Long Term Care insurance premium increase

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Topic Author
fyre4ce
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Long Term Care insurance premium increase

Post by fyre4ce »

Asking for a friend: male, age 69, retired, net worth very roughly $2M ($1M liquid + $1M equity spread between two properties). Collecting modest Social Security, maybe $1,400/mo. Frankly, he probably lives beyond his means with regard to traveling and spending, but that's a separate problem I don't think I can fix. Also, liquid assets are probably invested way too risk-ily for his situation, mostly individual stocks from what I can tell. Again, I don't think I can fix that. He got a notice recently about a large premium increase for his long term care insurance policy, from $1,360 to $1,840 annually. The notice offers several options to deal with it, besides accepting the increase:
  1. Reduce monthly benefit from $6,900 to $5,100 (26%, same proportion as premium increase) and keep $1,360/yr premium
  2. "Shared cost option", which involves reducing monthly benefit by just 12% to $6,100, and also requiring the insured to pay 12% of any covered services; the $6,100/mo cap applies to the insurer's portion
  3. "Reduce future annual inflation rate", from 1.8% to 0.7% (whatever that means)
  4. "Paid-up policy option", which involves capping the total policy benefit at $37,000 (150% of his total premiums paid to this point) and paying no further premiums. Monthly benefit limit still applies, and no future inflation adjustments, but policy otherwise remains the same.
There is no surrender option listed. We can ask about one, but given this friend's financial situation I wonder if LTC insurance is more of a need.

Edit: The insurance company states that the policy limit is $6.9M, so effectively an unlimited benefit.

I understand very little about LTC insurance. The future annual inflation rate reduction in particular is confusing. I would expect that this would apply only in the case that LTC care is started. Then, the monthly benefit gets increased with inflation so you can receive the same quality of care. If that's correct, it seems like the best choice by far - how many years are people in LTC facilities? Usually not enough where inflation would become a dominant factor. But, I worry this also somehow also applies to the "pre-benefit" portion of the policy, and would have adverse consequences I'm not seeing. The shared cost option could be reasonable. The paid-up option is basically canceling the policy, and if he needs it that $37k will be blown through very quickly. Although, given his spending habits and high chance of getting butchered in the next market crash, maybe this is the best choice - save the premiums, expecting that he'll be close to broke by the time he would need this coverage, and then let Medicaid pick up the bill. I know, there is a moral hazard problem, but he's already in this situation. Anyone have a suggestion on how to proceed?
Last edited by fyre4ce on Fri Jun 11, 2021 11:39 am, edited 1 time in total.
02nz
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Re: Long Term Care insurance premium increase

Post by 02nz »

Not an expert on LTC insurance, but I suspect lots of people would love to pay $1840/year for that kind of coverage (although not all details are given). If someone with $2M net worth is living beyond his means, $40/mo isn't going to make much of a difference.
esteen
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Re: Long Term Care insurance premium increase

Post by esteen »

I didn't see the benefit period or maximum benefit amount in your post. It's $6,900/mo, but for how many months/what max total payout? Compare that to new LTC quotes and that will help you and him understand the value of sticking with his current policy.
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fyre4ce
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Re: Long Term Care insurance premium increase

Post by fyre4ce »

esteen wrote: Wed Jun 09, 2021 11:57 pm I didn't see the benefit period or maximum benefit amount in your post. It's $6,900/mo, but for how many months/what max total payout? Compare that to new LTC quotes and that will help you and him understand the value of sticking with his current policy.
I have no idea actually. I assumed it was unlimited but that may be very wrong. If it matters for this choice, I can ask.
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ResearchMed
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Re: Long Term Care insurance premium increase

Post by ResearchMed »

Ordinarily, I wouldn't like Option 2 at all, and I haven't heard of that type of choice when there's a premium increase to deal with.
Reason is that IF someone couldn't match that co-pay, it seems they might forfeit all benefits - but not sure how that would be handled.
However, the Social Security should cover that, so I wouldn't rule it out in this case.

But yes, we'd need to know more about current benefit levels, including years of coverage and total to be spent by insurer. These are usually linked.

RM
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JoeRetire
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Re: Long Term Care insurance premium increase

Post by JoeRetire »

fyre4ce wrote: Wed Jun 09, 2021 11:39 pm He got a notice recently about a large premium increase for his long term care insurance policy, from $1,360 to $1,840 annually.
Is your friend unable or unwilling to afford a $480/year increase?

Just paying it seems like the obvious choice to me.
Just remember: it's not a lie if you believe it.
delamer
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Re: Long Term Care insurance premium increase

Post by delamer »

JoeRetire wrote: Thu Jun 10, 2021 5:33 am
fyre4ce wrote: Wed Jun 09, 2021 11:39 pm He got a notice recently about a large premium increase for his long term care insurance policy, from $1,360 to $1,840 annually.
Is your friend unable or unwilling to afford a $480/year increase?

Just paying it seems like the obvious choice to me.
That was my thought too. While it’s a big percentage increase, dollar-wise it isn’t too bad.

You should report back on the total benefit payable under the policy. It isn’t likely that it’s unlimited.

The way my policy works, there has been an inflation-based increase in the maximum daily benefit each year since I first took the policy. I imagine that’s the way your friend’s works too. The inflation adjustment doesn’t just go into effect when he starts drawing benefits.
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esteen
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Re: Long Term Care insurance premium increase

Post by esteen »

fyre4ce wrote: Thu Jun 10, 2021 12:40 am
esteen wrote: Wed Jun 09, 2021 11:57 pm I didn't see the benefit period or maximum benefit amount in your post. It's $6,900/mo, but for how many months/what max total payout? Compare that to new LTC quotes and that will help you and him understand the value of sticking with his current policy.
I have no idea actually. I assumed it was unlimited but that may be very wrong. If it matters for this choice, I can ask.
Unlikely it's unlimited: it's usually for 3 years, 5 years, etc. I think this is an important part you will use to assess the value of continuing the coverage and the relative value of the different options.
pshonore
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Re: Long Term Care insurance premium increase

Post by pshonore »

Usually its stated as X $ for Y months. So as an example 8K per month for 48 months = 384K. In CT, you'd have to come up with addtional 240K because the avg cost is around 13K/month. If your in a low cost state (say 6K per month) it would pay for 64 months total.
Topic Author
fyre4ce
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Re: Long Term Care insurance premium increase

Post by fyre4ce »

I should get an answer on lifetime limits tomorrow. Thanks to all who replied; more to come.
Topic Author
fyre4ce
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Re: Long Term Care insurance premium increase

Post by fyre4ce »

pshonore wrote: Thu Jun 10, 2021 1:48 pm Usually its stated as X $ for Y months. So as an example 8K per month for 48 months = 384K. In CT, you'd have to come up with addtional 240K because the avg cost is around 13K/month. If your in a low cost state (say 6K per month) it would pay for 64 months total.
Confirmed with the friend that there is a policy limit of $6.9M, which looks to be just about 1000 months (83 years) of benefit, so effectively unlimited. It also looks like the premium has been the same for a while, and one he's been paying on for a long time (I estimate 20 years based on the numbers he's provided). He lives in the Houston area, and he thinks he can get decent long-term care for that $6,900/mo price. Assuming that's correct, this is probably a really good policy, so maybe he should just pay the higher premium and keep the full benefit. It does raise the question to me about what limits there are for any more future premium increases, though.
Topic Author
fyre4ce
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Re: Long Term Care insurance premium increase

Post by fyre4ce »

delamer wrote: Thu Jun 10, 2021 10:16 am
JoeRetire wrote: Thu Jun 10, 2021 5:33 am
fyre4ce wrote: Wed Jun 09, 2021 11:39 pm He got a notice recently about a large premium increase for his long term care insurance policy, from $1,360 to $1,840 annually.
Is your friend unable or unwilling to afford a $480/year increase?

Just paying it seems like the obvious choice to me.
That was my thought too. While it’s a big percentage increase, dollar-wise it isn’t too bad.

You should report back on the total benefit payable under the policy. It isn’t likely that it’s unlimited.

The way my policy works, there has been an inflation-based increase in the maximum daily benefit each year since I first took the policy. I imagine that’s the way your friend’s works too. The inflation adjustment doesn’t just go into effect when he starts drawing benefits.
According to the insurance company, the policy limit is $6.9M, and given that's over 80 years of benefit I'd call that effectively unlimited.

It also looks like the policy is ~20 years old, which probably explains why the benefit/premium ratio is so high. I think this is the first premium increase they have foisted on him.

And I think you're right, the premium has been staying the same but the monthly benefit has been increasing with inflation. In 20 years (insured age 89) the decrease in inflation rate would be the difference between $7,900 (=6900*1.007^20) and $9,900 (=6900*1.018^20).

I'm thinking it makes sense to pay the higher premium and keep the full benefit, he can probably afford it, given the relatively low dollar cost going forward compared to his net worth, and the high benefit. I just worry about more future premium increases, and whether this could be "giving a mouse a cookie".
delamer
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Re: Long Term Care insurance premium increase

Post by delamer »

fyre4ce wrote: Fri Jun 11, 2021 11:38 am
delamer wrote: Thu Jun 10, 2021 10:16 am
JoeRetire wrote: Thu Jun 10, 2021 5:33 am
fyre4ce wrote: Wed Jun 09, 2021 11:39 pm He got a notice recently about a large premium increase for his long term care insurance policy, from $1,360 to $1,840 annually.
Is your friend unable or unwilling to afford a $480/year increase?

Just paying it seems like the obvious choice to me.
That was my thought too. While it’s a big percentage increase, dollar-wise it isn’t too bad.

You should report back on the total benefit payable under the policy. It isn’t likely that it’s unlimited.

The way my policy works, there has been an inflation-based increase in the maximum daily benefit each year since I first took the policy. I imagine that’s the way your friend’s works too. The inflation adjustment doesn’t just go into effect when he starts drawing benefits.
According to the insurance company, the policy limit is $6.9M, and given that's over 80 years of benefit I'd call that effectively unlimited.

It also looks like the policy is ~20 years old, which probably explains why the benefit/premium ratio is so high. I think this is the first premium increase they have foisted on him.

And I think you're right, the premium has been staying the same but the monthly benefit has been increasing with inflation. In 20 years (insured age 89) the decrease in inflation rate would be the difference between $7,900 (=6900*1.007^20) and $9,900 (=6900*1.018^20).

I'm thinking it makes sense to pay the higher premium and keep the full benefit, he can probably afford it, given the relatively low dollar cost going forward compared to his net worth, and the high benefit. I just worry about more future premium increases, and whether this could be "giving a mouse a cookie".
If this is a 20-year old policy with no previous premium increases, then I agree that he should keep the policy.

The future is an unknown, but why cancel now because of that? He isn’t going to be able to find a comparable policy at a comparable price that also isn’t subject to unknown future premium increases. Although I suppose he could shop around.
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Topic Author
fyre4ce
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Re: Long Term Care insurance premium increase

Post by fyre4ce »

delamer wrote: Fri Jun 11, 2021 1:45 pm If this is a 20-year old policy with no previous premium increases, then I agree that he should keep the policy.

The future is an unknown, but why cancel now because of that? He isn’t going to be able to find a comparable policy at a comparable price that also isn’t subject to unknown future premium increases. Although I suppose he could shop around.
Thanks. It's hard for me to tell what's going on with the premium. It looks like a level-premium structure, but why are the rates increasing? I'd guess this is going on. The insurance company is probably finding that their actuarial assumptions were off when they issued this type of policy, so applied for a rate increase with their state agency. Good to know it's not targeted at this particular insured, or a cash grab or something. I'm strongly thinking I should recommend he accept the premium increase. Any other opinions?
Silk McCue
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Re: Long Term Care insurance premium increase

Post by Silk McCue »

Even with this increase this is an exceptionally priced policy given the benefit level and the fact that it will payout for decades if need be. Pay the difference, it is small change money in the scheme of things.

Cheers
delamer
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Re: Long Term Care insurance premium increase

Post by delamer »

fyre4ce wrote: Fri Jun 11, 2021 3:10 pm
delamer wrote: Fri Jun 11, 2021 1:45 pm If this is a 20-year old policy with no previous premium increases, then I agree that he should keep the policy.

The future is an unknown, but why cancel now because of that? He isn’t going to be able to find a comparable policy at a comparable price that also isn’t subject to unknown future premium increases. Although I suppose he could shop around.
Thanks. It's hard for me to tell what's going on with the premium. It looks like a level-premium structure, but why are the rates increasing? I'd guess this is going on. The insurance company is probably finding that their actuarial assumptions were off when they issued this type of policy, so applied for a rate increase with their state agency. Good to know it's not targeted at this particular insured, or a cash grab or something. I'm strongly thinking I should recommend he accept the premium increase. Any other opinions?
It could be like some term life insurance policies where the premium is fixed for a number of years, and then if you want to continue the policy it jumps.
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Mr.BB
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Re: Long Term Care insurance premium increase

Post by Mr.BB »

That cost is very reasonable (including the rate increase) for an annual LTC policy. I would never reduce (#3) the inflation rate protection part.
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