LTCi option - whole life w/ Continuation of benefits rider

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spammagnet
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LTCi option - whole life w/ Continuation of benefits rider

Post by spammagnet » Sat Jun 16, 2018 12:40 pm

As are others, we're evaluating LTC insurance and finding the standard options wanting. You're basically buying a pool of money and the cost is pretty much the same as the benefit. In speaking to an insurance agent we discussed our ability to pay for a few years out of pocket, but want to insure ourselves against the catastrophic potential of prolonged care.

He described a policy that is as others here have done, i.e., whole life with a rider. The one he described is a $100K face value second-to-die policy. We have no need of the death benefit. What we get, though, is an unlimited continuation of benefits once we exhaust the face value. The elimination period is 30 days for home care and 60 days for residential care. Longer elimination periods are an option.

His suggestion is to consider paying the life portion as a single premium, with a guaranteed surrender value being essentially the amount of the premium. The continuation of benefit rider can then be paid as 10 or 20 years fixed, or as a continuing premium. Unlike standard LTC policies where the premium can rise on the entire class, the life+rider premium is guaranteed never to go up.

Example policy:
$4000 monthly benefit, 2% annual adjustment, no overall limit

Initial LTC depletes face value benefit. Once exhausted, the lifetime unlimited continuation of benefits rider kicks in. If the first-to-die exhausts the death benefit and gets LTC benefits, the survivor still benefits from the rider. (At least, that's my understanding.) In the unlikely event that the face value weren't exhausted, the remainder would be paid to beneficiaries on death of the second covered party.

Code: Select all

Model
	Base		COB rider	total 
single	$50,788		$55,978 	$106,766 	
10 pay 	 $6,240 	 $6,386 	 $12,626 	
20 pay 	 $3,818 	 $3,765 	  $7,583 	
monthly	 $3,109 	 $3,086 	  $6,195 	

Extended Totals 		

yrs	Base 		COB rider	total
 1	$50,788		$55,978		$106,766
10	$62,400 	$63,860 	$126,260
20	$76,360 	$75,300 	$151,660
30	$93,270 	$92,580 	$185,850
You can combine payment options for the death benefit vs rider. A suggestion was to pay a single premium for the death benefit because you can get virtually of it back as surrender value, then pay the COB rider over the remaining 9 years. E.g., an initial payment of $57.2 K (50.8 + 6.4), followed by 9 more payments of $6.4 K.

I haven't plugged any numbers into my financial plan to compare to my current plan of reserving 100's of $K at end of life. A subjective benefit is the value of avoiding financial catastrophe.

Other than a purely financial analysis, what are the gotchas? The financial viability of the company must be evaluated, of course. What questions should I ask the agent or try to find in a policy?

Thanks in advance.

Edit: I'm reserving about $300 K for each of us at end of life (100 year plan) which is a huge chunk of money. The single premium death benefit + 10 pay continuation rider would be a total of $115 K, which is far less. The policy premium being front-loaded has a bearing on that valuation, of course.

pintail07
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by pintail07 » Sat Jun 16, 2018 5:21 pm

Is the annual adjustment the inflation rider? How old are you and your spouse? Ask the broker what the annual payout would be if you went on claim in 25 years and stayed on claim 3 years? You need to compare with a traditional policy that offers lifetime benefits, only one is available. You might be very surprise at total out of pocket costs. I rarely recommend this type of hybrid if you are healthy. As a broker I went through a learning curve on this product and totally changed my view.

Topic Author
spammagnet
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by spammagnet » Sat Jun 16, 2018 9:16 pm

pintail07 wrote:
Sat Jun 16, 2018 5:21 pm
Is the annual adjustment the inflation rider?
I'm unclear on what you're asking, so it's good that you're asking. Can you elaborate on the question?
How old are you and your spouse?
58 and 62, in good health.
You need to compare with a traditional policy that offers lifetime benefits, only one is available.
I've not found any.

pintail07
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by pintail07 » Sun Jun 17, 2018 1:05 pm

Your broker should be aware and explain to you all options. He should explain the advantages and disadvantages and run multiple scenarios on each option to show total out of pocket costs, that is what my clients expect of me and you should as well. Don't do anything until you fully understand the path you choose. If your broker didn't show you the traditional option of lifetime benefits I would have a different broker.

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Nate79
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by Nate79 » Sun Jun 17, 2018 1:32 pm

It's still whole life.

Reminder:
viewtopic.php?f=2&t=57154

adamthesmythe
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by adamthesmythe » Sun Jun 17, 2018 1:39 pm

pintail07 wrote:
Sat Jun 16, 2018 5:21 pm
You need to compare with a traditional policy that offers lifetime benefits, only one is available. You might be very surprise at total out of pocket costs.
pintail07 has mentioned this type of policy in a previous posting. I don't recall whether the COMPANY was specified. Since this is of great interest to bogleheads I suggest always including a name/ link.

pintail07
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by pintail07 » Sun Jun 17, 2018 4:10 pm

For the same benefit with a 180 day waiting period and a 3% inflation rider, lifetime benefits assuming good health annual premium of 4500.


Topic Author
spammagnet
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by spammagnet » Tue Jun 19, 2018 12:51 pm

That is the underwriter and product I was referred to but I did not have that brochure or details. The fact that it's labeled for producers makes me think I'd never see it from the salesperson I'm corresponding with.

No mention was made of funding source. The possibility of funding it from an IRA makes a big difference in taxes (I'd fund it now while in my highest bracket) but I haven't spent time digging in to details yet.

Thanks.

pintail07
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by pintail07 » Tue Jun 19, 2018 3:39 pm

You can fund from an IRA, I rarely recommend that option if there are other funding choices.

pintail07
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by pintail07 » Tue Jun 19, 2018 4:00 pm

Going to be in for a big surprise when you or spouse goes on claim in 20 or 25 years with these policies. Make sure you understand.

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spammagnet
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by spammagnet » Tue Jun 19, 2018 4:59 pm

pintail07 wrote:
Tue Jun 19, 2018 4:00 pm
Going to be in for a big surprise when you or spouse goes on claim in 20 or 25 years with these policies. Make sure you understand.
I appreciate the warning. That's why I'm researching. If it has a 2% inflation rider and medical care inflation is 4.5%, that's 2.5% compounded over 20 years as a shortfall. Am I wrong? Or is it a 2% of original contracted value increase rather than 2% of current (inflated) value?

pintail07
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by pintail07 » Tue Jun 19, 2018 5:15 pm

At a minimum I would recommend 3% inflation. In addition, the first two years of claims the benefit is the original benefit not with any inflation. That could be a substantial outlay. Initially when I reviewed these products this disadvantage was never explained. When I brought it up to company reps they sort of brushed it off.

Topic Author
spammagnet
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by spammagnet » Tue Jun 19, 2018 8:44 pm

pintail07 wrote:
Tue Jun 19, 2018 5:15 pm
At a minimum I would recommend 3% inflation. In addition, the first two years of claims the benefit is the original benefit not with any inflation. That could be a substantial outlay. Initially when I reviewed these products this disadvantage was never explained. When I brought it up to company reps they sort of brushed it off.
My concern is not for the first year or so of LTC. I will fund that myself and think of it as a deductible. What I'm trying to avoid is the risk of requiring nursing care a long time. I would potentially exhaust my funds and have nothing left to pay for nursing care, or to support my wife, should she survive me.

I'm not sold on this product or any other, for that matter. But, in the sense that it provides (nominally) unlimited benefits after what is effectively a long elimination period, it sounds like what I think I'm looking for. I haven't been exploring this seriously for long, and have spoken to only one agent so far.

Your insight is helpful and appreciated.

Counterpoint
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by Counterpoint » Thu Jun 21, 2018 10:32 pm

I'm no expert on LTCI, but this sounds similar to a "hybrid" LTCI policy. Michael Kitces had an interesting post that points out how the benefit of the guaranteed premium on a hybrid policy can be offset by a below-market rate of return on the cash value:

https://www.kitces.com/blog/is-the-ltc- ... -a-mirage/

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spammagnet
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by spammagnet » Fri Jun 22, 2018 11:22 am

Counterpoint wrote:
Thu Jun 21, 2018 10:32 pm
I'm no expert on LTCI, but this sounds similar to a "hybrid" LTCI policy. Michael Kitces had an interesting post that points out how the benefit of the guaranteed premium on a hybrid policy can be offset by a below-market rate of return on the cash value:

https://www.kitces.com/blog/is-the-ltc- ... -a-mirage/
It is a hybrid policy. In my case, I would not be concerned about the life insurance benefit. I'd be okay with that being $0. The only reason I'd consider the policy is for the potential value as LTC insurance. For that purpose, I view the possible decline in death benefit value as being the equivalent of a deductible on the LTC benefit.

I have not concluded that this policy is desirable but the issues that it addresses are of interest to me.

Thanks for your input.

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Nate79
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by Nate79 » Fri Jun 22, 2018 12:06 pm

Has anyone compared the monthly cost of Whole life/LTC vs just LTC? It's not like WL product has found some magic way to have LTC insurance at a fixed price for life nor found a way to have cheaper LTC premiums.

capjak
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by capjak » Fri Jun 22, 2018 11:07 pm

I am purchasing the Asset Care I from One America, it covers 2 people, paying whole life premium plus 10 annual payments for the rider than it is paid off. You can buy it so that it depletes the whole life benefit within the first 2 years (that is at 0% inflation) than the unlimited LTC benefit kicks in at the monthly benefit you purchased plus compounded at the inflation rate you purchase. Agree 3% would be the minimum if you can afford it.

There is one other company that has lifetime benefit for slightly more /similar $$ but it will grow the entire pool by the inflation rate (National Guardian) as it is traditional LTCi.

pintail07
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by pintail07 » Sat Jun 23, 2018 1:44 pm

capjak wrote:
Fri Jun 22, 2018 11:07 pm
I am purchasing the Asset Care I from One America, it covers 2 people, paying whole life premium plus 10 annual payments for the rider than it is paid off. You can buy it so that it depletes the whole life benefit within the first 2 years (that is at 0% inflation) than the unlimited LTC benefit kicks in at the monthly benefit you purchased plus compounded at the inflation rate you purchase. Agree 3% would be the minimum if you can afford it.

There is one other company that has lifetime benefit for slightly more /similar $$ but it will grow the entire pool by the inflation rate (National Guardian) as it is traditional LTCi.
Did you compare total out of pocket with both policies? Pretty substantial difference. However, the asset care plan returns your money if never used. Most folks that make the comparison are surprised at the huge difference in 20 to 30 years/

capjak
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Re: LTCi option - whole life w/ Continuation of benefits rider

Post by capjak » Sun Jun 24, 2018 7:36 pm

If paying single premium up front cost is $20,000 more for National Guardian but as yo indicate the Asset care could have an out of pocket cost first 2 year of more than that depending on when the event occurs in the future.

Each person needs to investigate for themselves and not do it based on the posts here. Just giving two options for Lifetime benefit.

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