LTC policy increase - keep, reduce coverage or ditch?

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Pretzel lover
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LTC policy increase - keep, reduce coverage or ditch?

Post by Pretzel lover »

Didn't (and still don't) know much about LTC policies :?
The policy has a 10 year monthly premium and then pays for itself.

Paying on this policy that was established 4 years ago. Now there is an increase of 15% in premium. Here are the details that hopefully supplies enough info for some more knowledgeable Bogleheads to comment on how I should move forward.

Age- 59
Married
Significant assets
Health- good
Both parents died at 87-88 years of age without needing nursing home care
Wife has her own policy that is a combo of life insurance. Probably not good but she wants to keep hers.


Here's my details:

Policy with LifeSecure Insurance Company
Benefit bank- $360,000
Monthly Benefit Access Limit- 1% of benefit bank ($3,600)
Contingent Non-Forfeiture Benefit- Included
Benefit Wait Period- 90 days
Automatic 3% Compound Inflation Protection Benefit- Included
Premium Rate Classification- Preferred
Premium Payment Mode- Monthly
Premium Payment Time Period- 10 Years
Marital Discount Applied- 10%
Premium Amount- $335.70/month

So new premium will be increased to $386.05/month unless I want to reduce benefits to keep at same $335/month premium. This would reduce benefit bank from $393,382 to $342,071 with monthly benefit access limit reduction from $3,934 to $3,421.

Don't know if-
1- It originally was a good policy?
2- Is it worth paying the extra amount per month?
3- Should I just drop it and forget about the $16,000 I already paid in?
4- Surely the premium will continue to be raised to force me to abandon it before the 10 years are paid in?

Thank you for any input you can provide into this issue!
Gill
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by Gill »

You mention significant assets. Would you feel comfortable self insuring as many of us do, feeling we can pay for long term care without insurance?
Gill
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Pretzel lover
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by Pretzel lover »

Yes, self insuring is definitely a potential solution.

Wife’s family is very long lived and has taken advantage of their LTC policies. Issue may be if both of us need LTC or paying existing expenses for one of us plus LTC for other person.

Would like opinions if this policy is any good.
pshonore
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by pshonore »

Premium sounds a little high for one person but it is a 10 year pay policy. 44K a year would not cover much in CT but but might ok in lower cost states.
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Pretzel lover
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by Pretzel lover »

That’s what seemed attractive about it. Would be “paid for” when I’m 64 y.o.

Wife could live to 100 y.o. or more with her female longevity (grandmother was 106+ when she passed and Mom is almost 92 and physically no issues).

I don’t want to drain the finances if I’m the one that needs LTC
stan1
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by stan1 »

If about $28K in premiums will give you peace of mind and you can easily afford this coverage (you have over $2M in assets) I'd just do it. Likewise if you have over $2M you can probably self insure unless there's a reason you think your heirs need to inherit a large estate such as a special needs child.

Can you pay the full amount of the policy now to avoid the risk of additional future hikes?
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
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Pretzel lover
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by Pretzel lover »

That was a good suggestion about prepayment.

I called LifeSecure and they said no not an option. I asked about future increases and of course they said it is unknown but mentioned it is their first premium increase on any policy since 2006.

Does anyone know if LifeSecure is a stable company?
dbr
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by dbr »

The premium even if increased more and paid for a long time is still relative peanuts compared to the possible benefit and to your spending. On that basis it seems a no brainer to keep insurance like this. On the other hand the benefit may be peanuts compared to your assets, which would make it a no brainer to not have insurance like this. I suspect that LTC is one of those things that falls too often into the camp of "I have the ability but I don't have the need" while the real problem is someone who will have the need may not have the ability.
stats99
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by stats99 »

How does the policy "pay for itself" after 10 years?
Point
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by Point »

Self insurance is always a good option.

A couple of things to consider:

1) the 1% monthly payout is considerably less than today’s costs, let alone inflation adjusted future costs. We paid upward of 8k per month each for two seniors in different assisted living facilities. These are current costs, not future costs.

2) what are the other constraints on payouts for your policy? What are the ADL stipulations? Will the policy stop paying for the care facility when you go to the hospital (generally yes, this cost to maintain a bed will be on you.) Will you have a single room or have to share?

That benefit amount they give you may turn out to be a teaser rate!
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nisiprius
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by nisiprius »

Point wrote: Fri Dec 15, 2017 9:44 am...Self insurance is always a good option...
Self insurance is a contradiction in terms. "Insurance" involves the concept of a risk pool, in which premiums from the people who don't encounter bad luck pay for the claims of those that do. There must be a large group of people involved for it to be "insurance."

A large company can self-insure short-term disability, for example, because they are confident in the statistics that say not too many employees will need it in a give year, and they can take on that averaged-out risk. In this case, yes, they are self-insuring. They are doing the same job they could pay an insurance company to do for them, and it may be advantageous for them to do so.

There is no way that a single individual, or even a family, can self-insure. What they can do is assume the risk. If I have enough money, I can go without homeowner's insurance and just pay for a new house if mine burns down. That's not self-insuring, that's just being willing to take on the full risk myself.

Well, I thought I was giving a reasonable definition, but a dictionary says
Insurance: a. An arrangement or agreement that protects someone from incurring future losses, as from damage, theft, illness, or death, especially a contract that transfers the risk of a specified loss to another party in exchange for the payment of a premium.
Under that definition, you can't self insure either. You can protect yourself from incurring future losses; you can just decide that you can afford those future losses. The dictionary definition says that insurance means that you are transferring the risk to another party.
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dbr
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by dbr »

Well, I think when people talk about an individual self-insuring something it does just mean accepting the risk and paying when risk turns up. But it does seem that is a miss-use of the term. The actual principle insurance is to pool risk, which requires a population within which the risk materializes at a small but predictable rate while the cost occurs to everyone but also at a predictable rate.

Another concept is that the whole arrangement amounts to nothing but prepayment. A part of medical, and especially dental, insurance is coverage for costs that are certain for everyone and the premium amounts to prepaying the cost. In fact the whole deal is less insurance than it is contracted payment for services.
Point
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by Point »

The LTC policy which one of our family used had an additional wrinkle— the company went bankrupt. The state pool was going to cover up to 50% of the monthly commitment and you were out the rest. He died prior to having the reduction in coverage, so his plan worked for him.

Do look closely at the ADL’s because there is arena lot of gotchas in how they constrain the benefit payouts. Read carefully!
pintail07
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by pintail07 »

I would keep it. You are currently co insuring the risk. Revisit if you want to shift more of the risk.
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mlebuf
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by mlebuf »

Hi Pretzel lover,

Late 50's is an ideal time to buy/carry LTC coverage. You both are likely in good health and don't have any pre-existing conditions that may disqualify you in coming years. Pre-existing conditions might later disqualify you from being able to purchase LTC and you can be sure it will be more expensive.

To answer your question about if you should keep it, my question is: Does paying the premium significantly impact your lifestyle? If the answer is "no," I suggest holding onto it. Some other thoughts:

When you pay the annual premium, you are buying LTC protection for one year and the ability to renew regardless any health issues that may come along later. You transfer the risk off of your back and onto the back of the insurer.

As you get older and if your net worth increases, you may be able to lower the amount of coverage or cancel. My wife and I purchased our current LTC with Genworth when I was 59 in 2001. Since that time our premiums have jumped 65 percent and that is with some reduction in coverage. Nevertheless, I recently signed up for another year because the price doesn't impact our lifestyle. From now on, I will make a conscious decision every year to renew with the same coverage, renew with less coverage for a lower/same rate, or cancel.

One of my main reasons for buying LTC coverage was not because of what might happen to us after age 80. My main concern was that if one of us needed LTC for decades, the enormous cost could destroy our net worth and leave the other person destitute. With every passing year, the odds of that happening decrease.

Another reason why I carry the LTC coverage that I do is that it covers home health, assisted living etc. Be sure you have that coverage with your current policy. I don't consider it nursing home insurance. I consider to be stay out of a nursing home insurance.

Deciding to keep or drop LTC insurance is a risk management decision. As the late legendary and very wise author Peter Bernstein wrote, "Risk is about the consequences of being wrong." Don't make any kind of insurance decision based on the odds of something happening. Buy insurance to cover what you cannot afford to have happen.
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Pretzel lover
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by Pretzel lover »

Thank you for the input and suggestions.

Paying the premium doesn't have an impact on our finances so I'll keep the policy as-is for now and continue to digest the 30 pages of detail surrounding the benefits, claim process, and exclusions.
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Sheepdog
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by Sheepdog »

Pretzel lover wrote: Fri Dec 15, 2017 8:44 am
Does anyone know if LifeSecure is a stable company?
I looked at ConsumersAdvocate.org to look at their ratings for the company. https://www.consumersadvocate.org/long- ... -term-care

LifeSecure is a long term care provider and wholly owned subsidiary of Blue Cross Blue Shield of Michigan.

ConsumersAdvocate.org Rating: 5.5 / 10 (Average)

LifeSecure's financial rating is by A.M Best A-
A.M. Best rating system is:
A++ and A+ (Superior) Assigned to companies that have, in our opinion, a superior ability to meet their ongoing obligations to policyholders.
A and A- (Excellent) Assigned to companies that have, in our opinion, an excellent ability to meet their ongoing obligations to policyholders.
Are these accurate appraisals? I dont know. What do you think of those ratings? Personally, I would want to look into your company very closely.
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birdy
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by birdy »

I can't say it any better than what Mlebuf said! Spouse and I have LTC with Genworth and the premium went up 50%. We decided to keep it as is and renew. I also worry about one of us going into assisted living while the other of us still needs to maintain our home.

birdy
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Re: LTC policy increase - keep, reduce coverage or ditch?

Post by marcopolo »

mlebuf wrote: Fri Dec 15, 2017 7:51 pm My main concern was that if one of us needed LTC for decades, the enormous cost could destroy our net worth and leave the other person destitute. With every passing year, the odds of that happening decrease.
Perhaps you were fortunate enough to purchase a LTC policy back when unlimited policies were still reasonably available. But, the one the OP is considering has a limited benefit, like most policies these days. It is not at all clear to me how much this would really help in the decades long scenario that is also my concern. I can afford to fund it for a number of years from my portfolio. Limited policies might extend that a few years, but does not help much with the decades in care scenario. It seems to me these policies only help in the narrow cases where the time spent in care is between what the portfolio can cover and the additional length of the LTC policy.
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