Diogenes wrote: ↑
Thu Oct 05, 2017 11:50 am
Nate79 wrote: ↑
Thu Oct 05, 2017 11:01 am
I think LTCi has been confused for a way to fund long term care as opposed to fund a low probability event yet very high cost case of needing long term care (where assets may be depleted). If long term care becomes a high probability need then premiums must go up. There is no free lunch.
True. But at the moment, LTCI seems much like dental insurance. More like prepaying your care and hoping you can weather the huge premium increases until the time you might need it. The difference is that there are not many brokers hovering wanting to sell you a faulty dental plan so as to pocket a quick commission. But unlike dental coverage, the few remaining policies that are sold by the insurance salesman are sold based on fear, not results.
This in undoubtedly due to the poor risk/return for these companies due to the fewer and fewer willing to buy them. If that weren't true, many other insures would be selling it.
There is no free lunch, true. But there also should be clarity and less fear-based selling. The average stay in a care facility is about a year, not three years.
The goal when buying insurance, in my opinion, is to try to buy insurance
instead of a high-expense-ratio forced-savings product. That's why long elimination periods (with the savings from the long elimination period devoted towards a longer number of years of coverage) make the product more be like catastrophic insurance. One then gets the benefits of risk pooling.
The long elimination period comes with a potential high bill: paying for one year in a nursing home could cost $100k+, and that is what might happen with a long elimination period. People would of course need to have savings to cover this. Also, those who get this sort of catastrophic coverage would need to understand that it will not cover all care costs and will likely not even cover most costs.
This sort of strategy seems reasonable in my opinion, though you may want to change it to "some LTCI MAY be better than none", as for many, no LTCI could be the best route
. Those with few assets who can't afford premiums, and those with a lot who could easily self-pay, likely shouldn't get LTCI, in my opinion.
3port wrote: ↑
Thu Oct 05, 2017 1:06 am
SOME LTC is better than NONE, so don't think you need to purchase a Cadillac plan. In old age, you will have your investments + Social Security + pension to cover some of your costs. Think of it as a 4-legged stool with LTC the 4th leg.
One could combine SS/Pensions/Annuities into a single "leg" of the stool, and investments into a second "leg". The third leg could be LTCI. One could find the amount that one can afford to devote towards long term care by adding up income (from SS/Pensions/Annuities) plus 4% of assets (if 4% is used as a sustainable withdrawal rate... 3% may be more conservative). Converting this annual amount to a per diem amount is often helpful. If one has $140/day in income and expects to be able to sustainably withdrawal $130/day from the portfolio in old age, then the total that this person would be able to sustainably spend on care costs without depleting their assets would be $140+$130=$270. Potential costs are (in current dollars) probably around $200-300 per day for a nursing home, and possibly up to $400+/day for round-the-clock in-home care. There ares some studies in this area (for example: https://www.genworth.com/dam/Americas/U ... 092717.pdf
) that show potential costs. Also, at some point if in home care is desired it becomes simple math: if $20/hour home health aide services are envisioned for 24 hours per day, $20x24=$480/day would be needed. Of course, a policy that covers $480/day is almost certainty unaffordable, so if in home care is strongly preferred and assets+income are $270/day, then a $480-$270= $210/day policy may be reasonable. If the insured does not have a strong desire to remain at home, it may be harder to make the case for LTCI. Note that in this case, the LCTI would be only one leg of the stool, a separate, large emergency fund would have to pay for a long elimination period, and $100,000+ in premiums would be paid in to a policy that one may or may not see benefit from. LTCI is a very individual decision and should be based on one's own circumstances, desires, goals, and finances.
There is no denying that catastrophic outcomes are possible. A person who saved for decades in hopes of passing some savings on for future generations could instead spend $1,500,000 on out of pocket costs. (Patients with Alzheimers, stroke, Parkinson's, or other conditions may need 10+ years of $150,000/year care). Although many people will end up having no need for long term care, and although many of those who do need care will not need it long enough to satisfy the elimination period or will only need a year or two of coverage.
LTCI is a decision that I feel people need to evaluate carefully. It isn't for everyone - and indeed, it is likely that this is a product only suitable for very few.
, in my opinion. However, given that premiums could cost six figures and given that care expenses could cost seven figures, it is something that one should take seriously. Whether or not one decides to buy LTCI, engage in medicaid planning, or self-insure, being informed about one's plans is likely better than the alternative: the "ostrich with the head in the sand" option.
pintail07 wrote: ↑
Thu Oct 05, 2017 8:07 am
We already know how the sellers calculate.
How do they calculate different than the buyers?
Please note that my opinions are just that - uninformed opinions. My only experience with this area is with previously helping a close family member with an LTCI decision. I feel that some sellers have the potential to focus on calculating their commissions too much and don't spend enough time seeing if LTCI is or is not
a good option for the buyer. That forces the buyer to have to do the legwork themselves to be informed of all options, do careful calculations, and carefully read the policies. Since truly doing the math is very difficult, many buyers are sadly hoodwinked by unscrupulous salespeople. (Note that I am referring to the risks of potentially unscrupulous financial or insurance salespeople in general; I am not intending to evaluate or imply anything about any specific individual. Many experts such as Ferri or Swedroe are valued members of the Boglehead community) . Some salespeople may add value if they are impartial and highly ethical. However, of course, sellers working for a company would only discuss their company's policies, when another company may provide more value. When a buyer solicits quotes from several companies, few can provide assistance to that buyer to impartially compare. Maybe this is a case where a financial planner, who doesn't sell anything, yet is experienced in this area, and solely makes money by doing custom planning on an hourly basis, could help. Sadly, in this country, such a person is very rare.