:08 pm

Ged wrote:
mullery wrote:According to what I have read you can usually purchase such a rider for an additional 20% or so above the usual life premium. I don't see how that incremental cost makes the hybrid product more expensive than a LTCi policy + a separate life policy. Also, when combining a life policy with a LTC rider aren't your premiums guaranteed depending on the structure of the contract? If so, that seems better than purchasing a LTCi policy and waiting for the premiums to go up at any time by any amount. The threat of rising premiums on LTCi policies was the primary concern of this thread in the first place.


The hybrid policies I was quoted all involved a 6 figure up front payment. This was not practical for me because it would require a large tax hit for the money I withdrew to make that payment. Plus these plans did not qualify for tax deductions like the straight payment plans, nor did they tie into state partnership arrangements.

Ultimately it is very hard me to see a case for LTCi. If you can afford the payments and risk that the payments will increase substantially you probably have enough resources to self-insure.

If you don't have enough resources you probably can't afford the payments.

I imagine this will create a booming business in various trust plans to shelter assets.


We have one set of parents who can afford to self-insure and one set in the middle ground-- should be enough for retirement but not a lot more. We are hoping to self-insure but don't want to self-insure for us and one set of parents so we are paying premiums for those parents (on a partnership policy). Premiums are already pretty high, so we're hoping they don't go higher, but either way we'll probably keep it.

An interesting point from the WSJ article is that a lot of the financial pressure on companies is because they projected the rate at which people would drop policies (after having had them for a while) as being 3x what it actually is.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 1:36 pm

that's bc it seems they based them on the surrender/lapse rates for permanent insurance.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby mullery » Wed Jul 03, 2013 1:50 pm

Iorek wrote:An interesting point from the WSJ article is that a lot of the financial pressure on companies is because they projected the rate at which people would drop policies (after having had them for a while) as being 3x what it actually is.


This is related to what I was referring to in an earlier post. Once you have paid into a policy for a while you feel as though you have made an "investment" (I know, bad word for it) in the policy and can't stomach the thought of cancelling the policy. There has been a lot of media coverage in the past couple of years about the rising costs of healthcare and the rising costs of long-term care. This has raised awareness and created a more widespread fear that is an incentive to keep a policy in-force, even when the premiums go up. The fear and the psychology of losing one's "investment" are why LTC policies haven't been lapsing at the rate the carriers originally projected.

Maybe the industry has learned it's lesson and the rate adjustments being made will help to stabilize LTCi. The problem I see is that if an insurance product is so expensive due to the actuarial likelihood and morbidity costs, it will cease to have appeal. The poor can't afford it and the rich don't need it. The middle-ground between these two gets smaller as the costs increase. Eventually the middle-ground becomes so small that LTCi becomes a purely niche product.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby ourbrooks » Wed Jul 03, 2013 1:53 pm

What risk is LTC actualy intended to cover? Formally, long term care is any care needed to perform the normal activities of everyday life. It can range from someone coming in twice a week to clean up up to 24/7 skilled nursing care. Most long term care is at the low end; statistically, most long term care is given in the home by family members.

Even if long term care includes a bathroom remodel, a chair lift, and 2 hours a day of help, it hardly is a budget buster for most middle class families. Why then would people even want LTC? The answer is in the small fraction of people who suffer from mental health disorders, senile dementia in all its forms, which leave them sound in body but needing round the clock care. These people can stay in nursing homes for five or ten years; at $90,000 a year, only the very wealthy can afford care.

So what will happen as LTC becomes less affordable and available? The poor will take their chances, as they always have. Those members of the middle class who don't develop senile dementia will find that they have even more money to spend on long term care because they aren't paying LTC premiums. The tragedies will be the small fraction of middle class retirees (5%??) who do develop senile dementia and also live long enough to decimate their family assets.

The current crop of policies are a lot like car insurance with no deductable and $1500 cap on claims; they don't really solve the problem. What I'd like to see is insurance companies offering high deductable LTC, with deductables of at least $250,000. Since there'd be relatively few claims, certainly fewer than the current policies, they'd likely cost a lot less so people would be less likely to drop them, etc.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Bobbybell » Wed Jul 03, 2013 2:03 pm

dhodson wrote:
Bobbybell wrote:
dhodson wrote:for many of those items especially 1 and 2, it assumes they have priced the polices correctly. sure they didnt dive in but there isnt great evidence that they are right at this time.

for 3 (and many of the other points) you are assuming that they will make the other non ltci policy holders eat the loss. Sure its a small factor and may not change the values much on their other polices but the fact remains that some change will need to happen and they will need to square that away if anyone looks deeply at the issue. You are hoping that in essence the whole life policy holders lose a dime and dont care. It may happen that way but if the image gets out that they are sticking even a dime to the other policy holders instead of the ltci policy holders, it might be a problem PR wise. Someone will make that call when and if the polices turn out to be money losers.



Are you arguing just to argue? If they lose money, others will eat the loss. If they make money, others will benefit since these aren't participating policies. From the perspective of someone who owns a participating whole life policy from MassMutual, the loss or gain on LTCi policies shouldn't have any different impact than the losses or gains on any of the other investments that the company makes.

The bottom line is that it doesn't really matter that much if they are right or wrong. Their exposure is simply too small for it to make any real difference to the profitability of the company.


your basic argument is that is a drop in the bucket so who cares. Im on board with most of that but that doesnt mean there isnt some PR issue to the others eating the loss. It also assumes the amount they continue to sell will remain a drop in the bucket. I think it will but dont know that for sure given the fewer providers out there. For losses and gains for their other products, it does make a difference. They show that difference in dividends. Here you chose a non participating so no dividends. Again its small but it isnt zero. You want to call that arguing to argue. Id say its a very very fine difference. I dont know if it will make any larger than a very small differnce mostly bc i cant value the PR factor or predict if it will always be just a drop in the bucket.


No. My basic argument when I was selling LTCi was that there were many factors that made price increases for existing clients with NML, MM, and NYL very unlikely. I chose a non-participating policy simply because that was the least expensive policy that existed for the bulk of my clients. The comment was made that the price was 30-100% higher, but I am pointing out that this was not the case.

You are creating the strawman argument about some fictional PR issue that simply doesn't exist.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby mullery » Wed Jul 03, 2013 2:13 pm

dhodson wrote:This then gets back to is using permanent insurance or an annuity a good way to invest? If you had invested that money in a boglehead manner instead of the permanent insurance then you would have a lot more money. Have you looked at the return on such a policy over the 40-50 years (if purchased at 30 or 40 given your age 80 example) and the difference in money available? Would you invest with a group charging 3% AUM fees? While LTCi has many issues with it(and im not an agent or financial professional and of course all of this is my opinion), its still better to buy a seperate ltci policy and invest seperately then it is to buy a combo product. Heck at least this way if your policy doesnt cover enough bc of inflation/rise of health care etc, you likely have more cash available to pay the costs of care or to afford the rate increases in your policy to keep it in force.


Dhodson, I think this gets back to the essence of my point, that being balancing the total cost and flexibility of LTCi vs a life policy with a rider. I wouldn't purchase an LTCi policy in my 30s or 40s. I'm currently 44 years old and don't want to pay LTCi premiums for the next 30-40 years just in case I need the coverage later in life, especially with the LTCi industry being in such an unstable state. It's too early. Now once I reach my 50s I may consider it more seriously. That changes the timeframe from a 40-50 year horizon to a 20-30 year horizon. Of course I am taking a risk in waiting that long to acquire coverage since health issues may prevent me from qualifying.

Personally I'm "self-insuring" by max-funding an HSA, investing it in Vanguard index funds, and using the HSA and other retirement assets to pay for any health care expenses in retirement, including LTC. With all my tax-advantaged accounts, including the HSA, maxed-out I may consider a UL policy with an LTC rider as a supplement to the HSA for health care expenses. I know UL policies can be expensive, especially if they are poorly designed with a relatively high death benefit and the COI that goes along with it. I would lean more toward a max-funded IUL policy with an increasing death benefit, funded to retirement age, then changed to a level death benefit. According to my research, this reduces the costs in the policy considerably.

As always dhodson, I appreciate your skepticism and candidness when it comes to anything having to do with permanent life insurance. Like you, I own some CV policies. Some of which I never would have purchased had I known more about them at the time I purchased them.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 3:48 pm

still at a 30 year horizon the difference on amount of money is substantial. of course the longer the difference between investing in an inefficient and an efficient manner, the bigger loss for the individual but still 30 years is plenty to make it such it wouldn't be worth the loss of money to me.

In regards to your IUL idea, the first thing is there is nothing special about IUL and overfunding. You can do that with any permanent insurance product (WL or any UL) although trying to get an agent to present that can be difficult especially all the way up to MEC limits. While the initial death benefit is lower, you will improve the initial cash value and reduce the commission on the product. It will still ikely be a bad return compared to investing in a boglehead manner and may not even beat WL depending on how long you live and dividends. The insurance company is investing most of the money in their typical high % bonds/treasuries and small portion in options for the market. They can unilaterally change the caps/participation rates if they aren't making enough and you never get the dividends which is a huge issue. Add to that the fact that in retirement if you have down years (which you will have), the increasing cost of insurance (which typically isn't guaranteed), can easily cause the policy to lapse especially with large loans to cover ltci or income if you don't need ltc if you are using it via loans and not some rider you triggered which as we discussed has costs (if not via loans then we need to look at the individual product and how it affects things like death benefit). It gets trickier to guess if you will have enough remaining csv until you die unless you are doing this fairly late in life meaning if I were 100 years old and on hospice then I probably wouldn't get too worried about the loans but if taken early in retirement then I would. Crashing the policy of course has very bad tax consequences and ruins everything. Every time I see someone illustrate these, they use a constant upward projection on returns (same with VULs). I find that very inappropriate. There is a reason why most of us become more conservative with age and money inside a permanent insurance product isn't immune from that issue and in fact can result in more problems depending on the sequence of those returns. At least with losses in a taxable account, you can tax loss harvest.

Im all for decreasing the costs of the insurance IF purchased (which is primarily overfunding with minor adjustments here and there), it still doesn't make it a better investment. This way for many people who will surrender early, they get some money back. I still don't see why I would pick that over a stand alone ltci policy and investing outside of insurance.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Frugal Al » Wed Jul 03, 2013 4:57 pm

All good points, DH. I definitely would not choose any IUL policy with a rider to serve this function.

There's not enough skin in the game for the insurers on these products. They don't know how to price them, and it's obvious that they haven't cared--they haven't needed to--50% increase borders on gross negligence. Perhaps the rate stabilization efforts will help. How could they so poorly underestimate lapses on such a product? It's a little like the GUL product on which insurance companies also underestimated the lapse rates. These policies are purchased as an integral part of a retirement plan. The insurers should be ashamed of themselves for treating their customers in such a cavalier manner.

From the WSJ article:
"We've learned a lot over the last 30 years, and we now believe we have a better ability and more knowledge" to issue policies that "provide significant financial protection to Genworth," Genworth Chief Executive Thomas McInerney said in an interview.

I'm so happy they're looking out...for themselves.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby 2stepsbehind » Wed Jul 03, 2013 7:21 pm

I'm with mullery. If a hybrid can be found at relatively low cost it seems to me that it likely preferable for a 60+ year old to just purchase that verses a ltci policy given the potential for premium increases or just investing in the market given the potential for a prolonged bear market. Particularly with long term bond rates being so low, it seems to me you could make an argument that a hybrid policy might be particularly attractive. If one doesn't use the ltci portions, then it just becomes more life insurance for the beneficiaries.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 7:42 pm

you do realize that the insurance company is primarily investing in bonds/treasuries whose return is then factored into the price of the hybrids?
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby 2stepsbehind » Wed Jul 03, 2013 7:56 pm

of course
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Levett » Wed Jul 03, 2013 8:07 pm

dhodson writes: "The cost of health care has little to do with the increased rates." How interesting.

Here's what MetLife has said:

"Younger policyholders may also want to consider inflation protection, as the cost of home or nursing home care will likely increase by the time by the time they need it. NAIC data shows that inflation protection can add 25 to 40 percent to the premium, but without it, you may find that your policy only covers a portion of your actual costs. "Some people pay their policies for 20 years, and they go into a nursing home and find out the policy pays out only $75 per day," explains Tom Burke, a spokesperson for the American Health Care Association, an association of long-term and post-acute care providers."

(my boldface)

And here's my personal experience: my 5% compounded added more like 50% to my basic premium. Why? In anticipation of the rising cost of care.

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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Wed Jul 03, 2013 8:28 pm

Levett wrote:dhodson writes: "The cost of health care has little to do with the increased rates." How interesting.

Here's what MetLife has said:

"Younger policyholders may also want to consider inflation protection, as the cost of home or nursing home care will likely increase by the time by the time they need it. NAIC data shows that inflation protection can add 25 to 40 percent to the premium, but without it, you may find that your policy only covers a portion of your actual costs. "Some people pay their policies for 20 years, and they go into a nursing home and find out the policy pays out only $75 per day," explains Tom Burke, a spokesperson for the American Health Care Association, an association of long-term and post-acute care providers."

(my boldface)

And here's my personal experience: my 5% compounded added more like 50% to my basic premium. Why? In anticipation of the rising cost of care.

Lev


I never said that the cost of the care wont increase. Im pretty sure it will. It is just the cost of the long term care insurance isn't directly related to that increase since the amount they cover is limited to a specific dollar amount unless you have an unlimited policy (which they don't sell any more). If staying in a nursing home costs 1 million dollars a day next year then it doesn't matter to the insurance company. They just pay whatever the agreed upon benefit is. This amount can increase with inflation if you purchased inflation protection or it was included into the contract but that was already baked into the cake and has a max limit as well. It doesnt matter if costs outpace 5% to the insurance company since they aren't responsible for those additional dollars. Lapse rates and interest rates (what the company can safely make on its investments) have had a real impact and you will see that listed on the requests to the state insurance comm to accept the rate increase
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Levett » Thu Jul 04, 2013 8:19 am

For information purposes only (I am not a salesperson), Genworth does provide a map of the U.S. wherein one may see both current costs of care as well as view what Genworth anticipates to be future costs (just pick the number of years out you wish to see under "future costs.)

http://tinyurl.com/a3rn9ob

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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby Bammerman » Thu Jul 04, 2013 8:54 am

doug91 wrote:
dhodson wrote:
doug91 wrote:I've actually just been looking at this through USAA, who reps John Hancock. Am I being naive that USAA's general trustworthiness would provide some insulation from rate shocks, or is it really up to John Hancock, and there's just as much or more risk with them than anyone else?


I bought LTCi from John Hancock through USAA in 2006, when I was 55. JH raised the premium last year, 2012. I think USAA's only role in the initial transaction was to accept some fee or commission, but that's just conjecture. I have certainly never heard anything from USAA subsequently regarding my LTCi policy.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby dhodson » Thu Jul 04, 2013 9:00 am

Bammerman wrote:
doug91 wrote:
dhodson wrote:
doug91 wrote:I've actually just been looking at this through USAA, who reps John Hancock. Am I being naive that USAA's general trustworthiness would provide some insulation from rate shocks, or is it really up to John Hancock, and there's just as much or more risk with them than anyone else?


I bought LTCi from John Hancock through USAA in 2006, when I was 55. JH raised the premium last year, 2012. I think USAA's only role in the initial transaction was to accept some fee or commission, but that's just conjecture. I have certainly never heard anything from USAA subsequently regarding my LTCi policy.


that's what I believe to be the case and I think it isn't just limited to ltci. I believe usaa does that with several products. I still like and use usaa.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby scubadiver » Thu Jul 04, 2013 10:38 am

letsgobobby wrote:
in general, I don't recommend the purchase today.


That leaves a major problem for middle class and upper middle class consumers: they can't afford to buy insurance, and they can't afford not to.

The poor have no assets and will be on Medicaid in a flash regardless. The rich will pay for their needs. Everyone else spends down their life savings, their inheritances, and the legacies they hoped to leave to their kids.


This is pretty much true for everything - college, healthcare, retirement - once means testing is implemented.

How does a responsible individual plan for an event where the very nature of their planning increases the cost to them and necessitates further planning at great personal expense? Then throw on top of that all the unknowns regarding one's future health / education / living needs and how those needs may or may not intersect with current and / or future gov't policy. Roth 401K or Traditional 401k? Invest in 529 or pay down mortgage? Family vacation or bump up the emergency fund, just in case.

Please forgive me if I sound frustrated. I've been struggling with many of these long term financial planning issues lately and all I can seem to come up with in terms of making an informed decision is to save as much as I can and hope for the best. In the case of long term care insurance, I don't know that I would ever buy such a policy. The need for coverage is too uncertain and the actual benefits are nebulous and subject to change / interpretation.
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Re: Long-Term-Care Insurance Leaves Customers Groping

Postby nedsaid » Thu Jul 04, 2013 12:03 pm

It is like the old Groucho Marx joke that the fine print in the insurance policy reads that you are only covered if you are run over by a herd of wild elephants at three in the morning!!

I have for now decided not to buy long term care insurance. When Met Life exited the business, that said a lot. They were in the top three of Long Term Care insurers. They decided it was not a good business to be in. The fact that rates are going up substantially tells as a lot more.
A fool and his money are good for business.
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