hybrid ltc plan - is it worth it?

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lookingforward2500
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hybrid ltc plan - is it worth it?

Post by lookingforward2500 »

First time poster and have been reading with interest this past year. Thank you for taking a look at our financial situation and hopefully giving us feedback on whether we should consider long term care hybrid insurance to ease a portion of long term care expenses should we ever need it. DH and I are both 57 years old. DH is planning on retiring some time next year. Our healthcare insurance will continue with DH's employer until medicare begins; premium costs should be minimal at under $1000 per year total for both of us. DH will receive a pension of approximately $36,000 per year upon retirement- this pension is not adjusted for inflation - (this is with 75% survivorship for me and pop up to full benefit of around $40,000 for him if I die first). Expected social security at age 70 is about $36,000 per year for DH and about $14,000 for me. We have approximately $3.5 million in taxable and tax deferred accounts. We have recently paid off our mortgage and have no other debts. Our net home value after real estate transaction costs and realtor fees is approximately $1.1 million. We are planning to sell our current home in a HCOL area and moving to a more MCOL area about a year after DH retires from current job. This move means we are planning on adding about $500,000 to our above portfolio from our home sale with the balance of home sale being used to purchase a new home in the more moderately priced area.

Current expenses are now about $70,000 per year. Moving would save us about an additional $10,000 per year in property taxes but other expenses such as travel, gift giving to our children, entertainment and eating out a little more could increase. I would feel comfortable saying we could spend about $120,000 per year or so after taxes, although in reality this number could be much lower. Just like to know we could spend that amount in some years if we chose to. We would like to leave an inheritance for our children one day.

DH and I have been looking into long term care insurance options. We have eliminated from our consideration traditional ltc insurance as we don't like the surprise of premium increases and there is also no death benefit attached if we never use it. So we are only looking at hybrid long term care plans which are basically life insurance plans with an ltc rider. DH does not feel the need to fully fund any long term stay with this insurance alone; rather he just likes the idea of easing the pain on our portfolio by having a portion of each month's ltc payment covered by this hybrid plan. We have mainly been looking at Lincoln Money Guard which is a hybrid plan in that for a one time premium we would pay now, we would get a monthly benefit if needed (no elimination period, 3% compounded interest, 6 year ltc duration). Basically, if we each paid a one time $50,000 premium, if long term care is needed in the first year for one of us, he/she would receive about a $3000 monthly benefit ($37,000 annual, $244,000 total). If ltc is needed in year 15, monthly benefit would be about $4700 ($57,000 annual, $369,000 total). If ltc is needed in year 30, monthly benefit would be about $7400 ($89,000 annual, $575,000 total). And so on. If long term care is never used by individual then death benefit ranges from about $95,000 in year 1 to to about $75,000 in year 10 and stays at $75,000 for the remainder of time. If partial ltc benefit is used, death benefit is reduced accordingly. There is an 80% surrender value at any time.

So basically looking to find out if anyone else has purchased, considered or reviewed this type of policy and if so your thoughts on it and if I am missing anything from consideration or not understanding something. Also want your opinions, based on our finances, if you think this would be a smart use of our money or an unnecessary use of it. DH is very interested in it while I am not so sure it is worth it. When I look at the different scenarios on the expense of long term care for us, the only time I see us not being able to comfortably afford care without insurance is if (1) we either both needed care at the same time or (2) one of us needs care while the other is still living in our house with normal everyday expenses. Otherwise, if it's just one of us living and needing the care, the pension, social security and safe withdrawal from the portfolio should hopefully cover the costs. Of course, there is just as good a chance as both of us being alive when we need the care as only one of us being alive. Thank you so much for taking the time to read this long post and helping us in our decision.
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nisiprius
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Re: hybrid ltc plan - is it worth it?

Post by nisiprius »

I'm going to give an honest but somewhat flip answer. We have "real" LTCi which we bought some years ago when things were more favorable than they are now. I don't have any very good answers on LTCi today.

The whole-life-insurance-with-LTC-rider makes no sense at all to me, and here's my reasoning. Most people don't need whole life insurance at all. If you need whole life insurance, presumably you have a good, coherent reason why you need the death benefit. If you don't need the death benefit, then you shouldn't be buying whole life insurance at all.

Now, the policy probably says clearly on it that the LTC rider is not long-term-care insurance. The insurance company isn't really taking any risk. All they are doing is giving you permission to raid the death benefit in advance of death. But we have already said you shouldn't buy the policy if you don't need the death benefit, and if you have an LTC rider and you raid the death benefit, then it won't be there when you need it. The money you spent on LTC comes out of the death benefit.

The question you need to ask is: if it's OK with me if the bad luck of my needing long-term care deprives my beneficiaries of, say, half the death benefit, why did I think I needed that big a death benefit in the first place?

There's no easy answer on long-term care. It's a very unpleasant thing and a very unpleasant product. It's very expensive because the risk of using it is large, much larger than the risk of a house fire. There's no cheap way to deal with it. Anything that looks like an easy, cheap, convenient alternative has got to have gotchas.
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Topic Author
lookingforward2500
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Re: hybrid ltc plan - is it worth it?

Post by lookingforward2500 »

Thank you nisiprius for your reply. We would not plan on raiding the death benefit at all nor surrendering the policy. We were just thinking that if the ltc part of the policy was never used, at least there was a death benefit attached. But we realize neither the ltc coverage nor the death benefit are as high as if we bought each policy separately.

Would love to hear additional opinions on our situation. Thank you.
ajjulee
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Re: hybrid ltc plan - is it worth it?

Post by ajjulee »

Here is a blog that seems to answer a lot of specific questions from various people regarding ltc in it's comments section. Time frame for the questions is from 5 years ago to a month ago - so some of the information maybe outdated. Hope it helps.

http://longtermcareinsurancepartner.com ... gINWfD_BwE
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Iliketoridemybike
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Re: hybrid ltc plan - is it worth it?

Post by Iliketoridemybike »

WL with a rider makes sense because you either use the LTC, you die and get the death benefit for heirs or charity or you pull cash out for expenses/travel etc. There are a lot of anti WL people who flat out reject it, but for high net worth folks like you, it can make sense.
itstoomuch
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Re: hybrid ltc plan - is it worth it?

Post by itstoomuch »

I'm amblvalent.
Check the conditions to qualify for LTC eligibility. ie 2 weeks in nursing home may be too high of a hurdle.
Hard to forward cast a need. Best guess is that if you would need LTC next year, would this insurance be useful towards your goals. You will need to define the goals.
We have early LTCi. Premiums are certainly increasing and will continue to increase. More than 2x since 2002(?). We have cared for 3 parents +1 sibling at home. Two parents would have qualified for LTC help and would have been greatly appreciated for respite care. My father is now 98, semi mobile with walker and there is no way that he could prepare his meals or dress without his wife's (73) help.
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
pintail07
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Re: hybrid ltc plan - is it worth it?

Post by pintail07 »

I am a LTC I broker and your profile is a good fit for an asset based plan. However, I would advise exploring a plan that pays a lifetime benefit. My clients in similar position seem to be more concerned with a long tail claim like dementia or altzeimer where claims can last 10 years or longer. Your broker should educate you on these plans.
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nisiprius
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Re: hybrid ltc plan - is it worth it?

Post by nisiprius »

lookingforward2500 wrote: Tue Aug 29, 2017 5:46 am Thank you nisiprius for your reply. We would not plan on raiding the death benefit at all nor surrendering the policy. We were just thinking that if the ltc part of the policy was never used, at least there was a death benefit attached. But we realize neither the ltc coverage nor the death benefit are as high as if we bought each policy separately.

Would love to hear additional opinions on our situation. Thank you.
Unless I'm mistaken, which is a distinct possibility because I'm not an insurance professional, the LTC benefit comes directly out of the death benefit. That's what I meant by "raiding the death benefit." That's why the LTC benefit is so uselessly tiny until you've owned the policy for decades. Perhaps the insurance professionals in this thread will elucidate. I'm not sure just how different the LTC benefit is from simply borrowing against the policy to pay for long-term care--there are probably many small ways in which it's better, but conceptually I think it's about the same.

True LTCI is expensive. There's no magic way it can be made cheap simply because it is part of a life insurance policy. It's a big risk and a costly risk and I don't see how you can get around that.

By the way, the uselessly-low benefit in the early years is a problem in itself. We think of nursing homes as being for old people, but spinal cord injuries, for example, can happen at any age.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
pintail07
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Re: hybrid ltc plan - is it worth it?

Post by pintail07 »

Here's the deal with lifetime plan, you pay a premium, when and if you go on claim, your deposit/premium is used first. After that amount is gone the lifetime rider pays the benefit as long as needed. No claims, deposit is returned in the form of a death claim. Benefits are GUARANTEED. No one buys these policies for the death benefit.
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