Self Insure LTC or Purchase Policy?

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Self Insure LTC or Purchase Policy?

Postby Diogenes » Sun Mar 11, 2012 1:38 am

To summarize recent threads on LTC and cut to the chase-

Are BH's self insuring for this or purchasing policies? If purchasing, what are the best three companies for a starting point for someone and the sweet spot for the age to buy? With the Boomer bubble, seems this is the next area with major fraud potential.

If self insuring, can you share your calculations?

_D_
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Re: Self Insure LTC or Purchase Policy?

Postby dhodson » Sun Mar 11, 2012 9:49 am

Look at how much a policy you might buy would cover. Put away that much before 65 separate from your retirement funds. Carry disability insurance until you have this saved. Disability insurance likely needs to be maximized. Not perfect but not reasonable. Given the ltci companies have completely messed up their calculations, any person likely won't be able to create too accurate a calculation.
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Re: Self Insure LTC or Purchase Policy?

Postby jebmke » Sun Mar 11, 2012 9:59 am

I agree with dhodson. I don't think anyone's "calculations" are any better than those of anyone else. I'll avoid the dispute over the term "self insurance" and just state that for now, we are not purchasing insurance and it is unlikely that we ever will.

The problem with doing calculations on going it alone is that you have to make some wild assumption about when and how much. I have seen people with chronic, early onset illnesses that needed it at age 70. I also know a couple who just last year moved into a townhouse in a graduated care retirement community at age 95 ("a little earlier than we wanted to but there was a nice one on the water available").
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Re: Self Insure LTC or Purchase Policy?

Postby nisiprius » Sun Mar 11, 2012 10:15 am

Since there is argument about terminology, I'd ask the question this way.

Are you comfortable saying "I plan to be uninsured for long-term care. I intend to take the risk myself. If I need long-term care, I will simply pay for it. I have estimated the likely costs, perhaps $70,000/year in 2012 increasing 2% to 3% above inflation per year [or insert your own numbers]. I am confident that my retirement savings can provide for such an eventuality for however many years it is needed."

Please use the word "uninsured."

If you can say this, and have made a prudent estimate of the risk and the costs, then, fine. Many people can afford to be uninsured for long-term care. What is really bothering me though is peoples' insistence on using the phrase "self-insured."

If you use the phrase "self-insured," then explain what, exactly you will be doing that would be different from someone who is "uninsured."

If your plans only allow you to afford some limited number of years of long-term care, then explain how you judged the chances of needing more care for a longer period, and why you feel that amount of risk is acceptable. The existence of Medicaid is relevant here.
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Re: Self Insure LTC or Purchase Policy?

Postby JPH » Sun Mar 11, 2012 10:32 am

You can find a long-term care planning tool on the Medicare.gov site. It might help. This decision is one I wonder about as well. I have not purchased the insurance and probably will not. I figure the need for long-term care is just one of many highly expensive tragedies that could strike. In retirement I will try to withdraw at a rate that I hope hope will preserve a large balance for the longest possible time. I hope I will be able to cover future expenses, including LTC if needed. If I'm lucky and nothing like that happens, then my kids will get what I had set aside. Might work out or it might not.
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Re: Self Insure LTC or Purchase Policy?

Postby progolferwannabe » Sun Mar 11, 2012 10:58 am

While it is admittedly unlikely, one may have a need to utilize long term care prior to being "elderly"---perhaps suffering an injury in an accident where home or institutional care is required. So, while one can self insure by accumulating funds over a number of years, they may not have adequate funds should care be needed relatively early in life. Perhaps a "+" in the column for purchasing LTC insurance.
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Re: Self Insure LTC or Purchase Policy?

Postby dhodson » Sun Mar 11, 2012 12:02 pm

That's why you purchase disability insurance. Also given the limited amounts and time of most ltci policies, it ain't a plus.
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Re: Self Insure LTC or Purchase Policy?

Postby dhodson » Sun Mar 11, 2012 12:09 pm

nisiprius wrote:Since there is argument about terminology, I'd ask the question this way.

Are you comfortable saying "I plan to be uninsured for long-term care. I intend to take the risk myself. If I need long-term care, I will simply pay for it. I have estimated the likely costs, perhaps $70,000/year in 2012 increasing 2% to 3% above inflation per year [or insert your own numbers]. I am confident that my retirement savings can provide for such an eventuality for however many years it is needed."

Please use the word "uninsured."

If you can say this, and have made a prudent estimate of the risk and the costs, then, fine. Many people can afford to be uninsured for long-term care. What is really bothering me though is peoples' insistence on using the phrase "self-insured."

If you use the phrase "self-insured," then explain what, exactly you will be doing that would be different from someone who is "uninsured."

If your plans only allow you to afford some limited number of years of long-term care, then explain how you judged the chances of needing more care for a longer period, and why you feel that amount of risk is acceptable. The existence of Medicaid is relevant here.


These questions don't matter nor does the phrasing since we all know that people mean they aren't purchasing ltci when they use such phrases. Why bother doing any such calculations when it's clear if you can't afford it then you can't afford it.
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Re: Self Insure LTC or Purchase Policy?

Postby GregLee » Sun Mar 11, 2012 3:56 pm

Diogenes wrote:If self insuring, can you share your calculations?

I'm self-insuring which (for nisiprius' and other terminology wonks' benefit) means I'm developing a plan for LTC that does not involve buying an insurance company's LTCi policy. I'm estimating it will take $80k-$120k per year per person for LTC, in present dollars, not counting medical expenses which I assume will be covered by Medicare or supplementary health insurance. If one of us, me or my wife, but not both, should need LTC starting today, we could manage that from retirement income at the lower end of the expense range, $80k+, probably without digging into our portfolio. As inflation increases LTC costs, or if both my wife and I become disabled, we'd need to depend more and more heavily on drawing from our portfolio, and perhaps will need to sell our house. I can't estimate a maximum for potential LTC expenses, but I'm sure it's well north of what we could afford now. So my plan, if you can call it that, is just to grow our portfolio as much as possible over the next 10-20 years.

Naturally, if it turns out to be feasible to stay at home and purchase in-home care, we will do it that way. Since we will be financing this ourselves, whether we do that and what specific arrangements we make will be up to us, and not some damned insurance company.
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Re: Self Insure LTC or Purchase Policy?

Postby retiredjg » Sun Mar 11, 2012 4:12 pm

Diogenes wrote:Are BH's self insuring for this or purchasing policies?

I purchased. I was fortunate enough to be offered a group policy with no medical checks required. It was pretty much a no-brainer.

I read an article in Consumer Reports Personal Finance a few years ago. As I recall, it suggested not buying before age 50 and trying to have something in place by age 55 or before you have to report any "pre-existing conditions". I don't know a lot of 60 year olds whose doctors have not found something to treat with a pill so I suppose that would be a "pre-existing condition". It also used $1 million as the dividing line between those who should buy a policy and those who should remain uninsured or self-insured if you prefer that term.

I have no idea if this is good advice or not. Just reporting what they said (as I remember it).
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Re: Self Insure LTC or Purchase Policy?

Postby yobria » Mon Mar 12, 2012 12:45 pm

Diogenes wrote:If self insuring, can you share your calculations?


Sure. The chance of needing LTC for more than five years is less than 5%. I'll always have enough savings to cover five years (probably much more of course) of care before exhausting my funds. On the slight chance I do exhaust my funds, I'll rely on Medicaid.
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Re: Self Insure LTC or Purchase Policy?

Postby dhodson » Mon Mar 12, 2012 1:05 pm

id rather see more policies that cover just that 5% risk (or something similar). It would be the equivalent of term life insurance, reasonably priced but unlikely to pay off.
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Re: Self Insure LTC or Purchase Policy?

Postby Honobob » Mon Mar 12, 2012 3:05 pm

Diogenes wrote:
If self insuring, can you share your calculations?

_D_

I do have LTCi but ran some calculations to see what it would take to "risk financial stability by not buying LTCi" (rfsbnbLTCi).

At 60 if one had investable assests of $2,055,000 per person and that grew at 5% and expenditures were $80,000 pre-tax and personal inflation was expected at 3% then at age 85 they would have assests of $1.86M. If they needed LTC that year then anticipated expense could be $322,500. ($100,000 today at 5% inflation) They would be BROKE on 5 years! Then Medicaid or whatever it's called then, SOYLENT GREEN, would kick in. If the need came before 25 years the results would be worse.

In my situation, when I bought over 10 years ago I was on the cusp of hopefully being able to successfuly rfsbnbLTCi. And at that time I also had to get over the hurdle of buying something 20, 30, 40 years into the future. That was a big thing to get over for me. Now thanks to the internets I came to the realization that I can quit at any time and all I am out is the amount I paid for coverage during that time! Now I'm paying less than a pack of cigarettes a day for lifetime/5% inflation coverage. I think the insurance will be there the next 10 years so why not keep it? So IF my coverage pays as contracted and premiums double every 10 years as anticipated by me then in 25 years if the parameters are the same as the person above who rfsbnbLTCi then I would receive about $1,800.000 in tax free benefits over 5 years and I would also have the ability to choose what to do with the $1,800,000 in my portfolio. Well my portfolio might be a little smaller because I had expenses of $70,000 for LTCi over 25 years. Maybe it would be larger because I did not have to be so conservative investing because I have the insurance coverage.

So year 30 I'm living large spending an extra $100,000 a year on luxuries (private room/massages/better food/ company)! They've found the cure and I leave with my nest egg pretty much in tact. rfsbnbLTCi guy broke and on the streets. For the price of a pack of cigarettes a day! :shock: YMMV
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Re: Self Insure LTC or Purchase Policy?

Postby Honobob » Mon Mar 12, 2012 4:35 pm

jenny345 wrote:
+1. Other than what Yobria said, I'm investing in books on Medicaid and estate planning. The look back period for Medicaid isn't forever, so even if you have to spend down your assets to get Medicaid you have time before the look back period to legally transfer your assets to your family or move your assets to Medicaid exempt asset classes.

What is your goal? If you want to leave money to family wouldn't it be easier and cheaper to buy life insurance? [political comments removed by Mod]Also, don't you think you are taking big risks by transferring money to family where they or a spouse (or someone they injured) could lay claim to your money?
Last edited by Honobob on Tue Mar 13, 2012 4:52 pm, edited 1 time in total.
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Re: Self Insure LTC or Purchase Policy?

Postby Honobob » Mon Mar 12, 2012 5:10 pm

[responses to removed comments removed by Mod]

seriously, I realize my plan has some risk but the rewards are HUGE. Your plan also has risk but your plan is also a default plan that pretty much every bum in America has. And you're investing in books to get there?

How does that make sense?
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Re: Self Insure LTC or Purchase Policy?

Postby 1210sda » Mon Mar 12, 2012 5:25 pm

yobria wrote:
Diogenes wrote:If self insuring, can you share your calculations?


Sure. The chance of needing LTC for more than five years is less than 5%. I'll always have enough savings to cover five years (probably much more of course) of care before exhausting my funds. On the slight chance I do exhaust my funds, I'll rely on Medicaid.


Thanks Nick. I feel the same way.

Some have made the comparison of LTCi to a homeowners insurance policy. That you buy it "just in case". That just because your house didn't burn down and you didn't get to use the insurance is a good thing, not a bad thing.

I agree, but I just can't quite bring myself to thinking the same way about LTCi.

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Re: Self Insure LTC or Purchase Policy?

Postby ddunca1944 » Mon Mar 12, 2012 6:04 pm

Some have made the comparison of LTCi to a homeowners insurance policy. That you buy it "just in case". That just because your house didn't burn down and you didn't get to use the insurance is a good thing, not a bad thing.


Well, that is pretty much why we bought it. Our assets are not high enough to self insure, but they are high enough that we will not qualify for Medicaid (and I would like to have more options than are available on Medicaid).

My primary concern is that the cost of LTC will impoverish my spouse (or vice versa). I'm watching a good friend go through this right now. Her husband has Alzheimer's. She waited as long as she possible could before institutionalizing him. He is starting his third years in a NH and the cost is depleting their retirement savings alarmingly fast. She may end up having to live with her daughter because she may not have enough left to live on.

I will be very happy if we never need it, but having it does give me some peace of mind.
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Re: Self Insure LTC or Purchase Policy?

Postby Honobob » Mon Mar 12, 2012 7:36 pm

1210sda wrote:
Some have made the comparison of LTCi to a homeowners insurance policy. That you buy it "just in case". That just because your house didn't burn down and you didn't get to use the insurance is a good thing, not a bad thing.

I agree, but I just can't quite bring myself to thinking the same way about LTCi.

1210


I think the better comparison would be to medical insurance except most people don't see the monthly expense because it's paid by employers. The premiums that have been paid for my medical insurance over the last 40 years plus are astronomical! The amount they've paid out is nominal! When you leave work, other than COBRA or retirement benefits you're history! In fact you've paid market rates all along. Interesting also that my provider in 1977 was Kaiser and is Kaiser now 34 years later.

Medical insurance also has basically the same default as not having LTCi. You hit the emergency rooms. No homeowners and your house burns down you're pretty much stuck.

In comparison, I'd say the LTCi is the better deal but I'd doubt you'll see people urging you to go bare on medical insurance.
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