Need Help Understanding LTC Quote

[Zunka]

After reading many forum posts on this topic, I am still struggling with the basic math. Hopefully someone can explain

Background:
55 year-old with ~$3.7m in retirement and brokerage account. Paid-off house. No other debt.

I want to consider purchasing LTC insurance for myself. Unfortunately, spouse is currently uninsurable for at least 5 years due recent melanoma surgery.

LTC Details:
I got quotes from NY Life and Nationwide. Both are pretty similar.

Annual Premium: $8500 Premium Payment Period: 10 years Total Premium: $85,000

Total LTC Benefit on Day 1: $380,000..................At Age 70: $600,000.........At Age 85: $940,000
Maximum monthly LTB benifit on Day 1: $5,000......At Age 70: $7,800........... At Age 85: $12,000
LTC Benefit Period: 6 years
Inflation Protection: 3%
Death Benefit if LTC unused: $120,000 Guaranteed Minimum Death Benefit: $24,000

My Questions:

For paying $85,000 premium, I am getting a LTC benefit of $380,000, $600,000 and $940,000 at age 65, 70 and 85 respectively.

If I were to invest $85,000 on my own to self-fund any LTC needs, there is no realistic way I can match the LTC Benefit amounts mentioned above. I will have to get an annual return in excess of 15%.

So purchasing $85,000 premium LTC policy provide a significantly better option.

What am I missing?

[bsteiner]

You’re assuming that the chance of collecting the full amount of the coverage is 100%.

[RetireWhen]

You’re assuming that the chance of collecting the full amount of the coverage is 100%.

And the insurer is banking on the fact that most will not collect 100% and some will collect 0%. Put all those in a pool and they can then pay a few 100%.

[Rex66]

Especially since you need to qualify for benefits and go through the exclusion time period

If I can’t do 1 activity of daily living, if I want I can pay someone to assist. The policy won’t pay a dime until 2 and I wait 90 days or whatever.

This is a hybrid policy by the way. Straight policies give more coverage per dollar but no death benefit or surrender value. You are in essence buying two insurance products with hybrids.

[WoW2012]

After reading many forum posts on this topic, I am still struggling with the basic math. Hopefully someone can explain

Background:
55 year-old with ~$3.7m in retirement and brokerage account. Paid-off house. No other debt.

I want to consider purchasing LTC insurance for myself. Unfortunately, spouse is currently uninsurable for at least 5 years due recent melanoma surgery.

LTC Details:
I got quotes from NY Life and Nationwide. Both are pretty similar.

Annual Premium: $8500 Premium Payment Period: 10 years Total Premium: $85,000

Total LTC Benefit on Day 1: $380,000..................At Age 70: $600,000.........At Age 85: $940,000
Maximum monthly LTB benifit on Day 1: $5,000......At Age 70: $7,800........... At Age 85: $12,000
LTC Benefit Period: 6 years
Inflation Protection: 3%
Death Benefit if LTC unused: $120,000 Guaranteed Minimum Death Benefit: $24,000

My Questions:

For paying $85,000 premium, I am getting a LTC benefit of $380,000, $600,000 and $940,000 at age 65, 70 and 85 respectively.

If I were to invest $85,000 on my own to self-fund any LTC needs, there is no realistic way I can match the LTC Benefit amounts mentioned above. I will have to get an annual return in excess of 15%.

So purchasing $85,000 premium LTC policy provide a significantly better option.

What am I missing?

Why are you only considering hybrids?
If you're healthy, you'll get a much better value with a traditional LTCi policy.

[WoW2012]

You’re assuming that the chance of collecting the full amount of the coverage is 100%.

And the insurer is banking on the fact that most will not collect 100% and some will collect 0%. Put all those in a pool and they can then pay a few 100%.

The two policies he's looking at have a guaranteed minimum death benefit.
Everybody's gonna die.

[WoW2012]

Unfortunately, spouse is currently uninsurable for at least 5 years due recent melanoma surgery.

Depending upon the stage and/or Clark's level, she could be insurable between 3 months and 24 months after the surgery.

[Zunka]

Unfortunately, spouse is currently uninsurable for at least 5 years due recent melanoma surgery.

Depending upon the stage and/or Clark's level, she could be insurable between 3 months and 24 months after the surgery.

Provided the details to the Medical Underwriter at both NY Life and Nationwide. So unfortunately, that waiting period is at least 5 years.

[Zunka]

Let me answer your questions:

My assumption for this financial analysis is to collect 100% of the policy benefit.

The quote and benefit for traditional LTC policy were similar. Therefore, want to consider only Hybrids. I used Fidelity Advisory services to get the quotes. So, there is a possibility they are only showing quote favorable to them.

From what I understand, the insurer is banking that not all will collect 100%, some will be 0% and most in between. That would explain my question.

The quotes have a list of activities that you should not be able to do on your own to qualify for claim. It seems clear to me. Of course, if you only cannot do a subset then you are out of luck. That is probably another catch.

[WoW2012]

Depending upon the stage and/or Clark's level, she could be insurable between 3 months and 24 months after the surgery.

Provided the details to the Medical Underwriter at both NY Life and Nationwide. So unfortunately, that waiting period is at least 5 years.

fyi... every company has a different way of looking at health history.
Just because NY Life and Nationwide say it's a "5 year wait" doesn't mean every company would say that.

for example, you should contact, depending upon your state of residence: National Guardian, Mutual of Omaha, Thrivent, Bankers Life & Casualty, Brighthouse, etc...

Their underwriting guides say 3 months to 24 months depending upon the stage.

[WoW2012]

The quote and benefit for traditional LTC policy were similar. Therefore, want to consider only Hybrids.

OMG!
This is impossible.
A hybrid policy is AT LEAST twice as expensive as a traditional LTC policy (often 3x to 4x more expensive than a traditional LTC policy).
If the premiums were comparable, then the "advisors" were NOT comparing apples to apples.

You need to contact an independent agent who specializes in long-term care insurance.

[WillRetire]

Are you certain that the 3% inflation is compounded? If so, this looks like a good policy.

[Rex66]

The quote and benefit for traditional LTC policy were similar. Therefore, want to consider only Hybrids.

OMG!
This is impossible.
A hybrid policy is AT LEAST twice as expensive as a traditional LTC policy (often 3x to 4x more expensive than a traditional LTC policy).
If the premiums were comparable, then the "advisors" were NOT comparing apples to apples.

You need to contact an independent agent who specializes in long-term care insurance.

Yep impossible
Nobody is giving you free permanent insurance.

[furwut]

You’re assuming that the chance of collecting the full amount of the coverage is 100%.

2.2 years: Average duration of long-term-care need for men who require long-term care.

Morningstar:100 Must-Know Statistics About Long-Term Care: 2023 Edition

[Zunka]

Are you certain that the 3% inflation is compounded? If so, this looks like a good policy.

Yes. It is.

[Zunka]

The quote and benefit for traditional LTC policy were similar. Therefore, want to consider only Hybrids.

OMG!
This is impossible.
A hybrid policy is AT LEAST twice as expensive as a traditional LTC policy (often 3x to 4x more expensive than a traditional LTC policy).
If the premiums were comparable, then the "advisors" were NOT comparing apples to apples.

You need to contact an independent agent who specializes in long-term care insurance.

OK. Will do. I live in NJ. Thanks for the advice.

[Zunka]

You’re assuming that the chance of collecting the full amount of the coverage is 100%.

2.2 years: Average duration of long-term-care need for men who require long-term care.

Morningstar:100 Must-Know Statistics About Long-Term Care: 2023 Edition

Interesting stats. Thanks for sharing.

[WoW2012]

The quote and benefit for traditional LTC policy were similar. Therefore, want to consider only Hybrids.

OMG!
This is impossible.
A hybrid policy is AT LEAST twice as expensive as a traditional LTC policy (often 3x to 4x more expensive than a traditional LTC policy).
If the premiums were comparable, then the "advisors" were NOT comparing apples to apples.

You need to contact an independent agent who specializes in long-term care insurance.

OK. Will do. I live in NJ. Thanks for the advice.

There are some excellent policies available for sale in NJ.

[WoW2012]

You’re assuming that the chance of collecting the full amount of the coverage is 100%.

2.2 years: Average duration of long-term-care need for men who require long-term care.

Morningstar:100 Must-Know Statistics About Long-Term Care: 2023 Edition

Male #1: four months of care
Male #2: five months of care
Male #3: six months of care
Male #4: seven years of care
Average male: 2.2 years of care
Which male are you?

[crefwatch]

Do you understand that an 85-year old man is much less likely to be alive long enough to use up $940,000 of benefits? It is therefore not the good deal you may think it to be.

[WoW2012]

Do you understand that an 85-year old man is much less likely to be alive long enough to use up $940,000 of benefits? It is therefore not the good deal you may think it to be.

1) The purpose of the insurance is to pay the benefits WHENEVER he might need care. He doesn't have to wait to age 85 to receive LTC benefits from the policy.
2) With these hybrids, if he doesn't need care, his heirs will receive the $120K death benefit.
3) And, if you think an 85-year old won't live to see his 90th birthday, you should take a tour of some of your local assisted-living facilities.

[skepticalobserver]

Does the policy cover home care? Those who qualify for LTC insurance benefits tend to live longer at home than those who reside in a skilled nursing or assisted living facility.

[WoW2012]

Does the policy cover home care? Those who qualify for LTC insurance benefits tend to live longer at home than those who reside in a skilled nursing or assisted living facility.

99% of LTCi policies today include home care benefits.

[Zunka]

Thank you all for your insight.

[Zunka]

The quote and benefit for traditional LTC policy were similar. Therefore, want to consider only Hybrids.

OMG!
This is impossible.
A hybrid policy is AT LEAST twice as expensive as a traditional LTC policy (often 3x to 4x more expensive than a traditional LTC policy).
If the premiums were comparable, then the "advisors" were NOT comparing apples to apples.

You need to contact an independent agent who specializes in long-term care insurance.

OK. Will do. I live in NJ. Thanks for the advice.

There are some excellent policies available for sale in NJ.

Are there any reliable directory or groups to find local LTC agents? Rather than just searching online

[WoW2012]

Are there any reliable directory or groups to find local LTC agents? Rather than just searching online

No. And don't limit your search to "local LTC agents". If you had a rare disease would you go to a local doctor? No. You've find a specialist in that particular disease even if the specialist was 1,000 miles away.

LTC insurance requires a unique type of specialization.

Your first step is to read up on the subject.
Your second step is to interview at least a half dozen agents that you find online.

Don't request quotes from any website that says they will put you in touch with an agent. Those sites are nothing more than "lead sellers".

Find websites with agents who specialize in long-term care insurance and on their websites they post their insurance license numbers.

Then get quotes from at least three of the agents.
Learn something from each agent.

The best agents will provide you with quotes for the three main types of policies and explain to you the advantages and disadvantages of each:

traditional LTCi policies (expecially long-term care partnership)
"easy to qualify for" policies
asset-based policies.

[Silk McCue]

When researching policies for my wife and I many years ago I came across ltcshop.com run by Scott Olson. He is licensed widely across the US and is an expert in the field. We owned a Private Duty Home Health agency taking care of the elderly wherever they resided and I new that my wife and I would benefit from an appropriate policy to protect us financially should one or both of us eventually need significant long term care.

We bought our policies through them just a few years ago and I have recommended them to others here. I recommend you check him out. He is low key and extremely knowledgeable.

Cheers

[Manny1066]

After reading many forum posts on this topic, I am still struggling with the basic math. Hopefully someone can explain

Background:
55 year-old with ~$3.7m in retirement and brokerage account. Paid-off house. No other debt.

I want to consider purchasing LTC insurance for myself. Unfortunately, spouse is currently uninsurable for at least 5 years due recent melanoma surgery.

LTC Details:
I got quotes from NY Life and Nationwide. Both are pretty similar.

Annual Premium: $8500 Premium Payment Period: 10 years Total Premium: $85,000

Total LTC Benefit on Day 1: $380,000..................At Age 70: $600,000.........At Age 85: $940,000
Maximum monthly LTB benifit on Day 1: $5,000......At Age 70: $7,800........... At Age 85: $12,000
LTC Benefit Period: 6 years
Inflation Protection: 3%
Death Benefit if LTC unused: $120,000 Guaranteed Minimum Death Benefit: $24,000

My Questions:

For paying $85,000 premium, I am getting a LTC benefit of $380,000, $600,000 and $940,000 at age 65, 70 and 85 respectively.

If I were to invest $85,000 on my own to self-fund any LTC needs, there is no realistic way I can match the LTC Benefit amounts mentioned above. I will have to get an annual return in excess of 15%.

So purchasing $85,000 premium LTC policy provide a significantly better option.

What am I missing?

Quick and easy answer: you do NOT need LTC insurance and shouldn't be looking at it

Your paid-off house will likely be the vehicle by which you pay for a nursing home, if you even need it. I do not have the exact statistics, but a pretty low percentage of people end up collecting on these policies, and it is typically the woman/wife after the husband has died (and never used the policy). If the surviving spouse has to go to a nursing home, the house is going to have to be sold regardless. And if the proceeds are $500,000+, that is 4-5 years of top-level care paid in full.

My father had a LTC policy, developed vascular dementia, and was dead within 4 months of diagnosis. Even though he received some nursing home care, the policy was never tapped. It was a huge waste of money.

your 3.7 million in retirement funds can produce $150,000+ of income per year, easily, without you ever touching principal. So the underlying investments will grow in value by the time you hit age 70+. You have no debt

don't let someone sell you a LTC policy: no mathematics is going to show that you need this

[WoW2012]

Quick and easy answer: you do NOT need LTC insurance and shouldn't be looking at it

Your paid-off house will likely be the vehicle by which you pay for a nursing home, if you even need it. I do not have the exact statistics, but a pretty low percentage of people end up collecting on these policies, and it is typically the woman/wife after the husband has died (and never used the policy). If the surviving spouse has to go to a nursing home, the house is going to have to be sold regardless. And if the proceeds are $500,000+, that is 4-5 years of top-level care paid in full.

My father had a LTC policy, developed vascular dementia, and was dead within 4 months of diagnosis. Even though he received some nursing home care, the policy was never tapped. It was a huge waste of money.

your 3.7 million in retirement funds can produce $150,000+ of income per year, easily, without you ever touching principal. So the underlying investments will grow in value by the time you hit age 70+. You have no debt

don't let someone sell you a LTC policy: no mathematics is going to show that you need this

$150K per year?
If one spouse needs to live on the $150K, if the other spouse needs care, they'll need to begin to sell off assets, no?
If the spouse who needs care wants to receive his/her care at home, selling off the house is probably not a good idea, right?

As usual, this reply is "it's usually the wife" and "no one needs care for that long" yada yada yada.

I've said it before and I'll say it again.
Most of the people who decide against LTCi are using the right side of their brains, not the left side.

[Kenkat]

I think this type of policy is meant to address what I see are two major issues with traditional LTC policies:

1) The future premiums are unknown and can be increased
2) If you don’t use it, you see no benefit at all from it

So in order to address this, companies have created a “10 pay” policy where you pay a set amount for 10 years then you are done and also will pay out a death benefit that it sounds like would basically be the equivalent of a bad whole life policy that would show a 1-2% return over your remaining lifespan. Not great, but at least you get some of your money back.

If I was an agent selling insurance, I think this type of policy would be an easier sell than a traditional LTC policy for the above reasons.

The real question is, do you need the insurance? My personal opinion is that if you are a Bogleheads of multi 7 figure means, you can probably self insure. But it’s a personal decision because if you do need LTC for any period of time, it is very very expensive.

[WoW2012]

I think this type of policy is meant to address what I see is two major issues with traditional LTC policies:

1) The future premiums are unknown and can be increased
2) If you don’t use it, you see no benefit at all from it

1) Google Rate Stability Regulation. It doesn't mean that traditional LTCi policies can't have rate increases. But, the regulation DOES penalize the insurance company if they request a rate increase AND it doesn't allow any profit to be priced into a rate increase.

2) What form of insurance pays a benefit if you don't use it? Auto? Medical? Home? I'm not sure why some people think they need to get something from their long-term care insurance if they never need to make a long-term care claim? "I refuse to buy auto insurance that won't pay me a death benefit if I never make a claim!" Does that make sense?

[Kenkat]

I think this type of policy is meant to address what I see is two major issues with traditional LTC policies:

1) The future premiums are unknown and can be increased
2) If you don’t use it, you see no benefit at all from it

1) Google Rate Stability Regulation. It doesn't mean that traditional LTCi policies can't have rate increases. But, the regulation DOES penalize the insurance company if they request a rate increase AND it doesn't allow any profit to be priced into a rate increase.

2) What form of insurance pays a benefit if you don't use it? Auto? Medical? Home? I'm not sure why some people think they need to get something from their long-term care insurance if they never need to make a long-term care claim? "I refuse to buy auto insurance that won't pay me a death benefit if I never make a claim!" Does that make sense?

On question 1, rate increases are a concern - whether regulated or not. I see a lot of situations where rates, justified or not, increase over time and become unaffordable.

On question 2, that is a valid point. That said most people will file one or more auto claims, homeowner claims and medical claims in their lifetime. So you pay and the perception is that you get something in return. One that is different is term insurance. But there, you pay a relatively small premium for a lot of coverage. The high premiums of LTC insurance are a barrier to adoption. You pay a lot for a substantial benefit that, in my experience at least, the odds say you aren’t going to use for a long enough period of time to make it worthwhile.

There is both a logical component and an emotional component to any insurance purchase. I’ve made up my mind where I stand but it’s a personal decision and each person should decide what is important to them.

[WoW2012]

I think this type of policy is meant to address what I see is two major issues with traditional LTC policies:

1) The future premiums are unknown and can be increased
2) If you don’t use it, you see no benefit at all from it

1) Google Rate Stability Regulation. It doesn't mean that traditional LTCi policies can't have rate increases. But, the regulation DOES penalize the insurance company if they request a rate increase AND it doesn't allow any profit to be priced into a rate increase.

2) What form of insurance pays a benefit if you don't use it? Auto? Medical? Home? I'm not sure why some people think they need to get something from their long-term care insurance if they never need to make a long-term care claim? "I refuse to buy auto insurance that won't pay me a death benefit if I never make a claim!" Does that make sense?

On question 1, rate increases are a concern - whether regulated or not. I see a lot of situations where rates, justified or not, increase over time and become unaffordable.

On question 2, that is a valid point. That said most people will file one or more auto claims, homeowner claims and medical claims in their lifetime. So you pay and the perception is that you get something in return. One that is different is term insurance. But there, you pay a relatively small premium for a lot of coverage. The high premiums of LTC insurance are a barrier to adoption. You pay a lot for a substantial benefit that, in my experience at least, the odds say you aren’t going to use for a long enough period of time to make it worthwhile.

There is both a logical component and an emotional component to any insurance purchase. I’ve made up my mind where I stand but it’s a personal decision and each person should decide what is important to them.

Before making a decision about LTCi, you may want to make sure you have the facts straight.

1) Rather than assuming you understand the Rate Stability Regulation, you may want to research it. A policy purchased today has an extremely low probability of a rate increase.

2) Over 1 million people have received benefits from their long-term care insurance policies. And there are tens of millions more who needed care and would've qualified for benefits if they had actually owned a policy.

[simas]

I think this type of policy is meant to address what I see is two major issues with traditional LTC policies:

1) The future premiums are unknown and can be increased
2) If you don’t use it, you see no benefit at all from it

1) Google Rate Stability Regulation. It doesn't mean that traditional LTCi policies can't have rate increases. But, the regulation DOES penalize the insurance company if they request a rate increase AND it doesn't allow any profit to be priced into a rate increase.

2) What form of insurance pays a benefit if you don't use it? Auto? Medical? Home? I'm not sure why some people think they need to get something from their long-term care insurance if they never need to make a long-term care claim? "I refuse to buy auto insurance that won't pay me a death benefit if I never make a claim!" Does that make sense?

1) how sure how are you contradicting to what @Kenkat said - does Rate Stability somehow negates the laws math or guarantees no rate increases? of cause not... while not a bad idea by itself (to help stabilize the market) , math is math and if it takes higher premiums to keep companies solvent (due to higher costs), the regulators would be first ones demanding it (and then approving it). You state 'extremely low probability of rate increase' - for how long ? a decade? two decades? exactly, you do not know and cannot predict. if costs go up 100%, rates will go up 'stability regulation' or not, again, this is math.

2) absolutely agree. I never got the 'would you like fries with it' attitude of bundling - if I am wanting life insurance, I get life insurance. if not, I am not shopping life insurance, I am not interested in pitch of it along with a different product...

[Rex66]

its actually kinda sad that insurance companies were previously allowed to include a bunch of profit in rate increases. actually shows how much pull they have in most states.

in regards to rate stabilization. WoW is an agent but still hes going to be correct that the odds going forward are less.

The reason is that there are only certain factors at play. Keep in mind that these companies pay a specific amount per day for the most part. It doesnt matter if the cost of the care goes up to a zillion dollars, they arent paying more. So that particular big issue is a non issue for them.

The factors for them are the following:
1. their internal costs of doing business. They can go up like having to pay more people to answer the phone etc. But its not likely to be astronomic so not likely a crazy factor.
2. the amount they can safely get on their money. This does change and is one of the reasons why so many policies had issues. Now they have to use projections based on what they are currently getting. Interest rates are higher than they were a few years ago but not as high as when this problem kicked off.
3. Lapse rates. You have to love how insurance company totally got this one wrong. They make a product that they tell everyone they should buy and keep and then are surprised when people dont lapse the same as they do for whole life where over 85% do. They literally used permanent insurance lapse rates and got away with this assumption at first. They arent allowed to do that any more. They literally planned for almost everyone to buy the product but get rid of it later before they needed it.
4. Percentage of people who will need care. This hasnt changed much but it could still be in play.

Its just that the factors that lead to this have been greatly reduced so the odds have to be lower. Still with all insurance products its based on the claims capabilities of the company and then possibly the state insurance guaranty assoc but they take forever it seems to settle things.

This is all why these companies now try to sell hybrids/asset based or whatever you want to call instead of what it is which is permanent insurance WL or UL or an annuity with a ltc rider. They love those products better than straight ltci bc its better for them.

[WoW2012]

1) how sure how are you contradicting to what @Kenkat said - does Rate Stability somehow negates the laws math or guarantees no rate increases? of cause not... while not a bad idea by itself (to help stabilize the market) , math is math and if it takes higher premiums to keep companies solvent (due to higher costs), the regulators would be first ones demanding it (and then approving it). You state 'extremely low probability of rate increase' - for how long ? a decade? two decades? exactly, you do not know and cannot predict. if costs go up 100%, rates will go up 'stability regulation' or not, again, this is math.

Your most important point is correct: math is math.
Everything else you stated is wrong.

If costs go up 100% LTC insurance rates will NOT go up 100%.
Why? Because the insurance company knows exactly how much they will have to pay for each day of care 10 years from now, 20 years from now, 30 years from now, 40 years from now, even 50 years from now.

If my policy has a monthly benefit of $10,000 and a 3% compound inflation protection, the insurance company knows that 24 years from now, the most they will pay for each month of care is $10,000 plus 3% compounded growth for 24 years (which = $20,000) (because math is math, you know).

If my monthly benefit is $20,000 and the cost of care at that time is $21,000 per month, the insurance company will only pay me $20,000 per month.

If my monthly benefit is $20,000 and the cost of care at that time is $25,000 per month, the insurance company will only pay me $20,000 per month.

If my monthly benefit is $20,000 and the cost of care at that time is $30,000 per month, the insurance company will only pay me $20,000 per month.

After all, math is math.

I'm sure I've posted this here before, but, please read the following so that you can at least familiarize yourself a little about how the Rate Stability Regulation works:


41 states have enacted strict pricing regulations to help curb rate increases. It is called the “Rate Stability Regulation.” This regulation helps protect consumers who buy long-term care insurance today.

If your state has passed the "Rate Stability Regulation," these new rules ONLY apply to policies purchased after the Rate Stability Regulation became effective in your state.

UNDER THE OLD RULES
When a rate increase was requested, the insurance company could price normal profit levels into the rate increase. In many cases, a rate increase resulted in increased profits for the insurance company.

UNDER THE NEW RULES
If an insurance company requests a rate increase, it must decrease the profit levels to a cap predetermined by the regulation. Even the rate increase cannot include normal profits, just a small amount to cover administrative costs. Essentially, this regulation removed the profit incentive from rate increases.


UNDER THE OLD RULES
The initial pricing capped profits, but more profit could be made when a rate increase was requested.

UNDER THE NEW RULES
Higher profits are allowed in the initial pricing, but the higher profits can ONLY be kept IF THEY KEEP PREMIUMS LEVEL.


UNDER THE OLD RULES
The insurance companies were NOT allowed to include any “margin for error” in their initial pricing. There was no cushion in the policy if the claims exceeded the original projections.

UNDER THE NEW RULES
Every insurance company is REQUIRED to include a “cushion” in their pricing, which is a margin for error. The goal of the “cushion” is to try to avoid the need for any future premium increases.


UNDER THE OLD RULES
The insurance companies did NOT have to certify the accuracy of their pricing assumptions. If their assumptions turned out to be wrong, they would request a rate increase.

UNDER THE NEW RULES
Insurance companies are required to have a qualified actuary who certifies that no premium increases are anticipated over the life of the policy (i.e. 50+ years). This is why they are required to include a “margin for error” in their pricing.

Please note that the new rules ONLY apply to policies purchased after the Rate Stability Regulation became effective in your state.

[TipsQuestions]

If costs go up 100% LTC insurance rates will NOT go up 100%.
Why? Because the insurance company knows exactly how much they will have to pay for each day of care 10 years from now, 20 years from now, 30 years from now, 40 years from now, even 50 years from now.

For an industry that knows everything to a certitude, the number of companies leaving the industry due to losses, or demanding 50% 70% or even 90% premium increases in a single year due to cost surprises sure has been high. I'll be self insuring.

[WoW2012]

If costs go up 100% LTC insurance rates will NOT go up 100%.
Why? Because the insurance company knows exactly how much they will have to pay for each day of care 10 years from now, 20 years from now, 30 years from now, 40 years from now, even 50 years from now.

For an industry that knows everything to a certitude, the number of companies leaving the industry due to losses, or demanding 50% 70% or even 90% premium increases in a single year due to cost surprises sure has been high. I'll be self insuring.

You're a little behind.
Most companies that stopped selling long-term care insurance stopped selling it around 2002. The number of companies selling long-term care insurance since 2002 has been stable (about 10 to 15 companies at any given time in most states).
The important question is:
“Why did so many companies stop selling
long-term care insurance around 2002?”
Four reasons:
1. In December of 2000, the National Association of Insurance Commissioners (NAIC) created a new regulation for long-term care insurance pricing to try to prevent rate increases on newer long-term care insurance policies. The regulation removed the profit incentive from rate increases. This regulation was named the “Rate Stability Regulation.” We discuss this regulation in detail in the very next chapter. It is entitled “Rate Increases! Rate Increases! Rate Increases!” States began to adopt this regulation in late 2001 and 2002. Most insurance companies did NOT like this regulation, so many of them decided to stop selling new long-term care insurance policies shortly after this regulation was adopted.

2. Interest rates dropped after 9/11. Long-term care insurance companies collect premiums and then invest those premiums in safe government and corporate bonds. They collect the interest from the bonds to help pay all future claims. When interest rates dropped after 9/11, many insurance companies determined they could not profitably sell long-term care insurance with low interest rates. That is another reason many insurance companies stopped selling long-term care insurance around 2002.

3. Over the past 30 years, the insurance industry, like most industries, has consolidated to reduce overhead and achieve economies of scale. Many companies selling long-term care insurance merged with or acquired other companies selling long-term care insurance. For example, one long-term care insurance company acquired over 20 other long-term care insurance companies.

4. Many insurance companies are more comfortable with life insurance as a solution to long-term care rather than selling long-term care insurance. That is why, if you ask 20 insurance agents for information on long-term care insurance, 19 will probably give you information on life insurance.
Most companies that stopped selling long-term care insurance around 2002 made that decision for one or more of those four reasons.
Let’s add some more perspective:
In the 1980s, over 400 insurance companies sold medical insurance. How many companies sell medical insurance today? In most states, individual consumers have more companies to choose from for long-term care insurance than for medical insurance. The same is true for disability insurance. In most states, more companies are selling long-term care insurance today than disability insurance.
Today, the companies that sell long-term care insurance specialize in it. They are making a profit, and they know what they are doing. Most insurance companies used to sell dozens of types of insurance. Now, most insurance companies sell only a few types of insurance. They have had to specialize in a few product lines to reduce overhead and increase profits.

[Rex66]

Like I said before it’s more stable

You will know it’s truly stable when they guarantee a rate.

Until then we can just argue about it.

[smitcat]

If costs go up 100% LTC insurance rates will NOT go up 100%.
Why? Because the insurance company knows exactly how much they will have to pay for each day of care 10 years from now, 20 years from now, 30 years from now, 40 years from now, even 50 years from now.

For an industry that knows everything to a certitude, the number of companies leaving the industry due to losses, or demanding 50% 70% or even 90% premium increases in a single year due to cost surprises sure has been high. I'll be self insuring.

Of course that also means the the claims rates are higher and being used. Seems like anyone that has the policies that are fixed and prior to the increase have a very good deal.

[Rex66]

Very few of the ltci (non hybrids) were fixed. Most of those were limited pay policies. They do seem like a decent deal in retrospect. It wasn’t “really the claims rates” they got wrong. It was lapse rates. Now since they didn’t lapse more claimed but not so much a higher percentage of people who were expected to need the care. It’s sort of crazy they got away with the original assumptions.

[WoW2012]

Like I said before it’s more stable

You will know it’s truly stable when they guarantee a rate.

Until then we can just argue about it.

There are policies with guaranteed premiums available for sale in 49 states.
It's a good value in some states... not so good in other states.

[WoW2012]

Very few of the ltci (non hybrids) were fixed. Most of those were limited pay policies. They do seem like a decent deal in retrospect. It wasn’t “really the claims rates” they got wrong. It was lapse rates. Now since they didn’t lapse more claimed but not so much a higher percentage of people who were expected to need the care. It’s sort of crazy they got away with the original assumptions.

They had to use those lapse assumptions.
The regulators would not have allowed different lapse assumptions.
The regulators AND the insurers were wrong.

[Rex66]

No the regulators don’t have the expertise

They rely on the companies and their actuaries

It’s all on the companies

[Rex66]

Like I said before it’s more stable

You will know it’s truly stable when they guarantee a rate.

Until then we can just argue about it.

There are policies with guaranteed premiums available for sale in 49 states.
It's a good value in some states... not so good in other states.

Not even close to guaranteeing level life policies for folks. Not a good deal in almost all states currently.

[WoW2012]

No the regulators don’t have the expertise

They rely on the companies and their actuaries

It’s all on the companies

That's completely false.
Do you really think the insurance departments don't have actuaries on staff?

[Rex66]

No the regulators don’t have the expertise

They rely on the companies and their actuaries

It’s all on the companies

That's completely false.
Do you really think the insurance departments don't have actuaries on staff?

The way you should know it is that there were wildly different rates for let’s say genworth vs NWM. If the state actuaries were calling the show then no way for those huge discrepancies in assumptions. So yes what I said is true. The states just don’t have the resources definition this (like many issues).

[TipsQuestions]

If costs go up 100% LTC insurance rates will NOT go up 100%.
Why? Because the insurance company knows exactly how much they will have to pay for each day of care 10 years from now, 20 years from now, 30 years from now, 40 years from now, even 50 years from now.

For an industry that knows everything to a certitude, the number of companies leaving the industry due to losses, or demanding 50% 70% or even 90% premium increases in a single year due to cost surprises sure has been high. I'll be self insuring.

You're a little behind.
Most companies that stopped selling long-term care insurance stopped selling it around 2002.

Many major players have exited the industry since then - Prudential, MetLife, John Hancock, Genworth (mostly). But my main point was about unexpected rate increases.

[WoW2012]

If costs go up 100% LTC insurance rates will NOT go up 100%.
Why? Because the insurance company knows exactly how much they will have to pay for each day of care 10 years from now, 20 years from now, 30 years from now, 40 years from now, even 50 years from now.

For an industry that knows everything to a certitude, the number of companies leaving the industry due to losses, or demanding 50% 70% or even 90% premium increases in a single year due to cost surprises sure has been high. I'll be self insuring.

You're a little behind.
Most companies that stopped selling long-term care insurance stopped selling it around 2002.

Many major players have exited the industry since then - Prudential, MetLife, John Hancock, Genworth (mostly). But my main point was about unexpected rate increases.

Genworth currently sells LTCi (mostly through employers and direct to consumer).
Genworth is coming out with a new policy next year that independent agents, like me, can sell.

Regarding unexpected rate increases, any policy purchased today has all prior rate increases priced into it already. In other words, someone buying a policy today won't get the big rate increases from the past because today's policies already have the rate increases baked in.

First, here is the bad news:
Any long-term care insurance policy purchased today in your state is the most expensive long-term care insurance policy ever sold by that company in your state.

Second, here is the good news:
Any long-term care insurance policy purchased today in your state is the most expensive long-term care insurance policy ever sold by that company in your state.

Go ahead.
Read it again.
There is no typo.
The bad news is the good news.
The good news is the bad news.

The old (cheaper) policies had big rate increases.
The new (more expensive) policies already include all those rate increases in today’s pricing. That is why the new policies cost so much more than the older policies.
Insurance regulators do NOT allow any policy purchased today to use the old pricing assumptions. All policies purchased today must use the most current claims data and the most accurate pricing assumptions available to date.

Any policy purchased today must already include all the prior rate increases.
That means every policy purchased today is much more expensive than LTCi policies sold 20+ years ago.

For example, if the older policy sold by the insurance company cost $2,000 per year for “Z” benefits and that policy had an 80% rate increase, a new policy with “Z” benefits must be priced at $3,600 per year or more.

Here is how that is calculated:
$2,000 (older policy pricing)
plus 80% (older policy rate increase)
= $3,600 (new policy pricing)

For policies sold in states that have passed the Rate Stability Regulation, the pricing is even more conservative:

Under the Rate Stability Regulation, a policy with “Z” benefits must be priced around $4,032 per year or even more.
Here is how that is calculated:
$2,000 (older policy pricing)
plus 80% (older policy rate increase)
plus ~12% (pricing cushion/margin for error)
= $4,032 (new policy pricing)

That is why I wrote earlier, “Any long-term care insurance policy purchased today, in your state, is the most expensive long-term care insurance policy ever sold by that company in your state.”

That’s bad news, but it’s also good news.

So, you needn't worry.
All of those unexpected rate increases are already priced in today's policies.

[Manny1066]

Quick and easy answer: you do NOT need LTC insurance and shouldn't be looking at it

Your paid-off house will likely be the vehicle by which you pay for a nursing home, if you even need it. I do not have the exact statistics, but a pretty low percentage of people end up collecting on these policies, and it is typically the woman/wife after the husband has died (and never used the policy). If the surviving spouse has to go to a nursing home, the house is going to have to be sold regardless. And if the proceeds are $500,000+, that is 4-5 years of top-level care paid in full.

My father had a LTC policy, developed vascular dementia, and was dead within 4 months of diagnosis. Even though he received some nursing home care, the policy was never tapped. It was a huge waste of money.

your 3.7 million in retirement funds can produce $150,000+ of income per year, easily, without you ever touching principal. So the underlying investments will grow in value by the time you hit age 70+. You have no debt

don't let someone sell you a LTC policy: no mathematics is going to show that you need this

$150K per year?
If one spouse needs to live on the $150K, if the other spouse needs care, they'll need to begin to sell off assets, no?
If the spouse who needs care wants to receive his/her care at home, selling off the house is probably not a good idea, right?

As usual, this reply is "it's usually the wife" and "no one needs care for that long" yada yada yada.

I've said it before and I'll say it again.
Most of the people who decide against LTCi are using the right side of their brains, not the left side.

Let's look at the actual math

The OP isn't retiring tomorrow, and the 3.7 million isn't getting tapped right away. let's say he/she taps it 5-8 years from now.

Unless the market nose-dives in the next few years, that 3.7 mil will easily be 4 million

The OP could do a 4% withdrawal (160k) and collect another 100k+ in interest and dividends in a calendar year. She will have no mortgage payments or debt.

so where are these people going to spend over $260,000 per year? they going to be buying 3-4 automobiles every year?

The OP could keep living at home and easily cover the costs of LTC for his/her spouse. My father-in-law is in a nursing home getting a high-level of care, and it costs 17k per month--which is quite a bit. Even in this scenario, the OP would have 90k+ leftover, with no other debt.

and if he/she needed to tap 5-8% of the portfolio every year to cover these medical expenses, it is easily done

LTC insurance in this scenario makes zero sense and amounts to throwing money away on something they might not even end up using. I would be hard pressed to find a money manager that wouldn't simply say "you should self-insure" in this scenario