Another "Should I self-insure" for LTC Question

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texasgal47
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Another "Should I self-insure" for LTC Question

Post by texasgal47 » Sun Mar 04, 2018 8:27 pm

I'm 71 yr. old widow and am seriously considering dropping the LTC policy I've had since age 59 and self-insuring. Both parents have lived into their 90's with a good quality of life so good genes are on my side. My health status has remained unchanged since the policy was purchased. Physicians Mutual has increased my premiums from $3100 to over $5400 for this year and to over $6700 in 2019. The company stopped selling this type of insurance in 2012 so it is a closed system. In the meantime, my investment portfolio has increased to 2.4 million and the home is worth $200,000. Retirement income is $24,000/yr (no cost of living increase), and SS is $30,000 before taxes. RMD was $36,000 for 2018. My original intent was to protect my portfolio for heirs against a long-term catastrophic health event. However, I think I'd rather invest those premiums and be responsible for "paying the piper" when the time comes that I need care. Using only 1.6% of the portfolio is more than meeting current retirement expenses. LTC expenses in the south aren't too bad, relatively speaking. This is a 5 year LTC policy with a 5 % compound inflation rider (3 month waiting period) with a current value of $450,000. Although I can afford to pay those premiums, and/or lower some of the parameters to decrease the value of the policy, the future seems too uncertain to me with those types of premium increases. I'd greatly appreciate forum feedback. Do you think I would be foolish to drop this policy at my age?

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cheese_breath
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Re: Another "Should I self-insure" for LTC Question

Post by cheese_breath » Sun Mar 04, 2018 10:02 pm

My wife suffered a massive stroke last April when she was 70 (71 now) and will likely be in a nursing home the rest of her life. I don't have LTC insurance on her, and it's costing me well over $6700 per month to keep her there. I hope to be be moving her to Texas soon where the costs are less, but they'll still be more than $6700 for the private room I want for her.
The surest way to know the future is when it becomes the past.

texasgal47
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Re: Another "Should I self-insure" for LTC Question

Post by texasgal47 » Sun Mar 04, 2018 11:17 pm

Dear Cheese, thank you for taking the time to share the other side of life when things go terribly wrong. Please accept my "hug" across cyberspace for the terrible situation you and your wife now face. Stage 4 brain cancer claimed my dear husband's life so I do have some idea what life is like when your world shatters. Your story gives me pause since there is no crystal ball, and I'll give my decision more thought. However, I feel these premiums will at the very least double with each decade and seem unsustainable for the return on the investment. Of course, a catastrophic event, such as your wife has had, will eventually happen to most seniors at some point. It's just a question of how long the bleeding of finances will last.

May I add a few additional thoughts that pertain to your situation. Don't rule out personal care homes as an option. The really good ones are rare, but there are some out there. I had a very close friend with a terminal diagnosis and an aunt with Alzheimer's type dementia who were both in excellent personal care homes, one in Houston and the other in an outlying suburb. Also, having worked in a good number of nursing homes for 20 years, I would not choose a private room for myself. I didn't see quality of life as significantly improved enough to justify the huge additional cost over a semi-private room. No matter what type of facility, or what type of room, the nurses, docs, and PAs are all over worked and the nursing assistants are stretched thin, except on the rehab unit. Believe it or not, all patients receive the same type of care, whether private pay in a private room, or Medicaid in semi-private. What does make the most difference is close family involvement in care and the quality of your attending doc and/or PA, charge nurse, the director of nurses, the facility administrator, and the company that owns the facility. And in the current LTC involvement, those are constantly moving parts. Full time home care is too costly for a very long period. My father chose 24/7 care at home on hospice and burned through $45,000 in 3 months with nursing care costing "only" $16/hour here in Houston. That cost was for within the past year.
Last edited by texasgal47 on Mon Mar 05, 2018 2:42 pm, edited 2 times in total.

123
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Re: Another "Should I self-insure" for LTC Question

Post by 123 » Mon Mar 05, 2018 1:00 am

Those kind of premium increases on an LTC policy would cause me to rethink the situation as well. I can understand how those premium increases can cast doubt about the viability of the policy over the longer term, if the insurance company did not price the product correctly it's hard to tell how things will play out at such time that you call on the LTC policy. With your assets, income, and age I think you could fare pretty well for a long time without the LTC policy.

I had 2 aunts that were in generally very good health at advanced ages. One entered a nursing home around age 90 and was there less than a year before passing. Another aunt entered a nursing home at age 92 and spent 7 years there. There's a lot of variation. I don't know that it's worth spending a lot of time and expense trying to provide for a better nursing home experience. Once it's time for a nursing home at an advanced age the outlook is generally grim.

I would say that you could do all right for yourself in an assisted living situation with your assets and income probably indefinitely. Nursing home care, should you need it, would burn assets faster but I don't know that the LTC policy would improve your quality of life.

Romance, or remarriage, can change perspective so don't rush to judgement on a quick decision.
The closest helping hand is at the end of your own arm.

FBN2014
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Re: Another "Should I self-insure" for LTC Question

Post by FBN2014 » Mon Mar 05, 2018 8:25 am

What is the daily/yearly benefit on the policy? Ok, you have good genes but that is no assurance that you won't need LTC. If your in good health then I would consider that you consult an agent that specializes in LTCi. You may be able to get a policy with better rates. Perhaps get coverage for 3 years which could lower the premium. Another alternative is to buy a hybrid policy that is life insurance with a long term care rider. These policies also have a return of premium feature so you can cancel at anytime and get your money back. So if you need long term care the policy will be there. If you never need long term care but peacefully die in your sleep, your heirs get a nice death benefit (which you stated is your ultimate goal - to protect your estate for your heirs). You should also inquire about partnership long term care policies in your state which allow you to keep assets up to the amount of LTCi you have so that you can qualify for Medicaid if you exhaust your long term care benefits. DO NOT cancel the policy until you explore all of these options. That would be your worst choice. You are paying .2%/year of your assets to protect 2.4 million. If your earning say an average of 5%/year just look at the premium as estate insurance and consider it another expense, like homeowners or auto insurance, or a management fee that a financial advisor would charge you.
Last edited by FBN2014 on Mon Mar 05, 2018 8:49 am, edited 2 times in total.
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wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 8:40 am

Can somebody explain the 450K number from this ?
This is a 5 year LTC policy with a 5 % compound inflation rider (3 month waiting period) with a current value of $450,000.
If that is the upper limit on the benefits, then with 2.4M assets, my decision would be easy to make but I am suspecting I am missing something here. I would also think that the premiums will be skyrocketing as you age, so the 6.7K would be about $20K or more in 10 years.

JoeRetire
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Re: Another "Should I self-insure" for LTC Question

Post by JoeRetire » Mon Mar 05, 2018 8:46 am

texasgal47 wrote:
Sun Mar 04, 2018 8:27 pm
However, I think I'd rather invest those premiums and be responsible for "paying the piper" when the time comes that I need care.
That is certainly your choice to make.
This is a 5 year LTC policy with a 5 % compound inflation rider (3 month waiting period) with a current value of $450,000. Although I can afford to pay those premiums, and/or lower some of the parameters to decrease the value of the policy, the future seems too uncertain to me with those types of premium increases.
It appears that you have the funds to self-insure.

Personally, I'd rather tweak the parameters (lower inflation rider, lower value, etc) to reduce the premiums, than get rid of the policy entirely. You would have to invest those annual premiums for many years to offset the cost should you actually need long term care. And you may want to revisit your original thinking regarding the need for LTCi and see what, if anything, has changed there.

But if you would rather roll the dice and avoid paying the annual premium (which it appears you can easily afford), you seem to be financially able to do so. When you are single, your decision impacts only you.

JoeRetire
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Re: Another "Should I self-insure" for LTC Question

Post by JoeRetire » Mon Mar 05, 2018 8:47 am

wrongfunds wrote:
Mon Mar 05, 2018 8:40 am
Can somebody explain the 450K number from this ?
Most likely $450k is the maximum value of the policy.

westrichj312
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Re: Another "Should I self-insure" for LTC Question

Post by westrichj312 » Mon Mar 05, 2018 8:50 am

drop it as fast as you can and start gifting out your money to your heirs!

wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 8:53 am

JoeRetire wrote:
Mon Mar 05, 2018 8:47 am
wrongfunds wrote:
Mon Mar 05, 2018 8:40 am
Can somebody explain the 450K number from this ?
Most likely $450k is the maximum value of the policy.
Do you mean maximum benefit amount that will be provided by the policy? I am not sure if there is any "cash value" associated with this policy aka "surrender amount" for giving up this policy. Please excuse the naive and most likely wrong terminology in my replies. I know very little about this subject but trying to learn more.

JoeRetire
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Re: Another "Should I self-insure" for LTC Question

Post by JoeRetire » Mon Mar 05, 2018 8:59 am

wrongfunds wrote:
Mon Mar 05, 2018 8:53 am
JoeRetire wrote:
Mon Mar 05, 2018 8:47 am
wrongfunds wrote:
Mon Mar 05, 2018 8:40 am
Can somebody explain the 450K number from this ?
Most likely $450k is the maximum value of the policy.
Do you mean maximum benefit amount that will be provided by the policy?
Yes, that's what it means.
All LTCi policies have a maximum benefit.

pshonore
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Re: Another "Should I self-insure" for LTC Question

Post by pshonore » Mon Mar 05, 2018 9:26 am

JoeRetire wrote:
Mon Mar 05, 2018 8:59 am
wrongfunds wrote:
Mon Mar 05, 2018 8:53 am
JoeRetire wrote:
Mon Mar 05, 2018 8:47 am
wrongfunds wrote:
Mon Mar 05, 2018 8:40 am
Can somebody explain the 450K number from this ?
Most likely $450k is the maximum value of the policy.
Do you mean maximum benefit amount that will be provided by the policy?
Yes, that's what it means.
All LTCi policies have a maximum benefit.
I think it means the policy will pay a max of $250/day, $7.5K/month, $90K/year over a 5 yr period. Those amounts increase by 5% annually with the inflation rider. That would be about 60% of the bill for a typical facility in CT.

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Re: Another "Should I self-insure" for LTC Question

Post by JBTX » Mon Mar 05, 2018 9:36 am

From the flip side, if you only need 1.6% of your portfolio the LTC does not strain your retirement and you can afford it. Also it isn’t uncommon to pay more than $7k for health insurance, why is it unacceptable to pay that much for LTC?

I would think I prefer the peace of mind of having it.

FBN2014
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Re: Another "Should I self-insure" for LTC Question

Post by FBN2014 » Mon Mar 05, 2018 9:56 am

westrichj312 wrote:
Mon Mar 05, 2018 8:50 am
drop it as fast as you can and start gifting out your money to your heirs!
I assume you are joking. I sure wouldn't want to be asking my kids for help so I can get the "free" government long term plan.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

dbr
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Re: Another "Should I self-insure" for LTC Question

Post by dbr » Mon Mar 05, 2018 9:56 am

wrongfunds wrote:
Mon Mar 05, 2018 8:40 am
Can somebody explain the 450K number from this ?
This is a 5 year LTC policy with a 5 % compound inflation rider (3 month waiting period) with a current value of $450,000.
If that is the upper limit on the benefits, then with 2.4M assets, my decision would be easy to make but I am suspecting I am missing something here. I would also think that the premiums will be skyrocketing as you age, so the 6.7K would be about $20K or more in 10 years.
LTCI premiums do not skyrocket because the insured is getting older. They have and are increasing because insurance companies underpriced the product. There will be further increases but not what you imagine.

dbr
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Re: Another "Should I self-insure" for LTC Question

Post by dbr » Mon Mar 05, 2018 10:03 am

In theory these things should be an actuarial wash, so broadly speaking I would think they are a wash as a financial planning decision. In this case the premium is a relatively minor annual expense and the wealth accumulation will be a relatively minor component of future wealth. I would tend to view the whole thing as an additional diversification of risk and keep the plan, but I doubt many here would say it was actually foolish to drop the plan either. A point previously made was that as time goes by the risk of needing care for a very long time diminishes so the decision can be kept under review.

wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 10:12 am

In OP's case, there is no fear of running out of her assets in normal circumstances. On the contrary, her draw rate from her assets virtually assure growing assets. Why is this decision not done similar to say $450K term life insurance policy with the premiums being $7K+ and increasing? The answer that every BH will give for this "hypothetically stupid" question is there is no need for the extra $450K to the heirs. Why not then apply the same exact rationale aka there is NO need for that help of $450K "just in case" it is needed. At least with term life insurance, unless elixir of immorality is discovered, the probability of getting the $450K is assured but NOT SO in case of LTC benefits.
You are paying .2%/year of your assets to protect 2.4 million.
I believe that is incorrect. The protection amount is $450K but the assets are 2.5M. How does it make sense to pay say 10 years of $10-20K per year premiums just in case LTC costs of up to $450K would be paid by the insurance company? Actually, it is even worse than that. It is capped at 90K per year. So OP is paying $6.7K *now* per year (and assured to be jacked up as it already got doubled in less than 3 years) just in case insurance company might pay $90K per year. That is astonishingly bad payout ratio.

I am also assuming that the premiums paid so far are the sunk cost and there is absolutely no way to recover them. And if that is the case, the premium paid going forward would be treated similarly. I know some of you are talking about return of the premium etc but is that the case for OP?

What am I leaving out of this seemingly naive calculation?

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Re: Another "Should I self-insure" for LTC Question

Post by smitcat » Mon Mar 05, 2018 10:20 am

wrongfunds wrote:
Mon Mar 05, 2018 10:12 am
In OP's case, there is no fear of running out of her assets in normal circumstances. On the contrary, her draw rate from her assets virtually assure growing assets. Why is this decision not done similar to say $450K term life insurance policy with the premiums being $7K+ and increasing? The answer that every BH will give for this "hypothetically stupid" question is there is no need for the extra $450K to the heirs. Why not then apply the same exact rationale aka there is NO need for that help of $450K "just in case" it is needed. At least with term life insurance, unless elixir of immorality is discovered, the probability of getting the $450K is assured but NOT SO in case of LTC benefits.
You are paying .2%/year of your assets to protect 2.4 million.
I believe that is incorrect. The protection amount is $450K but the assets are 2.5M. How does it make sense to pay say 10 years of $10-20K per year premiums just in case LTC costs of up to $450K would be paid by the insurance company?

I am also assuming that the premiums paid so far are the sunk cost and there is absolutely no way to recover them. And if that is the case, the premium paid going forward would be treated similarly. I know some of you are talking about return of the premium etc but is that the case for OP?

What am I leaving out of this seemingly naive calculation?
"How does it make sense to pay say 10 years of $10-20K per year premiums just in case LTC costs of up to $450K would be paid by the insurance company?"
"What am I leaving out of this seemingly naive calculation?"

- Current value is $450K.
- Curernt premiums are $5,400
- There is a 5% inlfation rider each year

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Re: Another "Should I self-insure" for LTC Question

Post by Top99% » Mon Mar 05, 2018 10:24 am

JBTX wrote:
Mon Mar 05, 2018 9:36 am
From the flip side, if you only need 1.6% of your portfolio the LTC does not strain your retirement and you can afford it. Also it isn’t uncommon to pay more than $7k for health insurance, why is it unacceptable to pay that much for LTC?

I would think I prefer the peace of mind of having it.
The big difference is most health insurance policies don't have a $450K cap on what they will pay out. That difference is what makes LTC of questionable value to me. While OP certainly can afford 1.6% of their portfolio per year for the premium they also have plenty of assets to cover a $450K one time expense. I guess a question I would ask OP is how fast are you drawing down your portfolio? If your portfolio is plenty big relative to your spend rate I would just be tempted to put $450K in TIPS or CD ladder and self insure.
Adapt or perish

wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 10:27 am

- Next year premiums will be 6700; couple of years ago they were in 3100 range as mentioned by OP.
- 450K is not paid as lump-sum but capped at 90K per year.
- The premiums are increasing much faster than 5% from the information given so far. (can we sort of just consider that increase premiums at least even out the 5% inflation rider for this simplified calculation?)
While OP certainly can afford 1.6% of their portfolio per year for the premium
I hope we are NOT talking about 1.6% of the assets for the premium! That would be beyond stupid. I think OP was stating that she only is using 1.6% WR for all of her expenses. If you really thought that paying 1.6% of the 2.4M portfolio to NOT possibly lose $450K is "reasonable", I am completely speechless :-(

dbr
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Re: Another "Should I self-insure" for LTC Question

Post by dbr » Mon Mar 05, 2018 10:35 am

wrongfunds wrote:
Mon Mar 05, 2018 10:27 am
- Next year premiums will be 6700; couple of years ago they were in 3700 range as mentioned by OP.
- 450K is not paid as lump-sum but capped at 90K per year.
- The premiums are increasing much faster than 5% from the information given so far. (can we sort of just consider that increase premiums at least even out the 5% inflation rider for this simplified calculation?)

RE: the other reply
I hope we are NOT talking about 1.6% of the assets for the premium! That would be beyond stupid. I think OP was stating that she only is using 1.6% WR for all of her expenses.
I read that the withdrawal rate is 1.6% and the premium is perhaps 10% of annual spending of perhaps $70K. So relative to ability to spend the premium is very small but relative to actual spending it is looming very large. Hence the question is a sensible one that could be resolved either way.

Also, it would be a mistake to extrapolate recent premium increases indefinitely into the future. The statement is not premiums "are" increasing but premiums "have" increased, up through next year.

wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 10:40 am

But paying say (a least) $7K just in case EVERY SINGLE YEAR, in case it might pay back $90K per year? Isn't that the calculation? Of course once it starts paying $90K, then you won't mind paying $7K in premiums from that payout!

dbr
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Re: Another "Should I self-insure" for LTC Question

Post by dbr » Mon Mar 05, 2018 10:51 am

wrongfunds wrote:
Mon Mar 05, 2018 10:40 am
But paying say (a least) $7K just in case EVERY SINGLE YEAR, in case it might pay back $90K per year? Isn't that the calculation? Of course once it starts paying $90K, then you won't mind paying $7K in premiums from that payout!
So a person might pay for twenty years for a total of $140K (leaving aside NPV approach, opportunity cost, etc.) and get benefits of two years at $90k for a net of $40K. That sort of naive accounting suggests one is in the area of a wash, which is what any insurance is supposed to be on average.

I don't know what the general approach to self insurance problems is, but someone who does might suggest how to apply it in this case. One feature of this insurance is that unlike very low premiums for very large but rare hazards this is a case of large premiums for a nearly certain hazard.

wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 10:55 am

So this is more like the case of pre-paying for LTC rather than insuring for LTC. As you said, insurance only works for very low probability but very high hazard situations.

If LTC is considered "certain hazard", then eventually it will be become either pre-paid or pay-as-you-go basis. May be that is why insurance companies are getting out of them as fast as they legally can?

Question: Has any independent agency (NOT tied to insurance company or research being funded by insurance company) done systematic analysis of the available data on LTC statistics?
Last edited by wrongfunds on Mon Mar 05, 2018 11:00 am, edited 1 time in total.

DrGoogle2017
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Re: Another "Should I self-insure" for LTC Question

Post by DrGoogle2017 » Mon Mar 05, 2018 10:55 am

I dropped mine, but I’m a lot younger and only paid 6-7 years. It’s tough when you paid for LTC for so many years. I don’t know what to advise you, but I think if you continue and need long term care, it would be a wash. As if you pay the same amount in premium as the benefit you are getting. How much have you been paying so far?
Last edited by DrGoogle2017 on Mon Mar 05, 2018 11:01 am, edited 1 time in total.

ChrisC
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Re: Another "Should I self-insure" for LTC Question

Post by ChrisC » Mon Mar 05, 2018 10:58 am

smitcat wrote:
Mon Mar 05, 2018 10:20 am
wrongfunds wrote:
Mon Mar 05, 2018 10:12 am

What am I leaving out of this seemingly naive calculation?
"How does it make sense to pay say 10 years of $10-20K per year premiums just in case LTC costs of up to $450K would be paid by the insurance company?"
"What am I leaving out of this seemingly naive calculation?"

- Current value is $450K.
- Curernt premiums are $5,400
- There is a 5% inlfation rider each year
Also, leaving out:

-if insured is seriously impaired, someone could activate the policy for her and benefits could roll out for her
-when impaired and beginning LTC, no need to make immediate financial decisions, like liquidating or moving funds to pay for LTC

OP premiums are a bit high, but this is primarily a function of OP starting LTCi at 59 and perhaps continuing with a 5% inflation adjustment. Also, we don't know if OP doesn't have a waiting period for benefits to be activated.

I started LTCi at 48, wife at 50, combined we currently pay at ages 64 and 66 around $4300 for current value coverage for each of us of $516K, going forward we have an inflation adjustment of 2.6%. (We lowered our inflation adjustment coverage from 5% to 4% to 2.6%, each time our premium got adjusted upwards; next rate adjustment will be 5 years from now when our rates get re-adjusted -- we have Federal LTCi.)

wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 11:03 am

Also, we don't know if OP doesn't have a waiting period for benefits to be activated.
As mentioned by OP, 3 months waiting period.

For the $516K, what is the annual benefit? Is there any other benefit? Are your premiums sunk cost?

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Re: Another "Should I self-insure" for LTC Question

Post by itstoomuch » Mon Mar 05, 2018 11:09 am

LTCi is deductible as medical expense/insurance, which may affect your decision.
Can you take lesser coverage? Remember the stated coverage is the maximum and not the minimum or lessor coverage.
We have 3 year coverage, 30days (?) deductible with MetLife.
YMMV
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

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Re: Another "Should I self-insure" for LTC Question

Post by ChrisC » Mon Mar 05, 2018 11:15 am

wrongfunds wrote:
Mon Mar 05, 2018 11:03 am
Also, we don't know if OP doesn't have a waiting period for benefits to be activated.
As mentioned by OP, 3 months waiting period.

For the $516K, what is the annual benefit? Is there any other benefit? Are your premiums sunk cost?
OK, I missed that -- seems like a long waiting period. I have 90 days. I haven't done the math for my annual benefit period; I have a daily benefit of $283 with a 5 year maximum (or 1800 plus days). You can find a list of additional benefits here: https://www.ltcfeds.com/programdetails/ ... tserv.html.

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Re: Another "Should I self-insure" for LTC Question

Post by smitcat » Mon Mar 05, 2018 11:19 am

ChrisC wrote:
Mon Mar 05, 2018 11:15 am
wrongfunds wrote:
Mon Mar 05, 2018 11:03 am
Also, we don't know if OP doesn't have a waiting period for benefits to be activated.
As mentioned by OP, 3 months waiting period.

For the $516K, what is the annual benefit? Is there any other benefit? Are your premiums sunk cost?
OK, I missed that -- seems like a long waiting period. I have 90 days. I haven't done the math for my annual benefit period; I have a daily benefit of $283 with a 5 year maximum (or 1800 plus days). You can find a list of additional benefits here: https://www.ltcfeds.com/programdetails/ ... tserv.html.
I think a 30 day waiting period is typically the time you are covered under treatment and extended benefits.

wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 12:18 pm

Is LTCi premiums more like term insurance premiums than whole life insurance premiums? Even if they are "level term", the "level term" duration is short and will be no more than 5 years. This would imply that the current premium depends upon the current age (and other factors) and previously paid premiums have no effect on the current payment. If that is the real case, how does it matter if you start your LTC insurance at age 35 vs you start at age 70?

As I have said before, I am completely naive when it comes LTCi as product but as somebody who has math/engineering background, I want to understand the concept and prefer to make rational rather than emotional or fear-based decisions.

texasgal47
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Re: Another "Should I self-insure" for LTC Question

Post by texasgal47 » Mon Mar 05, 2018 1:08 pm

To provide more portfolio information regarding my specific situation, the portfolio portion at this time for my two heirs is $400,000 in r-ira with an 85/15 AA for that portion only. $860,000 is in t-ira which I consider for my retirement and ltc costs, invested at a 40/60 AA in that account.

In taxable, $900,000 is invested entirely in VTSAX which I have earmarked entirely for heirs due to step up in basis at death. That $900,000 is currently yielding yearly about $15,000 in taxable dividends which are being set aside at this time for rebalancing. By the end of this year there should be almost $70,000 in that MMA. Another $205,000 is in taxable in I-bonds ($95,000 basis) which initially reach maturity in 2030 and are unevenly allocated over 4 consecutive years currently yielding from about 4% to over 6% interest per year. Total portfolio AA is 60/40 with a 5% variance allowed in either direction.

I have no problem using I-bonds, t-ira, taxable dividends, or the home for huge future expenses such as cancer tx or for expensive care. My home value should continue to increase with inflation. If I were to live in LTC or assisted living, my home would be sold immediately to help supplement those expenses. As I see things, my heirs are already set up nicely considering future growth of those two portions alone (r-ira and VTSAX in taxable acct.) allocated strictly for their future use.

If I stop paying into the LTC-i policy, I would instead take about $5000 per yr. to pay additional taxes to convert more funds than originally planned into the roth. Or the funds would be invested in a 500 index fund in taxable where the basis could be easily tracked if I wanted to use those assets (500 index only) in the future as another source for care (provided no bear market at that time). Someone mentioned investing a large amount in cd's in taxable for ltc. That would push me into an even higher Medicare and part D premium bracket. Even tax free minis look like a bad deal for my situation given the low rate of return and the fact that the Medicare premium and Part D are calculated using AGI. A new 500 index fund would increase that as well but I calculate the potential for markedly increased growth would cover the cost of those additional premiums. As you can see, a lot of moving parts to consider if one wants to self-fund.
Last edited by texasgal47 on Mon Mar 05, 2018 2:08 pm, edited 5 times in total.

ChrisC
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Re: Another "Should I self-insure" for LTC Question

Post by ChrisC » Mon Mar 05, 2018 1:17 pm

wrongfunds wrote:
Mon Mar 05, 2018 12:18 pm
Is LTCi premiums more like term insurance premiums than whole life insurance premiums? Even if they are "level term", the "level term" This would imply that the current premium depends upon the current age (and other factors) and previously paid premiums have no effect on the current payment. If that is the real case, how does it matter if you start your LTC insurance at age 35 vs you start at age 70?

As I have said before, I am completely naive when it comes LTCi as product but as somebody who has math/engineering background, I want to understand the concept and prefer to make rational rather than emotional or fear-based decisions.
For the same reason, that premiums for term life insurance rise with your age, namely, there is a greater risk to the insurer that a claim would be made against the policy with the policy paying more than the premiums paid by the insurer. I don't know how the actuaries or underwriters price the policy and risk but I think this is the general idea. I had 10 year guaranteed term life insurance from age 52-62, $500K policy, with an annual premium of $615 but at age 62 the premium spiked to some ridiculous figure in the thousands and adjusted each year so that at age 72, I'd be making an annual payment of $100K.

With LTCi, the underwriting for these policies seem to be fraught with errors initially when this was a new product. I thought I read that underwriting assumed a significant level of "lapsed" policies, i.e. insureds wouldn't be able to claim under the policies because many would not have LTCi coverage as a result of dying suddenly, dying within the waiting period, or some just abandoning/non-renewing coverage. Those assumptions along with poor investment returns for carriers might have derailed suitable premium pricing the product.

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Sheepdog
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Re: Another "Should I self-insure" for LTC Question

Post by Sheepdog » Mon Mar 05, 2018 1:44 pm

cheese_breath wrote:
Sun Mar 04, 2018 10:02 pm
My wife suffered a massive stroke last April when she was 70 (71 now) and will likely be in a nursing home the rest of her life. I don't have LTC insurance on her, and it's costing me well over $6700 per month to keep her there. I hope to be be moving her to Texas soon where the costs are less, but they'll still be more than $6700 for the private room I want for her.
I feel sadness for you and your wife. I hope you find comfort in that people care as I do. I do wish you well. I will add you both in my prayers

Long term care (comfortable care) is what we hope for. That has been in our minds since 1999 when I reached 66 and my wife 59. We both signed with GE Capital (now Genworth) in 1999. She was approved, but I was turned down because there was something in my medical history which they did not like. They would not advise what that was (I assumed it was because of a heart attack which I had in 1998) and it wasn't until 2014 that I found out the real reason... it was because of an erroneous history in a medical file. (A physician, now passed on, had entered in my file that I had a TIA which I did not have. ) Too late now.
So I am self insured sort of. I have set aside some I Bonds which I purchased in 2000 and 2001 which at today's costs will pay for about 3 years of care for me after which other assets would have to be used. (Those bonds are earning close to 6% a year)

For my 78 year young spouse, her Genworth LTC insurance benefits have a 5% inflation rider which now would cover $245 a day with a $358,000 maximum payout, assuming my calculations are correct....at my age I can't be sure!!. (It started out in 1998 at $102 dollars a day with a $148,920 annual maximum.) Those increased benefits for the Genworth company is the big reason the company is in financial trouble, I would assume.

edit: my wife's rates have increased from $1085.28 per year in 1998 to $1549.78 in 2017. That was not very bad.
Last edited by Sheepdog on Mon Mar 05, 2018 2:09 pm, edited 1 time in total.
People should not say everything they think. They should think about everything they say.

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HomerJ
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Re: Another "Should I self-insure" for LTC Question

Post by HomerJ » Mon Mar 05, 2018 2:03 pm

JBTX wrote:
Mon Mar 05, 2018 9:36 am
From the flip side, if you only need 1.6% of your portfolio the LTC does not strain your retirement and you can afford it. Also it isn’t uncommon to pay more than $7k for health insurance, why is it unacceptable to pay that much for LTC?

I would think I prefer the peace of mind of having it.
Peace of mind only comes when costs are known and stable.

If the insurance company can raise the rates significantly year after year, I would get out.

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Re: Another "Should I self-insure" for LTC Question

Post by inbox788 » Mon Mar 05, 2018 2:20 pm

smitcat wrote:
Mon Mar 05, 2018 10:20 am
"What am I leaving out of this seemingly naive calculation?"

- Current value is $450K.
- Curernt premiums are $5,400
- There is a 5% inlfation rider each year
In my WAG estimation, OP has a 5% chance of maxing out the $450k and 5% chance of receiving a significant amount (> 20/25%) of benefit of around $100k. Given what's said about longevity, OP may have an 75-90% chance of paying $5,400 for 10 years and 40-60% chance of paying for 20 years, so $54k and 108k. I don't like these odds and payouts, so I'd be out if they're anywhere near reality.

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Re: Another "Should I self-insure" for LTC Question

Post by JoeRetire » Mon Mar 05, 2018 2:41 pm

FBN2014 wrote:
Mon Mar 05, 2018 9:56 am
westrichj312 wrote:
Mon Mar 05, 2018 8:50 am
drop it as fast as you can and start gifting out your money to your heirs!
I assume you are joking. I sure wouldn't want to be asking my kids for help so I can get the "free" government long term plan.
Some folks seriously think it's a better strategy to make yourself poor so that the taxpayers will be required to fund your long term care.

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Re: Another "Should I self-insure" for LTC Question

Post by JBTX » Mon Mar 05, 2018 3:04 pm

Top99% wrote:
Mon Mar 05, 2018 10:24 am
JBTX wrote:
Mon Mar 05, 2018 9:36 am
From the flip side, if you only need 1.6% of your portfolio the LTC does not strain your retirement and you can afford it. Also it isn’t uncommon to pay more than $7k for health insurance, why is it unacceptable to pay that much for LTC?

I would think I prefer the peace of mind of having it.
The big difference is most health insurance policies don't have a $450K cap on what they will pay out. That difference is what makes LTC of questionable value to me. While OP certainly can afford 1.6% of their portfolio per year for the premium they also have plenty of assets to cover a $450K one time expense. I guess a question I would ask OP is how fast are you drawing down your portfolio? If your portfolio is plenty big relative to your spend rate I would just be tempted to put $450K in TIPS or CD ladder and self insure.
The 1.6% is the percent of her portfolio she is spending, which is very low. My only point was she can comfortably afford the $6900.

If the total benefit is in fact capped, which I didn’t know, it does change the analysis a bit. If the premiums keep increasing and the cap doesn’t the value of the insurance decreases.

As to self insuring you could very well need more than the 450k. You will have to self insure for those amounts above in any case. At least if you have 450k covered that limits your exposure.

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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 3:28 pm

At least if you have 450k covered that limits your exposure.
I would say it cuts down the exposure by 450K. There is NO limit on the expense if that is the way you are looking at it. Come to think of it, if indeed there were NO limit and you were responsible for up to certain large amount, that catastrophic insurance would might be worth it for a typical BH but otherwise currently available options does not seem like good deal.

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Re: Another "Should I self-insure" for LTC Question

Post by texasgal47 » Mon Mar 05, 2018 3:31 pm

Ok, I'm calling the insurance company and will report back with specifics regarding your policy questions. I can tell you that my premiums began at $3000. stayed level for 5 or 6 years, then increased to $3100 and remained stable until this year. Husband was already deceased so that rate was just for me. I have a rider on this policy which allows me to recoup the premiums paid thus far. I think around $31,500. However, the payout on that amount is also prorated over 5 years.

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Re: Another "Should I self-insure" for LTC Question

Post by pintail07 » Mon Mar 05, 2018 3:41 pm

First of all your monthly, daily and annual and lifetime benefit is NOT stuck at 450,000 max benefit, it increases at 5% per year. Additionally, if you went to the open market and bought a similar benefit policy and assuming preferred rates your annual premium would be around 15,000 per year. An asset based plan that provides a one time payment that can't go up and a lifetime benefit and if there are no claims most of the premium is returned.

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Re: Another "Should I self-insure" for LTC Question

Post by itstoomuch » Mon Mar 05, 2018 4:10 pm

more:
I consider our LTCi plan as part of our overall retirement strategy.
With the LTCi, I feel that I can be very aggressive in our investments and retirement portfolio. Consequently, we have just closed (3/2/2018) on another property in the Seattle area (3 rentals total), GLWB annuities (100% equity funds with a tilt to midcaps. 9% CAGR, net of fees of 3.5%), and Discretionary Accts of individual stocks, MF, Index.
Original (2002, 52/55) LTCi purpose was to extend the retirement portfolio, unburden the tasks for the non LTC spouse, and to possibly leave a legacy to our Only. Today, we could theoretically self-insure, but the premiums although increasing and more than doubled original premium and our Only does not need an inheritance.

My father (98) has qualified for LTC, if he had that insurance. His wife is running her self ragged and will not take any suggestions. The house has multiple problems that need to be addressed (furnace is now out). father's wife refuses to any offers of assistance that I have suggested and would pay for. Both are hoarders.

My spouse and I have cared for 4 family members at home, they did not have LTCi. The work is not hard but the mental strain is very tough for the invalid and for the family caregiver(s). I cared for my mother for almost 10 years.

Just got out of the cardiology doctor's office. As I had suspected, I had a series of small heart attacks. Awaiting the nitroglycerine tablets.

Think twice, three, four times before you decide to give up LTCi, especially if you can afford the premiums.
LTCi is our gift to our Only and future spouse.
YMMV
: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

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Re: Another "Should I self-insure" for LTC Question

Post by MathWizard » Mon Mar 05, 2018 4:25 pm

In my case, I will likely have only about 2/3 of your portfolio, and LTCi premiums of 6,700 would be a large expense.

The cap of $450K coupled with rising premiums, would be my biggest concerns.

With $ 2.4 Million, you can certainly handle the $450K which the insurance might pay out.

You are already self-insuring for the initial 30 or 90 day waiting period, and for anything higher than the
max payout (apparently currently $450K ).

I also don't trust insurance companies to look out for my best interests, and if I need long term care,
I will be less capable of pursuing payment.

Because of this I keep the premium, and accept the risk of self-insuring for the first $450K as well as the rest.

I came from a family that had grandparents stay with us, and we did the same for my wife's parents. This may
be a cultural thing, or just that we were all poor. My kids have seen that model as well. I have told them that
we will not need financial help, but may need other kinds of help.

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Re: Another "Should I self-insure" for LTC Question

Post by DorothyB » Mon Mar 05, 2018 4:28 pm

JoeRetire wrote:
Mon Mar 05, 2018 8:59 am

Yes, that's what it means.
All LTCi policies have a maximum benefit.
Not all :) I bought a FLTCIP plan just over 10 years ago. The maximum benefit is "unlimited". Like the OP, the premiums have gone up. In my case, they go up every 5 years. I've been opting to decrease the daily benefit and keep the premiums the same. I haven't decreased the auto inflation.

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Re: Another "Should I self-insure" for LTC Question

Post by blush2112 » Mon Mar 05, 2018 4:36 pm

wrongfunds wrote:
Mon Mar 05, 2018 10:12 am
unless elixir of immorality is discovered
Where can I get that?!

texasgal47
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Re: Another "Should I self-insure" for LTC Question

Post by texasgal47 » Mon Mar 05, 2018 5:43 pm

pintail07, you are correct. There is no cap on the maximum benefit per a call I just made to my LTCi company. Can you tell me more about the cost of a one time payment for an asset based plan, with lifetime benefits, and most of the premium returned if no claims? If I renew my policy this year, unchanged, current coverage is $7,330.03/month ($87,960.36/yr) x 5 years ($439,801.55/maximum benefit).

Here are the numbers if the following parameters are changed:
--Reduction of benefit period from 5 to 3 yrs, holding monthly payout and 5% inflation growth the same ($263,881.08 Maximum Benefit in 2018).
Premium in 2018: $3,584.16 -- in 2019: $5,304.24

-- Change elimination period from 90 days to 365 days with all other parameter unchanged: 2018 premium: $4116.12 2019 premium: $6091.44
( I realize that 2019 premium doesn't make sense, and questioned her about that. Not much gain for a huge reduction in probable payout.)

-- Reduce monthly benefit back down to $4560.90/month ($54,730/yr -- $273,654 Maximum Benefit) keeping all other parameters the same: 2018 premium: $2851.68 2019 premium: $4,020.16 (This option makes sense as I could pay for care with my current income but allows for future inflation on top of that.) Now that we have some real life numbers, I'm hoping you mathematical gurus can advise further.)

wrongfunds
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Re: Another "Should I self-insure" for LTC Question

Post by wrongfunds » Mon Mar 05, 2018 5:56 pm

With the newer information provided, I take my previous suggestion back. OP, you should continue with it. I don't think if you were to try to purchase something similar today, it will be nowhere near the terms that you are getting.

I am still not understanding how you have been told that "there is no limit" but the term specifically list the lifetime cap! Lifetime cap is the *limit*.
LTCi is our gift to our Only and future spouse.
Huh, what??

EnjoyIt
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Re: Another "Should I self-insure" for LTC Question

Post by EnjoyIt » Mon Mar 05, 2018 6:34 pm

This is a math and statistics question:

According to AARP
AARP reports that, of people who reach age 65, 48% (43% of men, 53% of women) will require some form of LTC in their lifetime (because of illness and/or disablement that interferes with daily activity). Of these 27% will need care for 2 years or less; 12% will need care for 2-5 years; and 14% will require at least 5 years of care. Women have a slightly higher percentages. Of people needing LTC, women needing care longer than 5 years is 18%.
Basically what this means is that you have a 14.3% chance of needing long term care of 2-5 years and a 9.54% chance of needing care greater than 5 years. If nursing home care is even as high as $100k/yr at your location you can easily afford 2-5 years. You also have a 9.54% chance of requiring care for greater than 5 years. If you save the premiums for the next 5-10 years you will have no problem paying for any care that might arise. In addition since you are living on 1.6%/yr of your 2.4 million, that will very likely continue to grow over the next 5-10 years. The odds of living more than 10 years in a nursing home is a fraction of a percent. The odds needing nursing home care, and needing the care for more than 10 years, and having a poor sequence of returns in the market all happening at once is almost 0. I like those odds and would drop the long term care insurance ASAP.

Another way to look at it. You have $2.4 million. If you spent $20k/yr from SS and another $80k/yr from your accounts. That money will last you for 30 years in a long term care facility. Lets face it. You have enough money to self insure.

texasgal47
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Re: Another "Should I self-insure" for LTC Question

Post by texasgal47 » Mon Mar 05, 2018 6:43 pm

Wrongfunds, "no limit" is probably incorrect phrasing. There is no limit on the number of years that the 5% inflation will continue. If the insured lives to 103 and meets policy criteria for triggering payouts, the Maximum Benefit will continue to increase accordingly, as long as the current premiums continue to be paid.

When you said you would continue to pay premiums, do you mean without any benefit reduction? I don't think I want to pay a $15,000 premium in 10 years.

Enjoy it, my experience working in LTC supports the data you just listed. That was the way I saw the situation. The odds of needing at most 2 - 3 years care are significantly in my favor. And the funds are there if expenses do continue. To repeat what you just stated -- Current earnings support assisted living or LTC costs at this time. Inflation will continue to increase those costs, but the value of the portfolio should continue to increase as well. Also, huge medical expenses would decrease the large amount I currently pay in taxes, especially with increasing RMDs. This would help heirs in reducing taxes on the estate (less t-ira and interest remaining on I bonds).

Also, I strongly favor having increased funds available when I need it, and at the rate that is needed, not when a company doles it out.
Last edited by texasgal47 on Mon Mar 05, 2018 7:14 pm, edited 1 time in total.

westrichj312
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Re: Another "Should I self-insure" for LTC Question

Post by westrichj312 » Mon Mar 05, 2018 6:44 pm

Last post is right on the money.

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