Do we need long-term care insurance?

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spartanap
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Do we need long-term care insurance?

Post by spartanap »

My wife (53) and I (54) have been looking into long-term care insurance options. Thought we would ask fellow Bogleheads for some advice. Here's our situation:

We both took our state pensions last year. Pays a little over 60K/year no cola. If my wife dies, my pension would be 36K/yr. If I die, her pension would be 40K/yr. We are both in good health. I plan to continue to work for four more years at 40K/yr. By that time, we should have at least $1.4M in investable assets. House will be paid off. For retirement planning purposes, I've figured on expenses of $7K/mo, but we now live very comfortably on less than $6K/mo. Based on $7K/mo, the calculators say we have a 100% chance of making it to 92 w/o running out of money. We have no need to leave money behind once we're gone.

With this information; would you consider any type of long-term care insurance? We've been looking into an Asset-Care whole-life hybrid policy from One America to provide a little "cushion". A $150,000 policy, payable on the second spouse's death carries a premium of $230/mo ($520/mo for 10-year pay). It can be converted to face value long-term care with a max payout of $6K/mo for 25 mos (longer time frame if the monthly benefit used is less than $6K).

We've been considering this issue for the past couple of years and I feel we're reaching the "paralysis by analysis" level. Any feedback would be appreciated. If you need more information, let me know.
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Taylor Larimore
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Post by Taylor Larimore »

spartanap wrote:My wife (53) and I (54) have been looking into long-term care insurance options. Thought we would ask fellow Bogleheads for some advice. Here's our situation:

We both took our state pensions last year. Pays a little over 60K/year no cola. If my wife dies, my pension would be 36K/yr. If I die, her pension would be 40K/yr. We are both in good health. I plan to continue to work for four more years at 40K/yr. By that time, we should have at least $1.4M in investable assets. House will be paid off. For retirement planning purposes, I've figured on expenses of $7K/mo, but we now live very comfortably on less than $6K/mo. Based on $7K/mo, the calculators say we have a 100% chance of making it to 92 w/o running out of money. We have no need to leave money behind once we're gone.

With this information; would you consider any type of long-term care insurance? We've been looking into an Asset-Care whole-life hybrid policy from One America to provide a little "cushion". A $150,000 policy, payable on the second spouse's death carries a premium of $230/mo ($520/mo for 10-year pay). It can be converted to face value long-term care with a max payout of $6K/mo for 25 mos (longer time frame if the monthly benefit used is less than $6K).

We've been considering this issue for the past couple of years and I feel we're reaching the "paralysis by analysis" level. Any feedback would be appreciated. If you need more information, let me know.
Spartnap:

How good is your current health insurance in retirement?

Can the premiums charged by One America be increased?

If you have no heirs, is there need for $150,000 insurance payable on the second spouses' death (insurance is not free)?

What is the market value of your home?

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
randomguy
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Re: Do we need long-term care insurance?

Post by randomguy »

Odds of this paying off seems very low to me. Your investing 60k, probably will not need it for another 10+ years, and get 150k out. That sounds like a lousey investment (most insurance policies are) . Sure it is possible that you will need care before 70 or so, returns could be <6% nominal, and so on but it seems like the deck is really stacked against this being a good investment. As insurance it is pretty crappy in that you are only covered for 25 months. That isn't type of long term care that is going to bankrupt you. It also seems like having 150k life insurance is pretty darn useless. Both of you are dead and you have no need to leave money behind.

I have seen some good LTGC policies from 10+ years ago. The recent open market ones all seem pretty crappy.
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Watty
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Re: Do we need long-term care insurance?

Post by Watty »

spartanap wrote: Based on $7K/mo, the calculators say we have a 100% chance of making it to 92 w/o running out of money.
That $7K a month is $84K a year.

Check to see what long term care typically costs in your area. If it is less than $84K a year then you likely have LTC costs mostly already covered if only one of you is surviving when LTC is needed.

You already have enough assets to easily handle a couple of years of long term care costs and LTC is typically only needed for a limited time.

I can see where LTC costs could be a problem in situations like if both of you live to be 90 or Alzheimer's care is needed for 10+ years but those situations would be rare, and the policy you mentioned would not really help a lot in those situations.
itstoomuch
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Re: Do we need long-term care insurance?

Post by itstoomuch »

no. It is still WHOLE LIFE insurance.

?? Is the pension + SS + $2000/mn from investments >= LTC costs/mn ??
If the LTC (medium care) is > Pensions + SS + regular withdrawal from investments, then the LTCi is there to make up the difference.
This is how we (65/68) determined the our LTC need. We purchased 14 years ago. If you have a high need (nursing home), your costs may be unlimited.
GL :beer
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
Topic Author
spartanap
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Re: Do we need long-term care insurance?

Post by spartanap »

Taylor,

Our current health insurance is good. Mine's paid, wife's is $500/mo. Once I retire, my cost would equal my wife's.

Premiums are to remain constant.

No need for the insurance, just thinking that something would come out of premiums if LTC never needed.

House value around $200,000.
BruDude
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Re: Do we need long-term care insurance?

Post by BruDude »

Why are you looking at hybrid LTC instead of a true LTC policy? IMO life insurance is for life insurance and LTCi is for LTC. At your age you should be able to get a pretty good true LTC policy for $300-400/month.
dhodson
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Re: Do we need long-term care insurance?

Post by dhodson »

There is no free ride by buying a combo product.

I haven't looked in a while but likely you can get both separately for cheaper and it's unlikely you want both.
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victorb
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Re: Do we need long-term care insurance?

Post by victorb »

The more I read about LTC Insurance, the more hesitant I become. Companies like Genworth used to be the cream of the crop and our now in financial difficulties. The premiums can go up and probably will when the person insured can least afford it, etc. etc. With the aging population, there will be more people collecting on the LTC making policy prices go up. It just seems the deck is stacked in the Insurance Companies favor and very little leverage on the part of the insured. At 85-90, I don't want to be fighting with some insurance company if they need to be paying for our care expenses.

If I am off-base on this, please let me know. I honestly believe there will be more problems with people collecting on their LTC policies.
Independent
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Re: Do we need long-term care insurance?

Post by Independent »

I'll add one more vote to: "Don't see any point in buying a hybrid policy. Why pay for $150,000 of life insurance you don't need?"
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Taylor Larimore
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Re: Do we need long-term care insurance?

Post by Taylor Larimore »

spartanap:

Thank you for the additional information.

In my opinion, you would probably be wise to invest the $230/month ($2,760/year) into your portfolio. At 6% for 30 years $230/month amounts to over $80,000. Together with your home equity, now $200,000, plus "1,400,000 of invest able assets" and two state pensions you should easily afford the limited amount the policy pays ( $6K/mo. for 25 mos.) -- if it does?

This policy sounds very complicated. Many insurance salesmen emphasize good policy provisions and "overlook" bad policy provisions.

If you become serious, be sure to read the contract and understand every word before signing.
"You shouldn't buy anything too complex to explain to the average 12-year-old." -- Jane Bryant Quinn
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Taylor Larimore
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Re: Do we need long-term care insurance?

Post by Taylor Larimore »

spartanap:

Thank you for the additional information.

In my opinion, you would probably be wise to invest the $230/month ($2,760/year) premiums into your portfolio. At 6% for 30 years $230/month amounts to over $80,000. Together with your home equity, now $200,000, plus "1,400,000 of investable assets" and two state pensions you should easily afford the limited amount the policy pays ($6K/mo. for 25 months) -- if it does? Many policies make eligibility difficult.

This policy sounds very complicated. Many insurance salesmen emphasize good policy provisions and "overlook" bad policy provisions.

If you become serious, be sure to read the contract and understand every word before signing.
"You shouldn't buy anything too complex to explain to the average 12-year-old." -- Jane Bryant Quinn
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
LittleOlMe
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Re: Do we need long-term care insurance?

Post by LittleOlMe »

victorb wrote:The more I read about LTC Insurance, the more hesitant I become. Companies like Genworth used to be the cream of the crop and our now in financial difficulties. The premiums can go up and probably will when the person insured can least afford it, etc. etc. With the aging population, there will be more people collecting on the LTC making policy prices go up. It just seems the deck is stacked in the Insurance Companies favor and very little leverage on the part of the insured. At 85-90, I don't want to be fighting with some insurance company if they need to be paying for our care expenses.

If I am off-base on this, please let me know. I honestly believe there will be more problems with people collecting on their LTC policies.

Long-term care insurers have already paid over $75 billion in claims. There is no evidence that claims are consistently being denied. In fact, just the opposite is true. Studies commissioned by the federal government have found that claims are being handled judiciously.

Policies purchased today are protected from the pricing errors of policies that were sold years ago. There are some very strict rules about when and if a rate increase can occur on a policy purchased today. Or, if you want a premium that is guaranteed to never go up then just buy the AssetCare4 policy from OneAmerica.

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Jack FFR1846
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Re: Do we need long-term care insurance?

Post by Jack FFR1846 »

Look into long term care facilities. A relative was placed in one and we were POA and oversaw their care from outside. The facility charged full fare for 2 years, at which point they continued care from pension/ss/medicare. Of course to qualify for medicare, they had to spend down their assets first.

I agree that the life insurance part doesn't make sense. Did an agent suggest this policy? It almost sounds like he had a policy to sell and it was the answer to your needs.....before you told him what your needs are
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dodecahedron
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Re: Do we need long-term care insurance?

Post by dodecahedron »

Independent wrote:I'll add one more vote to: "Don't see any point in buying a hybrid policy. Why pay for $150,000 of life insurance you don't need?"
My theory on why companies offer this hybrid policy is that it reduces the asymmetric information (adverse selection/moral hazard) issues that can frequently create market failures in the insurance industry.

Therefore, it is possible that companies may be able to offer a policy with relatively better overall pricing if it is structured in this way.

1) The pool of people buying a hybrid policy is probably, on average, a pool of people less likely to need LTC than the folks who buy straight LTC policies. (i.e., reduced adverse selection)

2) Once in the pool of covered policyholders, some folks who are "on the borderline" between using the LTC benefit or not may be less likely to access the LTC than the folks who buy straight LTC policies because there is a potential reward for holding off, at least for those who care about their legacy/heirs. (reduced moral hazard.)

So--even if you don't need the life insurance, you might be interested in a policy like this because the actuarial pricing may be a better deal than the alternatives. (Note: I haven't crunched the numbers to see whether this actually true, but it seems plausible.)
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spartanap
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Re: Do we need long-term care insurance?

Post by spartanap »

---UPDATE---

Here is a quote we received for a traditional LTC policy:

$150,000 total benefit for each of us (shareable) with 3% inflation protection. 90 day elimination period. Company rated A- by AM Best.

His premium $87/mo. Her premium $137/mo. Both are lifetime premiums.

Thoughts?
ralph124cf
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Re: Do we need long-term care insurance?

Post by ralph124cf »

spartanap wrote:---UPDATE---

Here is a quote we received for a traditional LTC policy:

$150,000 total benefit for each of us (shareable) with 3% inflation protection. 90 day elimination period. Company rated A- by AM Best.

His premium $87/mo. Her premium $137/mo. Both are lifetime premiums.

Thoughts?
Go for a longer elimination period, like a year. You have enough money to pay for it, and it will GREATLY reduce the premiums. Also, go for a longer duration/higher total limit policy. You have enough money to self insure for more than $150,000, the problem comes with several years of one of you in a nursing home. Yes, statistics say that a two year or longer period in a nursing home is somewhat unlikely, but insurance is about unlikely events, rather than expected events.

Ralph
Dandy
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Re: Do we need long-term care insurance?

Post by Dandy »

I'm a big fan of most insurance and LTC is definitely something I'd want. But, insurance companies don't know how to underwrite it properly. Many have exited the market, raised premiums drastically, and my guess is made it a bit more difficult to collect on claims. Unlike death claims which are easy - you are dead or not dead LTC claims seem to leave a lot of wiggle room for insurance companies to delay or deny claims. e.g. can the insured dress himself, bathe himself, feed himself leaves a bit more wiggle room than if the insured is dead.

Think the insurance companies won't do that? Just read some of the horror stories related to health coverage claims. Who decides if the treatment is experimental (and not covered)?, or decides how many physical therapy sessions are needed for a knee replacement? Or what is a pre existing condition? Or what is a reasonable and customary charge for your area? You can appeal their decision or even fight it in court. How much physical, financial and emotional stamina will be there to fight a LTC claim denial when the insured and spouse are in their late 80's.

The other thing to consider is what coverage are you buying. Total payments capped at $300k with a 6 month waiting period? And then if the stay is longer it is all on you? That might be self insurable for some. Deferred annuity? Buy a policy and hope they don't raise the premiums? If the premiums get too high do you cancel and lose the coverage? or keep paying through the nose? It is a mess.
furwut
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Re: Do we need long-term care insurance?

Post by furwut »

Here is one financial blogger's - Darrow Kirkpatrick at Can I Retire Yet - analysis of his situation.

Long-Term Care Insurance: Beyond the Sales Pitch
Long-Term Care Insurance: Why We Aren’t Buying It

Good luck.
edge
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Re: Do we need long-term care insurance?

Post by edge »

victorb wrote:It just seems the deck is stacked in the Insurance Companies favor and very little leverage on the part of the insured. .
I know it may 'seem' that way but these insurance companies are losing billions of dollars on their LTC blocks.
edge
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Re: Do we need long-term care insurance?

Post by edge »

ralph124cf wrote: Yes, statistics say that a two year or longer period in a nursing home is somewhat unlikely, but insurance is about unlikely events, rather than expected events.

Ralph

Actually LTC and health insurance for old people cover increasingly likely events. LTC has the most problematic risk equation. Low lapse, high claim incidence, high claim cost, dubiously effective one time underwriting without easy price adjustments for risk, subject to extreme volatility due to cultural changes (e.g. what has happened to smoking) etc.
edge
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Re: Do we need long-term care insurance?

Post by edge »

Jack FFR1846 wrote:Look into long term care facilities. A relative was placed in one and we were POA and oversaw their care from outside. The facility charged full fare for 2 years, at which point they continued care from pension/ss/medicare. Of course to qualify for medicare, they had to spend down their assets first.

I agree that the life insurance part doesn't make sense. Did an agent suggest this policy? It almost sounds like he had a policy to sell and it was the answer to your needs.....before you told him what your needs are
Agents are recommending combination products as a means to avoid rate actions.
edge
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Re: Do we need long-term care insurance?

Post by edge »

This may be true. In many cases the actuarial assumptions are different for combination products vs standalone LTC.
dodecahedron wrote:
Independent wrote:I'll add one more vote to: "Don't see any point in buying a hybrid policy. Why pay for $150,000 of life insurance you don't need?"
My theory on why companies offer this hybrid policy is that it reduces the asymmetric information (adverse selection/moral hazard) issues that can frequently create market failures in the insurance industry.

Therefore, it is possible that companies may be able to offer a policy with relatively better overall pricing if it is structured in this way.

1) The pool of people buying a hybrid policy is probably, on average, a pool of people less likely to need LTC than the folks who buy straight LTC policies. (i.e., reduced adverse selection)

2) Once in the pool of covered policyholders, some folks who are "on the borderline" between using the LTC benefit or not may be less likely to access the LTC than the folks who buy straight LTC policies because there is a potential reward for holding off, at least for those who care about their legacy/heirs. (reduced moral hazard.)

So--even if you don't need the life insurance, you might be interested in a policy like this because the actuarial pricing may be a better deal than the alternatives. (Note: I haven't crunched the numbers to see whether this actually true, but it seems plausible.)
dc81584
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Re: Do we need long-term care insurance?

Post by dc81584 »

I'm only 30 years old, so take this with a grain of salt, but I'm nowhere near sold on the idea of purchasing LTC insurance. My father, who is turning 60 soon, did his homework and determined that he and my stepmother don't need it. Then again, your situation might be different from theirs.
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