Self Insuring LTC or Buying LTCI?

[MikeG62]

Hi,

I am just following up on this post (I am the OP).

I have received a number of quotations for LTCi policies from a variety of companies...

Selecting what is right for one's self is not so straightforward. What daily benefit should one select? ...

Selecting the correct benefit period is not straightforward either...

Elimination periods < 180 days can really add to the policy costs...

Selecting the best balance of price and inflation protection with riders is also not easy given that healthcare and the CPI seem to not move in sync...

The one area that makes me a bit nervous is the potential for premium increases across the life of the policy...

Thanks

All good questions. Wow2012 should chime in (he usually does). He is the resident expert here and I am sure can provide a lot of color on your excellent questions.

I too have obtained quotes from a LTC insurance specialist recently. We have a call on Friday to walk through the materials (quotes) he sent me last week. I don't see anything compelling in what he sent, but am open to him educating me otherwise and am trying to go in with an open mind. Quotes were largely from two insurers (NYL and National Guardian Life)

My biggest issues are:

1) Daily benefit seems low - almost all are $200/day ($73K per year) - which would be far below the cost I am trying to insure (extended stay in an assisted and/or memory care facility).

2) Life-time policy benefit seems low as well. For those with a cap, the cap was (well) below $500,000. Half a million dollars of coverage is not the risk I looking to insure against. There are some policies provided with unlimited benefits, but the annual cost cap seems to make that unlimited benefit somewhat irrelevant (given the finite period of time likely to be needed for LTC).

My knowledge of the cost of LTC inpatient care is very limited. My brothers FIL stayed in an assisted living facility on LI for a number of years and annual cost was ~$120,000. This was not memory care. This was several years ago too. So $73,000 not going to get it done. If I need this kind of care, I want it to be the best/nicest facility my spouse or kids can find. Not interested in paying less for a less nice place.

We will see how the call goes Friday...

[willthrill81]

Hi,

I am just following up on this post (I am the OP).

I have received a number of quotations for LTCi policies from a variety of companies...

Selecting what is right for one's self is not so straightforward. What daily benefit should one select? ...

Selecting the correct benefit period is not straightforward either...

Elimination periods < 180 days can really add to the policy costs...

Selecting the best balance of price and inflation protection with riders is also not easy given that healthcare and the CPI seem to not move in sync...

The one area that makes me a bit nervous is the potential for premium increases across the life of the policy...

Thanks

All good questions. Wow2012 should chime in (he usually does). He is the resident expert here and I am sure can provide a lot of color on your excellent questions.

I too have obtained quotes from a LTC insurance specialist recently. We have a call on Friday to walk through the materials (quotes) he sent me last week. I don't see anything compelling in what he sent, but am open to him educating me otherwise and am trying to go in with an open mind. Quotes were largely from two insurers (NYL and National Guardian Life)

My biggest issues are:

1) Daily benefit seems low - almost all are $200/day ($73K per year) - which would be far below the cost I am trying to insure (extended stay in an assisted and/or memory care facility).

2) Life-time policy benefit seems low as well. For those with a cap, the cap was (well) below $500,000. Half a million dollars of coverage is not the risk I looking to insure against. There are some policies provided with unlimited benefits, but the annual cost cap seems to make that unlimited benefit somewhat irrelevant (given the finite period of time likely to be needed for LTC).

My knowledge of the cost of LTC inpatient care is very limited. My brothers FIL stayed in an assisted living facility on LI for a number of years and annual cost was ~$120,000. This was not memory care. This was several years ago too. So $73,000 not going to get it done. If I need this kind of care, I want it to be the best/nicest facility my spouse or kids can find. Not interested in paying less for a less nice place.

We will see how the call goes Friday...

I agree that a daily benefit of $200, especially when only coupled with a 3% inflation rider, could easily be inadequate to fully fund the cost of one's LTC. But the OP's net worth is over $2m and, thus, the financial need for LTCi at all is quite dubious in this situation. The OP certainly doesn't need to have future LTC fully funded by a LTCi policy. Partially funding such potential expenses with LTCi and self-insuring the remainder is perfectly plausible.

[smitcat]

Hi,

I am just following up on this post (I am the OP).

I have received a number of quotations for LTCi policies from a variety of companies...

Selecting what is right for one's self is not so straightforward. What daily benefit should one select? ...

Selecting the correct benefit period is not straightforward either...

Elimination periods < 180 days can really add to the policy costs...

Selecting the best balance of price and inflation protection with riders is also not easy given that healthcare and the CPI seem to not move in sync...

The one area that makes me a bit nervous is the potential for premium increases across the life of the policy...

Thanks

All good questions. Wow2012 should chime in (he usually does). He is the resident expert here and I am sure can provide a lot of color on your excellent questions.

I too have obtained quotes from a LTC insurance specialist recently. We have a call on Friday to walk through the materials (quotes) he sent me last week. I don't see anything compelling in what he sent, but am open to him educating me otherwise and am trying to go in with an open mind. Quotes were largely from two insurers (NYL and National Guardian Life)

My biggest issues are:

1) Daily benefit seems low - almost all are $200/day ($73K per year) - which would be far below the cost I am trying to insure (extended stay in an assisted and/or memory care facility).

2) Life-time policy benefit seems low as well. For those with a cap, the cap was (well) below $500,000. Half a million dollars of coverage is not the risk I looking to insure against. There are some policies provided with unlimited benefits, but the annual cost cap seems to make that unlimited benefit somewhat irrelevant (given the finite period of time likely to be needed for LTC).

My knowledge of the cost of LTC inpatient care is very limited. My brothers FIL stayed in an assisted living facility on LI for a number of years and annual cost was ~$120,000. This was not memory care. This was several years ago too. So $73,000 not going to get it done. If I need this kind of care, I want it to be the best/nicest facility my spouse or kids can find. Not interested in paying less for a less nice place.

We will see how the call goes Friday...

"My brothers FIL stayed in an assisted living facility on LI for a number of years and annual cost was ~$120,000. This was not memory care."
That was more or less what it cost our aunt in Manhasset LI about 10 years back, it was a nice place.

[SheenaTL]

I'll likely self-insure. Simply because statistically, this is like every insurance out there and a negative ROI.

For every feel-good story about parents who were saved from poverty by LTCI, there's a story like my dad who died of a stroke after paying 18 years of LTCI premiums ($2.4k/yr). At a conservative ROI, the opportunity cost is over a year of assisted-living expenses (after tax deduction) that will never be paid out to my mom. So LTCI is very much a YMMV in my statistically-limited first-hand experience. With median stay in assisted living at 22 month (and may have dropped during the pandemic), that does not look like a sound-investment to me especially once you take into account the 90-day exclusion period, the potential issues claiming benefits, and some of the things the LTCI may not pay for.

That being said, it's a bit of the same thing that some people love having their home paid off to feel at ease. It does not make any sense from an investment standpoint to be this much deleveraged but if it makes them sleep better, it may still be worth it to them. But for me, the conclusion is that from a purely statistical standpoint, if you can afford to self-insure (like OP), you should.

[willthrill81]

For every feel-good story about parents who were saved from poverty by LTCI, there's a story like my dad who died of a stroke after paying 18 years of LTCI premiums ($2.4k/yr). At a conservative ROI, the opportunity cost is over a year of assisted-living expenses (after tax deduction) that will never be paid out to my mom. So LTCI is very much a YMMV in my statistically-limited first-hand experience. With median stay in assisted living at 22 month (and may have dropped during the pandemic), that does not look like a sound-investment to me especially once you take into account the 90-day exclusion period, the potential issues claiming benefits, and some of the things the LTCI may not pay for.

To be fair, insurance is not an investment. Rather, it is a means of insuring against some type of downside risk. On average, an individual will be worse off for having had the insurance, though only slightly in most cases.

Part of the problem with LTCi though is that it no longer offers as much 'insurance leverage' as it once did because the likelihood of needing LTC during the course of one's life has gone up substantially. Michael Kitces discussed this well at the link below.

To borrow one of Kitces' analogies, with homeowner's insurance, the cost of the insurance generally, but not always, pails in comparison to the potential claim (i.e., the cost of rebuilding the structure). Ours costs us about $800/year and provides over $400k of protection. Even if we paid those premiums for 30 years, we would have only paid 6% of the replacement cost of the structure. That's fantastic insurance leverage, and it's created by the combination of the low probability of us making a big claim and the large amount of protection. By comparison, the insurance leverage of most LTCi policies is very poor.


https://www.kitces.com/blog/can-increas ... ing-again/

[marcopolo]

For every feel-good story about parents who were saved from poverty by LTCI, there's a story like my dad who died of a stroke after paying 18 years of LTCI premiums ($2.4k/yr). At a conservative ROI, the opportunity cost is over a year of assisted-living expenses (after tax deduction) that will never be paid out to my mom. So LTCI is very much a YMMV in my statistically-limited first-hand experience. With median stay in assisted living at 22 month (and may have dropped during the pandemic), that does not look like a sound-investment to me especially once you take into account the 90-day exclusion period, the potential issues claiming benefits, and some of the things the LTCI may not pay for.

To be fair, insurance is not an investment. Rather, it is a means of insuring against some type of downside risk. On average, an individual will be worse off for having had the insurance, though only slightly in most cases.

Part of the problem with LTCi though is that it no longer offers as much 'insurance leverage' as it once did because the likelihood of needing LTC during the course of one's life has gone up substantially. Michael Kitces discussed this well at the link below.

To borrow one of Kitces' analogies, with homeowner's insurance, the cost of the insurance generally, but not always, pails in comparison to the potential claim (i.e., the cost of rebuilding the structure). Ours costs us about $800/year and provides over $400k of protection. Even if we paid those premiums for 30 years, we would have only paid 6% of the replacement cost of the structure. That's fantastic insurance leverage, and it's created by the combination of the low probability of us making a big claim and the large amount of protection. By comparison, the insurance leverage of most LTCi policies is very poor.


https://www.kitces.com/blog/can-increas ... ing-again/

It's a nice looking graphic, but entirely unrealistic, losing any credibility for whatever point he was trying to make.

Who is paying $30k/yr in premiums for $300k of coverage?

[MikeG62]

Hi,

I am just following up on this post (I am the OP).

I have received a number of quotations for LTCi policies from a variety of companies...

Selecting what is right for one's self is not so straightforward. What daily benefit should one select? ...

Selecting the correct benefit period is not straightforward either...

Elimination periods < 180 days can really add to the policy costs...

Selecting the best balance of price and inflation protection with riders is also not easy given that healthcare and the CPI seem to not move in sync...

The one area that makes me a bit nervous is the potential for premium increases across the life of the policy...

Thanks

All good questions. Wow2012 should chime in (he usually does). He is the resident expert here and I am sure can provide a lot of color on your excellent questions.

I too have obtained quotes from a LTC insurance specialist recently. We have a call on Friday to walk through the materials (quotes) he sent me last week. I don't see anything compelling in what he sent, but am open to him educating me otherwise and am trying to go in with an open mind. Quotes were largely from two insurers (NYL and National Guardian Life)

My biggest issues are:

1) Daily benefit seems low - almost all are $200/day ($73K per year) - which would be far below the cost I am trying to insure (extended stay in an assisted and/or memory care facility).

2) Life-time policy benefit seems low as well. For those with a cap, the cap was (well) below $500,000. Half a million dollars of coverage is not the risk I looking to insure against. There are some policies provided with unlimited benefits, but the annual cost cap seems to make that unlimited benefit somewhat irrelevant (given the finite period of time likely to be needed for LTC).

My knowledge of the cost of LTC inpatient care is very limited. My brothers FIL stayed in an assisted living facility on LI for a number of years and annual cost was ~$120,000. This was not memory care. This was several years ago too. So $73,000 not going to get it done. If I need this kind of care, I want it to be the best/nicest facility my spouse or kids can find. Not interested in paying less for a less nice place.

We will see how the call goes Friday...

I agree that a daily benefit of $200, especially when only coupled with a 3% inflation rider, could easily be inadequate to fully fund the cost of one's LTC. But the OP's net worth is over $2m and, thus, the financial need for LTCi at all is quite dubious in this situation. The OP certainly doesn't need to have future LTC fully funded by a LTCi policy. Partially funding such potential expenses with LTCi and self-insuring the remainder is perfectly plausible.

Just because I have the money to pay for LTC (net worth is multiples of the OP) does not mean I'd like to pay for it - would rather that money go toward an even larger inheritance for my wife/kids. If the economics of the policy make sense I might consider it. However, what I've seen so far is more in line with your comment below about the lack of insurance leverage. I don't want to pay a low six figure amount over my lifetime to get insurance which covers costs up to $350K-$400K. Economics of that are not compelling for me. Even if the policy is has unlimited benefits, I won't be able to use enough of those benefits at the small annual rate of $73K to make the purchase make economic sense IMHO.

I will withhold further judgement and allow the insurance professional to school me on the policies he is presenting.

[willthrill81]

It's a nice looking graphic, but entirely unrealistic, losing any credibility for whatever point he was trying to make.

Who is paying $30k/yr in premiums for $300k of coverage?

While I agree that virtually nobody is paying that $30k/year in LTCi premiums, it was only an illustration of a very valid point.

[willthrill81]

Just because I have the money to pay for LTC (net worth is multiples of the OP) does not mean I'd like to pay for it - would rather that money go toward an even larger inheritance for my wife/kids. If the economics of the policy make sense I might consider it. However, what I've seen so far is more in line with your comment below about the lack of insurance leverage. I don't want to pay a low six figure amount over my lifetime to get insurance which covers costs up to $350K-$400K. Economics of that are not compelling for me. Even if the policy is has unlimited benefits, I won't be able to use enough of those benefits at the small annual rate of $73K to make the purchase make economic sense IMHO.

If you trying to insure a certain minimum amount of wealth for your heirs, then it seems to me that you should determine what that amount is, evaluate the likelihood of LTC and other expenses depleting your assets to that amount, and then consider buying only enough LTCi to insure that that amount is retained.

Regarding the professional you referenced, be aware that he views LTCi as always being appropriate for those with significant assets, which is expected considering that he sells it.

[SheenaTL]

Who is paying $30k/yr in premiums for $300k of coverage?

Not for most homeowners or for LTCI but if you look at flood insurance in areas that get flooded regularly, if it were not for NFIP operating at a loss for them, the premiums could be well over 10% of the coverage. It's an extreme case but illustrates well the point that the risk of needing LTC is much higher than of needing to pay replacement cost for a home.

To be fair, insurance is not an investment.

That depends quite a bit on the definition of an investment especially if you adjust them for risk. If you think in terms of capital/asset protection, what's fundamentally different between investing in negative-yield TIPS and paying LTCI premiums. On average and on the simplest level, both are a guarantee to lose only a manageable amount of money (in risk- and inflation-adjusted $) in exchange for protection of your net worth.

But I agree with the rest of the article. Most people are not so worried about needing to pay for 1-2 years of LTC. They're worried that they are in the 1% who spend 8 years between assisted living and nursing home, just like they are worried about how to recover in the very unlikely event that their house burns down.

[iim7V7IM7]

Policy pricing has significantly increased based on underwriting knowledge today. A policy to fully cover worst case costs such as a 90 day elimination period, $300 day to cover a private nursing home room and two, 5-year periods with a 5% inflation rider is prohibitively expensive.

The same policy with a 90 day elimination period is 125% the premium price of a 180 day elimination period. A 30 day elimination period in the same policy 160% the premium price.

A 5% inflation rider is 167% the premium price of a 3% rider.

Going to 4 years or 5 years benefit period can add 118% and 130% premium pricing vs. a 3 year benefit period. Going to "lifetime" can raise the premium to 230% of a 3 year benefit period.

Going from $200/day to say $240/day raises the premium to 120% (basically, proportional). A $300/day premium for the same benefit period is 150% the premium price.

Looking at the Genworth 2021 survey, home health aides average $170/day, assisted living facilities $150/day and nursing homes are $260/day for a semi-private and $300/day for a private room.

Let's look 20-years in the future with a 5% compound inflation rate for purposes of illustration. Home health aides average $450/day, assisted living facilities $395/day and nursing homes are $690/day for a semi-private and $790/day for a private room. If one purchased $200/day coverage with a 3% inflation rider:

Home Health Aide - $360 of $450/day (~80%)
Assisted Living Facility - $360 of $395/day (~90%)
Semi-Private Nursing Home Room - $360 of $690/day (~50%)
Private Nursing Home Room - $360 of $790/day (~45%)

Considering that 73% of paid expenses are for home healthcare, 18% for assisted living and only 9% for a nursing home, a $200/day daily benefit with a 3% inflation rider will cover most of the home-based or assisted living costs within the chosen benefit period amount (minus elimination period) and about 1/2 of a nursing home should that occur. The former is the more likely need for the policy, while emotionally we think about the later.

We still need liquid reserves to cover a major expense such as a 180 day elimination period. That said, the 180 day elimination period unless it is a stroke of sudden debilitating event is likely to be fulfilled by lower cost per day home or assisted living.

For us, we believe that the income from our portfolio is 85% for discretionary expenses and 15% supplementing ou reliable income. If we have the worst case scenario 20-years from now, we will need $150k/year (5% scenario) or $65k/year (3% scenario) for at most likely a number of years (as someone else highlighted 22 months is the average). This will come from our income generating portfolio.

So it really comes down to how the LTCi is fitting into one's overall plan I suppose. For us, LTCi is not really going to fully cover LTC but will serve to cushion the blow a bit and provide some extra contingency reserves. It us easier to operationalize than a spouse in a crisis situation to liquidate assets. I guess what I am wrestling with is its purpose within our plan and how it and our reserves best work together.

Right now either a $200/day x 2 people each with a 730 day "pools" with a extra 730 day "pool" with a 3% inflation rider

or

a $200/day x 2 people each with a 1095 day "pools"with a 3% inflation rider

20-years from now these $432,000 policies cover $780,000 based on 3% compounding. It will cost about $110,000 over the same 20-years.

are my lead thoughts on coverage for our circumstance.

Regarding AM Best and S&P Insurance Ratings, while it is easy to say, go with the most financially sound company based on ratings; the products offered in terms of their price and coverage may be far from comparable. All things being equal, one would of course favor them. For example, I had two NY Life options presented: 1) had a CPI inflation rider were the premium goes up when the benefit goes up; 2) another where the 3% inflation rider was simple and NOT compounded. I also had a Northwestern Mutual quote where the premium goes up when the benefit went up. Great companies offering expensive products with less coverage but with the benefit of a higher probability of fulfilling the policy. So where the limit is > A, > A+ or > A++ is a difficult one.



From a product perspective, I liked the National Guardian Life product features. That said, it is a good question as to were it will be in 20+ years. It has been around since 1909 originally as Wisconsin State Life Insurance Co.

https://en.wikipedia.org/wiki/National_Guardian_Life

This is their annual report

https://www.nglic.com/Portals/0/2021%20 ... 122014-090

[MikeG62]

Just because I have the money to pay for LTC (net worth is multiples of the OP) does not mean I'd like to pay for it - would rather that money go toward an even larger inheritance for my wife/kids. If the economics of the policy make sense I might consider it. However, what I've seen so far is more in line with your comment below about the lack of insurance leverage. I don't want to pay a low six figure amount over my lifetime to get insurance which covers costs up to $350K-$400K. Economics of that are not compelling for me. Even if the policy is has unlimited benefits, I won't be able to use enough of those benefits at the small annual rate of $73K to make the purchase make economic sense IMHO.

If you trying to insure a certain minimum amount of wealth for your heirs, then it seems to me that you should determine what that amount is, evaluate the likelihood of LTC and other expenses depleting your assets to that amount, and then consider buying only enough LTCi to insure that that amount is retained.

Regarding the professional you referenced, be aware that he views LTCi as always being appropriate for those with significant assets, which is expected considering that he sells it.

You are being too precise. I am not trying to insure a certain amount of wealth transfer. I'd simply would like it to be more than less and if the economics on LTCi are reasonable (they do not appear to be so far) I'd rather those costs get picked up by insurance. It's a directional thing and not something of specificity. I'd rather not spend $1.0 million on LTC (6 years at $150,000 per year or 5 years at $200,000 per year) if those costs can be covered by insurance (which insurance can be obtained at a fair price). We will see how the discussion goes on Friday. I'm skeptical.

[ralph124cf]

About 15 years ago, I was confident that we could self insure for LTC. However my wife was adamant that she wanted a LTCi policy. Happy wife, happy life. We shopped around for quite a while, and the best offer we could get for about $200-220 a day for unlimited time, 5% compound inflation rider, with a one year elimination period, was around $4,200/yr. I didn't care to accept that price. Then the agent mentioned that If I bought a policy also, we would each get about a 40% price reduction. I bought a one year benefit period, $100/day, one year elimination period, no inflation rider, for $283 dollars per year. This reduced my wife's premium to $2,800 per year. Insurer is Genworth, a somewhat lower ranked insurer.

This year we got our first premium increase notice. Premiums will go up 35% over a three year period for the same insurance. They offered reduced premiums for reducing the inflation rider or limiting the years of payments, but NOBODY is offering unlimited time with a 5% inflation rider at any price now. We decided to keep my wife's policy, but drop my one year policy.

I will note that what saved the most for us was the one year elimination period, which does not seem to be available anymore. We can easily pay that out of current assets.

Ralph

[marcopolo]

Just because I have the money to pay for LTC (net worth is multiples of the OP) does not mean I'd like to pay for it - would rather that money go toward an even larger inheritance for my wife/kids. If the economics of the policy make sense I might consider it. However, what I've seen so far is more in line with your comment below about the lack of insurance leverage. I don't want to pay a low six figure amount over my lifetime to get insurance which covers costs up to $350K-$400K. Economics of that are not compelling for me. Even if the policy is has unlimited benefits, I won't be able to use enough of those benefits at the small annual rate of $73K to make the purchase make economic sense IMHO.

If you trying to insure a certain minimum amount of wealth for your heirs, then it seems to me that you should determine what that amount is, evaluate the likelihood of LTC and other expenses depleting your assets to that amount, and then consider buying only enough LTCi to insure that that amount is retained.

Regarding the professional you referenced, be aware that he views LTCi as always being appropriate for those with significant assets, which is expected considering that he sells it.

You are being too precise. I am not trying to insure a certain amount of wealth transfer. I'd simply would like it to be more than less and if the economics on LTCi are reasonable (they do not appear to be so far) I'd rather those costs get picked up by insurance. It's a directional thing and not something of specificity. I'd rather not spend $1.0 million on LTC (6 years at $150,000 per year or 5 years at $200,000 per year) if those costs can be covered by insurance (which insurance can be obtained at a fair price). We will see how the discussion goes on Friday. I'm skeptical.

Please report back.
I am following this discussion with great interest.

[iim7V7IM7]

Just one point of clarification regarding costs and coverage. While I am looking at a relatively modest policy by some members standards

$200/Day Daily Benefit
2-year Benefit Period
3-Pools (3 x $144,000 with one shared)
180 Day Elimination Period
3% Compound Inflation Rider

If I look at this policy say over 25-years and assume that I see two 20% premium increases over that period (simply a guess).

Age------Maximum Benefit----Annual Premium----Total Paid
61------------$432,000----------------$5,500-------------N/A
71------------$580,572----------------$6,600-----------$55,000
76------------$673,042----------------$6,600-----------$88,000
81------------$780,240----------------$7,920-----------$121,000
86------------$904,512----------------$7,920-----------$160,600

The 3% inflation Rider does provide some level of future protection. The third pool allows for asymmetry in need between the two of us. It is a significant cost over time to pay the premium, but I do see it serving both a financial role together with our reserves and portfolio and I believe it is easier to trigger than one of us selling significant assets if needed.

[MikeG62]

Just one point of clarification regarding costs and coverage. While I am looking at a relatively modest policy by some members standards

$200/Day Daily Benefit
2-year Benefit Period
3-Pools (3 x $144,000 with one shared)
180 Day Elimination Period
3% Compound Inflation Rider

If I look at this policy say over 25-years and assume that I see two 20% premium increases over that period (simply a guess).

Age------Maximum Benefit----Annual Premium----Total Paid
61------------$432,000----------------$5,500-------------N/A
71------------$580,572----------------$6,600-----------$55,000
76------------$673,042----------------$6,600-----------$88,000
81------------$780,240----------------$7,920-----------$121,000
86------------$904,512----------------$7,920-----------$160,600

The 3% inflation Rider does provide some level of future protection. The third pool allows for asymmetry in need between the two of us. It is a significant cost over time to pay the premium, but I do see it serving both a financial role together with our reserves and portfolio and I believe it is easier to trigger than one of us selling significant assets if needed.

If the benefit period is "only 2 year"s and the maximum benefit per year is $73,000 ($200 x 365 days) at your current age of 61, what relevance is the maximum benefit amounts listed above?

Yeah, I get the daily maximum will increase by 3.0% compounded, but that does not get anywhere near the maximum benefit amounts quoted above.

More specifically, the daily benefit of $200 at age 61 is $269 at 71 ($98K annual), $361 at 81 ($132K annual) and $419 at 86 ($153K annual).

Maybe I just don't understand the terminology.

[iim7V7IM7]

My bad...adjust $432,000 to $438,000...

His Pool 1 = $200/Day x 365 days x 2-year benefit period = $146,000
Her Pool 2 = $200/Day x 365 days x 2-year benefit period = $146,000
Shared Pool 3 = $200/Day x 365 day benefit period x 2-years = $146,000
Total = $438,000 coverage
Max per person = $292,000 if individual and shared pool is used (= 4 years) it would leave the other beneficiary with 2-years ($146,000). The third pool can be shared in any proportion between the two beneficiaries.

I was using the combined maximum benefit for both people using the shared pool.

Just one point of clarification regarding costs and coverage. While I am looking at a relatively modest policy by some members standards

$200/Day Daily Benefit
2-year Benefit Period
3-Pools (3 x $144,000 with one shared)
180 Day Elimination Period
3% Compound Inflation Rider

If I look at this policy say over 25-years and assume that I see two 20% premium increases over that period (simply a guess).

Age------Maximum Benefit----Annual Premium----Total Paid
61------------$432,000----------------$5,500-------------N/A
71------------$580,572----------------$6,600-----------$55,000
76------------$673,042----------------$6,600-----------$88,000
81------------$780,240----------------$7,920-----------$121,000
86------------$904,512----------------$7,920-----------$160,600

The 3% inflation Rider does provide some level of future protection. The third pool allows for asymmetry in need between the two of us. It is a significant cost over time to pay the premium, but I do see it serving both a financial role together with our reserves and portfolio and I believe it is easier to trigger than one of us selling significant assets if needed.

If the benefit period is "only 2 year"s and the maximum benefit per year is $73,000 ($200 x 365 days) at your current age of 61, what relevance is the maximum benefit amounts listed above?

Yeah, I get the daily maximum will increase by 3.0% compounded, but that does not get anywhere near the maximum benefit amounts quoted above.

More specifically, the daily benefit of $200 at age 61 is $269 at 71 ($98K annual), $361 at 81 ($132K annual) and $419 at 86 ($153K annual).

Maybe I just don't understand the terminology.

[MikeG62]

My bad...adjust $432,000 to $438,000...

His Pool 1 = $200/Day x 365 days x 2-year benefit period = $146,000
Her Pool 2 = $200/Day x 365 days x 2-year benefit period = $146,000
Shared Pool 3 = $200/Day x 365 day benefit period x 2-years = $146,000
Total = $438,000 coverage
Max per person = $292,000 if individual and shared pool is used (= 4 years) it would leave the other beneficiary with 2-years ($146,000). The third pool can be shared in any proportion between the two beneficiaries.

I was using the combined maximum benefit for both people using the shared pool.

That is very helpful color.

So, the benefit period when combined with the shared pool extends out to 4 years in the case of the first spouse to consume both. Still have to deal with the rather low daily cap (low by the standards of what would be charged in the Tri-State area of the North East).

[iim7V7IM7]

My bad...adjust $432,000 to $438,000...

His Pool 1 = $200/Day x 365 days x 2-year benefit period = $146,000
Her Pool 2 = $200/Day x 365 days x 2-year benefit period = $146,000
Shared Pool 3 = $200/Day x 365 day benefit period x 2-years = $146,000
Total = $438,000 coverage
Max per person = $292,000 if individual and shared pool is used (= 4 years) it would leave the other beneficiary with 2-years ($146,000). The third pool can be shared in any proportion between the two beneficiaries.

I was using the combined maximum benefit for both people using the shared pool.

That is very helpful color.

So, the benefit period when combined with the shared pool extends out to 4 years in the case of the first spouse to consume both. Still have to deal with the rather low daily cap (low by the standards of what would be charged in the Tri-State area of the North East).

Exactly, other than the Northeast. We will not be staying in this part of the country. We are moving out west to Colorado or Idaho as of now (TBD).

That said, looking at some of the regional costs, it is pretty expensive in all the areas (Boston appears to be the highest!). For about +$500/year I could buy two, non-sharable 4-year benefit periods (two pools of $292,000 each) from the same company. Probably the best value of all the policies presented to me. What described in the earlier post (3 x 2-year pools of money) could provide up to 4-years for one of us and minimally 2-years for the other. All of these decisions are about where to draw the line on risk, cost and benefit. Decisions regarding company you buy into, the elimination period you choose, the daily benefit selected, benefit period and inflation rider all may differ for individuals.

The statistic today may not be the statistics tomorrow. I suspect the 9% paid to nursing homes by the LTC insurance industry excludes Medicaid and the wealthier self insured. 73% of benefits paid for home aide and 18% paid for assisted living does say something about what is most likely doesn't it? I have been looking in the geriatric literature and much of it is a bit dated (a decade old) and 3-years of combined homecare/assisted living ($225,000) followed by 2-years in a skilled nursing home ($250,000) would represent a probable (not absolute of course) worst case. That in today's dollars might be < $500,000/each if both needed it. So policies like I am looking at might cover 40% of that worst case scenario.

In our case, where only 15% of our portfolio is needed for essential expenses, we are miles from ever qualifying for Medicaid. We are simply trying to find the sweet spot that covers many of the more likely scenarios such as a home aide or assisted living and have partial coverage for a nursing home should it come to that. Also, to make something easier for us to execute at the time of a crisis vs. deciding under constrained circumstances to having to liquidate assets. What the sweet spot is kind of like picking an asset allocation which is a bit different for everyone based on a number of variables.

[tj]

About 15 years ago, I was confident that we could self insure for LTC. However my wife was adamant that she wanted a LTCi policy. Happy wife, happy life. We shopped around for quite a while, and the best offer we could get for about $200-220 a day for unlimited time, 5% compound inflation rider, with a one year elimination period, was around $4,200/yr. I didn't care to accept that price. Then the agent mentioned that If I bought a policy also, we would each get about a 40% price reduction. I bought a one year benefit period, $100/day, one year elimination period, no inflation rider, for $283 dollars per year. This reduced my wife's premium to $2,800 per year. Insurer is Genworth, a somewhat lower ranked insurer.

This year we got our first premium increase notice. Premiums will go up 35% over a three year period for the same insurance. They offered reduced premiums for reducing the inflation rider or limiting the years of payments, but NOBODY is offering unlimited time with a 5% inflation rider at any price now. We decided to keep my wife's policy, but drop my one year policy.

I will note that what saved the most for us was the one year elimination period, which does not seem to be available anymore. We can easily pay that out of current assets.

Ralph

So since you canceled one, do you lose the multi policy discount on the other one that you kept?

[willthrill81]

My bad...adjust $432,000 to $438,000...

His Pool 1 = $200/Day x 365 days x 2-year benefit period = $146,000
Her Pool 2 = $200/Day x 365 days x 2-year benefit period = $146,000
Shared Pool 3 = $200/Day x 365 day benefit period x 2-years = $146,000
Total = $438,000 coverage
Max per person = $292,000 if individual and shared pool is used (= 4 years) it would leave the other beneficiary with 2-years ($146,000). The third pool can be shared in any proportion between the two beneficiaries.

I have a hard time reconciling this with the fact that you should have about $2.8m in retirement, $2m of which is strictly to fund $80k of annual discretionary spending and could easily be used to fund LTC expenses if the need arises.

The maximum combined benefit of the above policy is $438k. That's only 22% of your discretionary portfolio alone. As such, I just don't see how such a policy meaningfully helps you.

We are simply trying to find the sweet spot that covers many of the more likely scenarios such as a home aide or assisted living and have partial coverage for a nursing home should it come to that.

Insurance should normally be chosen to cover unlikely events.

Also, to make something easier for us to execute at the time of a crisis vs. deciding under constrained circumstances to having to liquidate assets.

The policy above has a 180 day elimination period. You would be responsible for funding those first six months of care, so I don't see how the policy enables you to avoid 'liquidating assets' to cover that period.

[iim7V7IM7]

Separate from our investment portfolio that we will be drawing income from we will maintain liquid reserves (more conservatively invested) for both irregular expenses and unplanned legal and medical shocks to pay an elimination period might be 6 months of assisted living or home care and not a nursing home. We will have enough in that account to pay for a 6 month elimination period without touching our investment portfolio.

What exactly are you recommending? Either we self insure or insure for two 5 year benefit period with a 5% inflation rider at $350/day?

[willthrill81]

Separate from our investment portfolio that we will be drawing income from we will maintain liquid reserves (more conservatively invested) for both irregular expenses and unplanned legal and medical shocks to pay an elimination period might be 6 months of assisted living or home care and not a nursing home. We will have enough in that account to pay for a 6 month elimination period without touching our investment portfolio.

Then I don't see why you commented that LTCi would "make something easier for us to execute at the time of a crisis vs. deciding under constrained circumstances to having to liquidate assets." You can just direct the funding that would have gone to discretionary spending to paying for LTC.

What exactly are you recommending? Either we self insure or insure for two 5 year benefit period with a 5% inflation rider at $350/day?

As I said before, a traditional LTC policy with these maximum benefits just doesn't move the needle much. They're a fraction of the funds you've set aside already strictly for discretionary spending. Either you should self-insure, which is what I would certainly do in your position, or you need a policy with a much larger maximum daily and cumulative benefit. Any worthwhile policy at this point should fund at least $100k of LTC annually.

[iim7V7IM7]

How did you determine “worthwhile” = > $275/day (or $100,000/year)?

A two four year benefit period with that level of daily benefit is about $8,200/year with a 180 day enrollment period (> $10,200/year with a 90 day elimination period). This is with a 3% inflation rider and not a 5%. $275/day is akin to a the average daily rate for a semi-private nursing home room. What % of elimination period self funding do most people fund is paid towards a nursing home vs home aide or assisted living expense? The data points to the former for self elimination funding for most. Self insuring, I can understand, but your proposed threshold of daily benefit and period of coverage seems a somewhat subjective personal decision based on your situation.

I suppose I view the LTCi policy as an addition to our liquid savings and our income portfolio. The liquid reserves fund elimination, the policy funds most to all of home aide or assisted living for the benefit period purchased and perhaps about 1/2 of a nursing home if they grow faster than inflation. The other half will come from our income portfolio. I simply view it as an additional pool to help fund the more likely initial scenario and not the worst case.

Separate from our investment portfolio that we will be drawing income from we will maintain liquid reserves (more conservatively invested) for both irregular expenses and unplanned legal and medical shocks to pay an elimination period might be 6 months of assisted living or home care and not a nursing home. We will have enough in that account to pay for a 6 month elimination period without touching our investment portfolio.

Then I don't see why you commented that LTCi would "make something easier for us to execute at the time of a crisis vs. deciding under constrained circumstances to having to liquidate assets." You can just direct the funding that would have gone to discretionary spending to paying for LTC.

What exactly are you recommending? Either we self insure or insure for two 5 year benefit period with a 5% inflation rider at $350/day?

As I said before, a traditional LTC policy with these maximum benefits just doesn't move the needle much. They're a fraction of the funds you've set aside already strictly for discretionary spending. Either you should self-insure, which is what I would certainly do in your position, or you need a policy with a much larger maximum daily and cumulative benefit. Any worthwhile policy at this point should fund at least $100k of LTC annually.

[MikeG62]

Just one point of clarification regarding costs and coverage. While I am looking at a relatively modest policy by some members standards

$200/Day Daily Benefit
2-year Benefit Period
3-Pools (3 x $144,000 with one shared)
180 Day Elimination Period
3% Compound Inflation Rider

If I look at this policy say over 25-years and assume that I see two 20% premium increases over that period (simply a guess).

Age------Maximum Benefit----Annual Premium----Total Paid
61------------$432,000----------------$5,500-------------N/A
71------------$580,572----------------$6,600-----------$55,000
76------------$673,042----------------$6,600-----------$88,000
81------------$780,240----------------$7,920-----------$121,000
86------------$904,512----------------$7,920-----------$160,600

The 3% inflation Rider does provide some level of future protection. The third pool allows for asymmetry in need between the two of us. It is a significant cost over time to pay the premium, but I do see it serving both a financial role together with our reserves and portfolio and I believe it is easier to trigger than one of us selling significant assets if needed.

Did a little quick modeling on the above amounts this morning.

Assume that instead of purchasing this insurance, you invested the monthly premiums at a compound annual return of 7.0%. By my math (quick excel spreadsheet model), here is the pool of money you'd have available to use to cover LTC costs at the age's specified above:

71 = $79,000
76 = $150,000
81 = $249,000
86 = $397,000

Now, let's assume only one of you ended up needing a full four and 1/2 years of LTC (four year combined benefit period plus the 180 day elimination period). Here is the benefit pool available to you again at the ages specified above:

71 = $387,000
76 = $449,000
81 = $520,000
86 = $603,000

Here is the spread (insurance leverage) on those numbers:

71 = $308,000
76 = $299,000
81 = $271,000
86 = $206,000

First obvious takeaway, the earlier you use the benefit, the higher the insurance leverage - duh. However, the likelihood is IF you end up needing the benefit, it is more likely to be later in life than earlier.

So, focusing on age's 81 and 86, you would have given up access to a portion of your portfolio ($249,000 by age 81 and $397,000 by age 86 - using my 7.0% annual return assumption) to have "access to" up to four years of benefits that you are highly unlikely to fully use (but you could use some portion or all of it). Is it worth the "certainty" of giving up a portion of your portfolio to protect you from "possibility" of spending "up to" an incremental $200,000 to $270,000?

I think we all would agree that the odd's are you won't use all that benefit. If you only need the LTC for 2 1/2 years (two years of benefits + the 180 day elimination period), the benefit used at 81 would be $260,000 (vs. $249,000 available from the invested premiums - again at the 7.0% compounded annual return assumption) and at 86 would be $301,000 (vs. $397,000 available from the invested premiums age 86 at the 7.0% return assumption).

Add in as well that if you were paying for these LTC costs out of pocket, the expenses would largely be tax deductible (assuming current tax rules). That tax benefit would effectively reduce your LTC costs by your marginal tax rate. Said another way, the expenses would reduce the insurance leverage figures above. Assume a blended marginal rate of 17% (half at 22% and half at 12%). If you needed to consume the full benefit at age 81 or 86, the tax offset would reduce the insurance leverage by ~$100,000.

Now I could be way off base in my thinking, but if I am right it really causes me to lean in the direction of concluding this insurance is just not worth it for us.

We will see if the insurance expert is able to poke holes in my thinking.

[CloseEnough]

Just one point of clarification regarding costs and coverage. While I am looking at a relatively modest policy by some members standards

$200/Day Daily Benefit
2-year Benefit Period
3-Pools (3 x $144,000 with one shared)
180 Day Elimination Period
3% Compound Inflation Rider

If I look at this policy say over 25-years and assume that I see two 20% premium increases over that period (simply a guess).

Age------Maximum Benefit----Annual Premium----Total Paid
61------------$432,000----------------$5,500-------------N/A
71------------$580,572----------------$6,600-----------$55,000
76------------$673,042----------------$6,600-----------$88,000
81------------$780,240----------------$7,920-----------$121,000
86------------$904,512----------------$7,920-----------$160,600

The 3% inflation Rider does provide some level of future protection. The third pool allows for asymmetry in need between the two of us. It is a significant cost over time to pay the premium, but I do see it serving both a financial role together with our reserves and portfolio and I believe it is easier to trigger than one of us selling significant assets if needed.

Did a little quick modeling on the above amounts this morning.

Assume that instead of purchasing this insurance, you invested the monthly premiums at a compound annual return of 7.0%. By my math (quick excel spreadsheet model), here is the pool of money you'd have available to use to cover LTC costs at the age's specified above:

71 = $79,000
76 = $150,000
81 = $249,000
86 = $397,000

Now, let's assume only one of you ended up needing a full four and 1/2 years of LTC (four year combined benefit period plus the 180 day elimination period). Here is the benefit pool available to you again at the ages specified above:

71 = $387,000
76 = $449,000
81 = $520,000
86 = $603,000

Here is the spread (insurance leverage) on those numbers:

71 = $308,000
76 = $299,000
81 = $271,000
86 = $206,000

First obvious takeaway, the earlier you use the benefit, the higher the insurance leverage - duh. However, the likelihood is IF you end up needing the benefit, it is more likely to be later in life than earlier.

So, focusing on age's 81 and 86, you would have given up access to a portion of your portfolio ($249,000 by age 81 and $397,000 by age 86 - using my 7.0% annual return assumption) to have "access to" up to four years of benefits that you are highly unlikely to fully use (but you could use some portion or all of it). Is it worth the "certainty" of giving up a portion of your portfolio to protect you from "possibility" of spending "up to" an incremental $200,000 to $270,000?

I think we all would agree that the odd's are you won't use all that benefit. If you only need the LTC for 2 1/2 years (two years of benefits + the 180 day elimination period), the benefit used at 81 would be $260,000 (vs. $249,000 available from the invested premiums - again at the 7.0% compounded annual return assumption) and at 86 would be $301,000 (vs. $397,000 available from the invested premiums age 86 at the 7.0% return assumption).

Add in as well that if you were paying for these LTC costs out of pocket, the expenses would largely be tax deductible (assuming current tax rules). That tax benefit would effectively reduce your LTC costs by your marginal tax rate. Said another way, the expenses would reduce the insurance leverage figures above. Assume a blended marginal rate of 17% (half at 22% and half at 12%). If you needed to consume the full benefit at age 81 or 86, the tax offset would reduce the insurance leverage by ~$100,000.

Now I could be way off base in my thinking, but if I am right it really causes me to lean in the direction of concluding this insurance is just not worth it for us.

We will see if the insurance expert is able to poke holes in my thinking.

Interesting. One comment, I think your assumed return of 7% is too high, too optimistic, and you'd get a more realistic view if you used a lower number (4%?). I do agree with your thinking otherwise.

[MikeG62]

Interesting. One comment, I think your assumed return of 7% is too high, too optimistic, and you'd get a more realistic view if you used a lower number (4%?). I do agree with your thinking otherwise.

Fair enough, but consider the return on the S&P 500 since its inception in 1957 is 10.5%. Long-term returns on fixed income probably in the 4%-5% range. Kind of split the difference in using the 7.0% figure. Could skew the investment 80/20 too - especially during the earlier years where you'd have more time to recover from a downturn in equities.

[MDfan]

I looked at the federal LTCI program and a couple of private insurers (MOO & Mass Mutual) and we just decided it wasn't worth it for us for what those policies were going to pay for 3 years. Anything over that was just too expensive. We are in that $2-$3m range where we feel comfortable making the decision to cover whatever LTC we might need out of our investments. I also worked for 30+ years and never really had disability insurance (other than what I would get from the federal govt which I don't think was much). The only insurance we've ever had are the basics (auto, life when the kids were younger, health) where the risks of an event are much greater.

[smitcat]

Interesting. One comment, I think your assumed return of 7% is too high, too optimistic, and you'd get a more realistic view if you used a lower number (4%?). I do agree with your thinking otherwise.

Fair enough, but consider the return on the S&P 500 since its inception in 1957 is 10.5%. Long-term returns on fixed income probably in the 4%-5% range. Kind of split the difference in using the 7.0% figure. Could skew the investment 80/20 too - especially during the earlier years where you'd have more time to recover from a downturn in equities.

If you know you are going to get 7% and not need any care until age XX its fairly easy to calculate.
Many folks might be concerned that these assumptions would not hold true.

[willthrill81]

How did you determine “worthwhile” = > $275/day (or $100,000/year)?

Because the maximum combined benefit for both you and your spouse is only 22% of the portion of your assets you've devoted to funding discretionary spending only, and it's an even smaller percentage of your overall wealth. That provides a little additional protection but not much.

How likely do you believe it is that you will deplete your $2m 'discretionary portfolio' on LTC? Based on objective statistics, it's extremely remote. According to data from the American Association of Long Term Care Insurers, out of 10,000 who had LTCi, not a single insured person spent $2m on LTC.

[tj]

I looked at the federal LTCI program and a couple of private insurers (MOO & Mass Mutual) and we just decided it wasn't worth it for us for what those policies were going to pay for 3 years. Anything over that was just too expensive. We are in that $2-$3m range where we feel comfortable making the decision to cover whatever LTC we might need out of our investments. I also worked for 30+ years and never really had disability insurance (other than what I would get from the federal govt which I don't think was much). The only insurance we've ever had are the basics (auto, life when the kids were younger, health) where the risks of an event are much greater.

The federal government doesnt offer disability insurance, only disability retirement.

[MDfan]

I looked at the federal LTCI program and a couple of private insurers (MOO & Mass Mutual) and we just decided it wasn't worth it for us for what those policies were going to pay for 3 years. Anything over that was just too expensive. We are in that $2-$3m range where we feel comfortable making the decision to cover whatever LTC we might need out of our investments. I also worked for 30+ years and never really had disability insurance (other than what I would get from the federal govt which I don't think was much). The only insurance we've ever had are the basics (auto, life when the kids were younger, health) where the risks of an event are much greater.

The federal government doesnt offer disability insurance, only disability retirement.

Then I guess I never had disability insurance.

[ChrisC]

I looked at the federal LTCI program and a couple of private insurers (MOO & Mass Mutual) and we just decided it wasn't worth it for us for what those policies were going to pay for 3 years. Anything over that was just too expensive. We are in that $2-$3m range where we feel comfortable making the decision to cover whatever LTC we might need out of our investments. I also worked for 30+ years and never really had disability insurance (other than what I would get from the federal govt which I don't think was much). The only insurance we've ever had are the basics (auto, life when the kids were younger, health) where the risks of an event are much greater.

Hindsight is sometimes better than 20-20 foresight, for now. I'm in the FLTCi program and my wife and I are content with our decision 19 years ago to enroll in the program. Premiums are likely to reset and rise next year, but we've been paying about $4200 annually the last 6 years for both, with 5 years of LTC coverage, with current maximum benefit payment of $574K for each of us. The only regret I have currently is not sticking to a 5% inflation adjustment and downsizing it to a 2.6^ inflation adjustment as a trade off in the last price hike. We can self-insure -- income streams from my pension alone would cover LTC for one of us at an expensive skilled nursing facility; if I'm gone, that pension scheme would take a 45% haircut to my wife for a survivor benefit, and she would have to then dip into the tIRA RMD stream of income to pay for the difference. But with LTCi, at least for 5 years, we have transferred risk to the insurer for LTC. And paying for my premiums out of my HSA lessens my financial burden, and indirectly tax affects my premium payments. Moreover, there are several other non-financial aspects of FLTCi which I find appealing to our family.

Framing the issue of whether you can afford to self-insure, isn't the real issue; I think MikeG62 and imm7V71M7 are properly analyzing the situation of whether specific LTCi policies make financial sense to them to transfer the risk of LTC to another party, as opposed to one assuming that entire burden. This is simply the bare bones threshold question after one has determined that one can "self-insure." IOW, does it make financial sense to transfer that risk at the cost of a policy that might be available to you.

I know of several people who would have enormously benefited from FLTCi had they enrolled back in 2002 when it first was offered to Feds. On the other hand, I know of several people who have begrudgingly paid into FLTCi and some feel that this might not have been an optimal decision for them, until, in the case of one person we know, she received a diagnosis of a Parkinson's disease in her late 60's which made her appreciate the FLTCi policy for unlimited benefits she took out!

The federal government doesnt offer disability insurance, only disability retirement.

Actually, some Federal agencies do offer disability insurance coverage, subsidized by the agencies. My former agency did this and I'm sure the Postal Service and other agencies offer this as well. Then there's these programs, not under an agency auspices, but still connected to Federal unions. https://federalemployeeinsurancebenefit ... 8ZEALw_wcB

You're right, one can retire on a permanent disability, but those who can retire voluntarily are much better off, financially, than taking disability retirement!

[MDfan]

I looked at the federal LTCI program and a couple of private insurers (MOO & Mass Mutual) and we just decided it wasn't worth it for us for what those policies were going to pay for 3 years. Anything over that was just too expensive. We are in that $2-$3m range where we feel comfortable making the decision to cover whatever LTC we might need out of our investments. I also worked for 30+ years and never really had disability insurance (other than what I would get from the federal govt which I don't think was much). The only insurance we've ever had are the basics (auto, life when the kids were younger, health) where the risks of an event are much greater.

Hindsight is sometimes better than 20-20 foresight, for now. I'm in the FLTCi program and my wife and I are content with our decision 19 years ago to enroll in the program. Premiums are likely to reset and rise next year, but we've been paying about $4200 annually the last 6 years for both, with 5 years of LTC coverage, with current maximum benefit payment of $574K for each of us. The only regret I have currently is not sticking to a 5% inflation adjustment and downsizing it to a 2.6^ inflation adjustment as a trade off in the last price hike. We can self-insure -- income streams from my pension alone would cover LTC for one of us at an expensive skilled nursing facility; if I'm gone, that pension scheme would take a 45% haircut to my wife for a survivor benefit, and she would have to then dip into the tIRA RMD stream of income to pay for the difference. But with LTCi, at least for 5 years, we have transferred risk to the insurer for LTC. And paying for my premiums out of my HSA lessens my financial burden, and indirectly tax affects my premium payments. Moreover, there are several other non-financial aspects of FLTCi which I find appealing to our family.

Framing the issue of whether you can afford to self-insure, isn't the real issue; I think MikeG62 and imm7V71M7 are properly analyzing the situation of whether specific LTCi policies make financial sense to them to transfer the risk of LTC to another party, as opposed to one assuming that entire burden. This is simply the bare bones threshold question after one has determined that one can "self-insure." IOW, does it make financial sense to transfer that risk at the cost of a policy that might be available to you.

I know of several people who would have enormously benefited from FLTCi had they enrolled back in 2002 when it first was offered to Feds. On the other hand, I know of several people who have begrudgingly paid into FLTCi and some feel that this might not have been an optimal decision for them, until, in the case of one person we know, she received a diagnosis of a Parkinson's disease in her late 60's which made her appreciate the FLTCi policy for unlimited benefits she took out!

The federal government doesnt offer disability insurance, only disability retirement.

Actually, some Federal agencies do offer disability insurance coverage, subsidized by the agencies. My former agency did this and I'm sure the Postal Service and other agencies offer this as well. Then there's these programs, not under an agency auspices, but still connected to Federal unions. https://federalemployeeinsurancebenefit ... 8ZEALw_wcB

You're right, one can retire on a permanent disability, but those who can retire voluntarily are much better off, financially, than taking disability retirement!

Seems like a highly personal decision. We have just decided the policies available are not for us. We had two financial advisors tell us the same so we’re pretty comfortable going it on our own.

[tj]

I looked at the federal LTCI program and a couple of private insurers (MOO & Mass Mutual) and we just decided it wasn't worth it for us for what those policies were going to pay for 3 years. Anything over that was just too expensive. We are in that $2-$3m range where we feel comfortable making the decision to cover whatever LTC we might need out of our investments. I also worked for 30+ years and never really had disability insurance (other than what I would get from the federal govt which I don't think was much). The only insurance we've ever had are the basics (auto, life when the kids were younger, health) where the risks of an event are much greater.

Hindsight is sometimes better than 20-20 foresight, for now. I'm in the FLTCi program and my wife and I are content with our decision 19 years ago to enroll in the program. Premiums are likely to reset and rise next year, but we've been paying about $4200 annually the last 6 years for both, with 5 years of LTC coverage, with current maximum benefit payment of $574K for each of us. The only regret I have currently is not sticking to a 5% inflation adjustment and downsizing it to a 2.6^ inflation adjustment as a trade off in the last price hike. We can self-insure -- income streams from my pension alone would cover LTC for one of us at an expensive skilled nursing facility; if I'm gone, that pension scheme would take a 45% haircut to my wife for a survivor benefit, and she would have to then dip into the tIRA RMD stream of income to pay for the difference. But with LTCi, at least for 5 years, we have transferred risk to the insurer for LTC. And paying for my premiums out of my HSA lessens my financial burden, and indirectly tax affects my premium payments. Moreover, there are several other non-financial aspects of FLTCi which I find appealing to our family.

Framing the issue of whether you can afford to self-insure, isn't the real issue; I think MikeG62 and imm7V71M7 are properly analyzing the situation of whether specific LTCi policies make financial sense to them to transfer the risk of LTC to another party, as opposed to one assuming that entire burden. This is simply the bare bones threshold question after one has determined that one can "self-insure." IOW, does it make financial sense to transfer that risk at the cost of a policy that might be available to you.

I know of several people who would have enormously benefited from FLTCi had they enrolled back in 2002 when it first was offered to Feds. On the other hand, I know of several people who have begrudgingly paid into FLTCi and some feel that this might not have been an optimal decision for them, until, in the case of one person we know, she received a diagnosis of a Parkinson's disease in her late 60's which made her appreciate the FLTCi policy for unlimited benefits she took out!

The federal government doesnt offer disability insurance, only disability retirement.

Actually, some Federal agencies do offer disability insurance coverage, subsidized by the agencies. My former agency did this and I'm sure the Postal Service and other agencies offer this as well. Then there's these programs, not under an agency auspices, but still connected to Federal unions. https://federalemployeeinsurancebenefit ... 8ZEALw_wcB

You're right, one can retire on a permanent disability, but those who can retire voluntarily are much better off, financially, than taking disability retirement!

https://federalemployeeinsurancebenefits.com/about/ <---this is literally just one guy who started a business to market to federal employees. There are several companies that do this.

[MikeG62]

Interesting. One comment, I think your assumed return of 7% is too high, too optimistic, and you'd get a more realistic view if you used a lower number (4%?). I do agree with your thinking otherwise.

Fair enough, but consider the return on the S&P 500 since its inception in 1957 is 10.5%. Long-term returns on fixed income probably in the 4%-5% range. Kind of split the difference in using the 7.0% figure. Could skew the investment 80/20 too - especially during the earlier years where you'd have more time to recover from a downturn in equities.

If you know you are going to get 7% and not need any care until age XX its fairly easy to calculate.
Many folks might be concerned that these assumptions would not hold true.

No one knows the future return assumptions on investments. I get that. We could use 5% or 3% or whatever. The point was one might accumulate a sizable pool of dollars redirecting the monies that would be plowed into premiums into an investment account and use that fund to cover costs "should" they arise. This would have been true overwhelmingly more often in the past than not.

Further, incurring significant LTC costs is a low probability event in the first place. Now, we are to further layer on the incredibly low risk that we'd need that care when we are young(er) whereas the data indicates that most people who need LTC at all need it when they are much older and don't end up in LTC for all that long.

I get insuring tail risks, but at what cost?

[smitcat]

Interesting. One comment, I think your assumed return of 7% is too high, too optimistic, and you'd get a more realistic view if you used a lower number (4%?). I do agree with your thinking otherwise.

Fair enough, but consider the return on the S&P 500 since its inception in 1957 is 10.5%. Long-term returns on fixed income probably in the 4%-5% range. Kind of split the difference in using the 7.0% figure. Could skew the investment 80/20 too - especially during the earlier years where you'd have more time to recover from a downturn in equities.

If you know you are going to get 7% and not need any care until age XX its fairly easy to calculate.
Many folks might be concerned that these assumptions would not hold true.

No one knows the future return assumptions on investments. I get that. We could use 5% or 3% or whatever. The point was one might accumulate a sizable pool of dollars redirecting the monies that would be plowed into premiums into an investment account and use that fund to cover costs "should" they arise. This would have been true overwhelmingly more often in the past than not.

Further, incurring significant LTC costs is a low probability event in the first place. Now, we are to further layer on the incredibly low risk that we'd need that care when we are young(er) whereas the data indicates that most people who need LTC at all need it when they are much older and don't end up in LTC for all that long.

I get insuring tail risks, but at what cost?

I am not wading into whether or not LTCi rates are currently a good deal or not. What i was saying is that for people who are concerned about having enough funds for long term care they should either have those funds in relatively 'safe' investments or compare the insurance costs to relatively 'safe' investments. what could be worse than needing those funds for long term care after they have gone down and stayed there for a few years or more.

Our LTCi insurance was purchased when rates and coverages were a better deal so math does change over time.
Which is higher probability - having a total loss on one's home or needing long term care?

[ChrisC]

Further, incurring significant LTC costs is a low probability event in the first place. Now, we are to further layer on the incredibly low risk that we'd need that care when we are young(er) whereas the data indicates that most people who need LTC at all need it when they are much older and don't end up in LTC for all that long.

I get insuring tail risks, but at what cost?

Low probability, when you're 30-55 years old; can become a very high probability and highly burdensome, costly situation when you're 65 or older. Take Alzheimer's disease where 5% of the population at 65 are likely to have this dreaded disease and the numbers get worse as you age. I believe the general statistic is that 10% of seniors over 65 are likely to have this disease.

I don't know about LTC not lasting very long. The prospect of very, very long goodbyes has increased with medical science keeping us alive with ailments and disabilities for a long time. My mother had dementia and her long goodbye was 11 years in a nursing home; we have another relative, not even in a nursing home but gets VA Aid and Attendance, who will be 100 in October -- he's had dementia for the last 15 years -- and he's in great physical shape, except for some incontinence, though the mind is almost completely gone. My BIL with MS, at 66, can't care for himself, in an assisted living facility for the last 5 years -- can't toilet, shower/bathe, or generally transition from one position to another without help -- he might even outlast us and we're older than him. In a few years, he might likely need skilled nursing care.

Recently, I noticed in my neck of the woods, that none of the CCRCs here are currently providing Type A contracts for their Life Cycle Care Plan communities. This might suggest that even these institutions are very apprehensive of taking on indefinite, and perhaps long-term financial commitments associated with LTC in their communities. New CCRCs that have opened in the last 2 years here (including one during Covid) are strictly rental operations and one of them still has a hefty entrance fee for admission on their campus and residential units. Moreover, established and well maintained ones are increasing the capacity of their skilled nursing care wings, with expensive plant expansions, but these are all per-diem pay operations now.

If people think CCRCs alone could provide an off-ramp from LTCi or self-funding, they might have to think twice about that.

[SheenaTL]

One of the questions I was wondering about was whether one's specific investment mix could impact the decision to self-insure or not.

For example, the age range at which most people are likely to need LTC is also the time when RMDs start ramping up. So in OP's case, if they have a large Traditional IRA balance forcing high RMDs, could it be worth self-insuring to deduct the premiums from income stream made larger by RMDs (high tax bracket) vs. having paid premiums in pre-RMD years when tax bracket was lower and having the LTCI add to your income when you have large RMDs?

[Silk McCue]

One of the questions I was wondering about was whether one's specific investment mix could impact the decision to self-insure or not.

For example, the age range at which most people are likely to need LTC is also the time when RMDs start ramping up. So in OP's case, if they have a large Traditional IRA balance forcing high RMDs, could it be worth self-insuring to deduct the premiums from income stream made larger by RMDs (high tax bracket) vs. having paid premiums in pre-RMD years when tax bracket was lower and having the LTCI add to your income when you have large RMDs?

LTCi benefit payments do not add to your income. It’s an insurance payout.

Cheers

[willthrill81]

What i was saying is that for people who are concerned about having enough funds for long term care they should either have those funds in relatively 'safe' investments or compare the insurance costs to relatively 'safe' investments.

That depends on several factors, perhaps the size of the portfolio in relation to potential costs of LTC being the most important. Someone like the OP who has $2m devoted strictly to funding $80k of annual discretionary spending has so much more than needed to fund virtually any plausible LTC scenario that it doesn't much matter if those funds are invested in relatively volatile assets like stocks.

Our LTCi insurance was purchased when rates and coverages were a better deal so math does change over time.
Which is higher probability - having a total loss on one's home or needing long term care?

All else being equal, the higher the probability of an event, the less leverage that insurance for that event can provide, as discussed here.

[willthrill81]

One of the questions I was wondering about was whether one's specific investment mix could impact the decision to self-insure or not.

For example, the age range at which most people are likely to need LTC is also the time when RMDs start ramping up. So in OP's case, if they have a large Traditional IRA balance forcing high RMDs, could it be worth self-insuring to deduct the premiums from income stream made larger by RMDs (high tax bracket) vs. having paid premiums in pre-RMD years when tax bracket was lower and having the LTCI add to your income when you have large RMDs?

LTCi benefit payments do not add to your income. It’s an insurance payout.

Cheers

That depends on whether the premiums were paid with pre-tax or post-tax dollars. A number of posters on the forum paid for their LTCi premiums with pre-tax dollars via a business they owned. My understanding is that their insurance payouts would likely be taxable income.

[Silk McCue]

One of the questions I was wondering about was whether one's specific investment mix could impact the decision to self-insure or not.

For example, the age range at which most people are likely to need LTC is also the time when RMDs start ramping up. So in OP's case, if they have a large Traditional IRA balance forcing high RMDs, could it be worth self-insuring to deduct the premiums from income stream made larger by RMDs (high tax bracket) vs. having paid premiums in pre-RMD years when tax bracket was lower and having the LTCI add to your income when you have large RMDs?

LTCi benefit payments do not add to your income. It’s an insurance payout.

Cheers

That depends on whether the premiums were paid with pre-tax or post-tax dollars. A number of posters on the forum paid for their LTCi premiums with pre-tax dollars via a business they owned. My understanding is that their insurance payouts would likely be taxable income.

Thanks for the clarification. I expect that would represent the minority of policy owners.

Cheers

[willthrill81]

LTCi benefit payments do not add to your income. It’s an insurance payout.

That depends on whether the premiums were paid with pre-tax or post-tax dollars. A number of posters on the forum paid for their LTCi premiums with pre-tax dollars via a business they owned. My understanding is that their insurance payouts would likely be taxable income.

Thanks for the clarification. I expect that would represent the minority of policy owners.

Certainly it does, but it's a potentially big consideration for that minority. And some on the forum who have claimed how great a deal their LTCi was did so in large part on the basis of those premiums being pre-tax, but I've never heard one of them discuss the reality of then having to pay income tax on the payouts.

[JoeRetire]

If people think CCRCs alone could provide an off-ramp from LTCi or self-funding, they might have to think twice about that.

It's so hard to predict what the LTC infrastructure and fees will be down the road. A big problem with no great current solutions.

I'd guess that at some point it will come under a Medicare or related government program. But that's just a guess that I wouldn't want to bet on.

[tj]

If people think CCRCs alone could provide an off-ramp from LTCi or self-funding, they might have to think twice about that.

It's so hard to predict what the LTC infrastructure and fees will be down the road. A big problem with no great current solutions.

I'd guess that at some point it will come under a Medicare or related government program. But that's just a guess that I wouldn't want to bet on.

Medicare dental and vision seems more likely to me just because of the costs.

[iim7V7IM7]

My mother’s has a policy now owned by Brighthouse Financial that she purchased close to 30 years ago. She pays about $5,000/year now for herself.

Elimination Period - 100 days
Maximum Daily Benefit - $703/day
Benefit Period - Lifetime
Inflation Rider - 5% compounded

I cannot imagine what a policy like this would cost today. I think when policy like her’s were written in the 1990s, they did not know how to propely underwrite them and the laws regarding premium increases were different. Today both underwriting, pricing and premium increase controls are different. She told me that her premium had tripled across the time she has held it.She is now 87 and has not yet used it. My father passed 7 years ago and he never used it either. For us, I look at LTCi as a part of our overall plan to pay for care and not the entire potential enchilada.

- We will need liquid savings to fund a 180 day elimination period
- We will count on the policy to fund the lions share of a reasonable period of home aide or assisted living or half of a nursing home stay
- We will need to supplement this we some portfolio liquidation in some scenarios

So we will be partially self-insured and partially covered by LTC insurance. Given current premium prices, I suspect this will be true for many who look into it. A $200/day, 90 day elimination period, lifetime policy with a 5% inflation rider for both of us is $25,000/year or about $500,000 as one payment.
So a longer elimination period, a lower daily benefit and a 3-4 year benefit period is our likely sweet spot.

[smitcat]

What i was saying is that for people who are concerned about having enough funds for long term care they should either have those funds in relatively 'safe' investments or compare the insurance costs to relatively 'safe' investments.

That depends on several factors, perhaps the size of the portfolio in relation to potential costs of LTC being the most important. Someone like the OP who has $2m devoted strictly to funding $80k of annual discretionary spending has so much more than needed to fund virtually any plausible LTC scenario that it doesn't much matter if those funds are invested in relatively volatile assets like stocks.

Our LTCi insurance was purchased when rates and coverages were a better deal so math does change over time.
Which is higher probability - having a total loss on one's home or needing long term care?

All else being equal, the higher the probability of an event, the less leverage that insurance for that event can provide, as discussed here.

Might be a good review for the OP - I was responding to MikeG.

[smitcat]

One of the questions I was wondering about was whether one's specific investment mix could impact the decision to self-insure or not.

For example, the age range at which most people are likely to need LTC is also the time when RMDs start ramping up. So in OP's case, if they have a large Traditional IRA balance forcing high RMDs, could it be worth self-insuring to deduct the premiums from income stream made larger by RMDs (high tax bracket) vs. having paid premiums in pre-RMD years when tax bracket was lower and having the LTCI add to your income when you have large RMDs?

LTCi benefit payments do not add to your income. It’s an insurance payout.

Cheers

That depends on whether the premiums were paid with pre-tax or post-tax dollars. A number of posters on the forum paid for their LTCi premiums with pre-tax dollars via a business they owned. My understanding is that their insurance payouts would likely be taxable income.

From our understanding paying for LTCi premiums calls for those to be categorized and deducted similar to medical expenses.
Any payouts for long term care would not be taxable whether you were still working the business or if it were post business sale.

[smitcat]

LTCi benefit payments do not add to your income. It’s an insurance payout.

That depends on whether the premiums were paid with pre-tax or post-tax dollars. A number of posters on the forum paid for their LTCi premiums with pre-tax dollars via a business they owned. My understanding is that their insurance payouts would likely be taxable income.

Thanks for the clarification. I expect that would represent the minority of policy owners.

Certainly it does, but it's a potentially big consideration for that minority. And some on the forum who have claimed how great a deal their LTCi was did so in large part on the basis of those premiums being pre-tax, but I've never heard one of them discuss the reality of then having to pay income tax on the payouts.

There are no taxes on LTCi when you had the LTCi coverage as a deduction within a business.
FWIW - if you have 2 or more rental units you could form a small business. Suggestion would be to consult with a good small business accountant before setting up the business.