Looking for help on how to analyze a choice we have to make. My wife and I received letters that our long-term care (LTC) insurance rates are going up, but we have the option to cash out. This is a group policy we purchased when I was employed at a former company. It's through CNA, underwritten by Continental Casualty Company. I am age 58; my wife is 61. We have had this coverage since 2003, and amazingly this is the first time the rates are going up. Here are the details:
Currently we pay $45 per month for me and $53 for my wife. This covers each one of us for up to $132,000 per year in nursing home or home health care expenses for up to 5 years, and this coverage amount increases at 5% per year for inflation (compounded annually). To make clear, if we were both in the nursing home, we would get up to $264,000 per year. To illustrate the inflation rider, this started out at $47,450 maximum per person per year 21 years ago. Our current rates seem like a good deal to me, but I'm not an expert in this stuff.
Our monthly premiums are going up by 38% on 1/1/25, then another 38% on 1/1/26, and another 38% on 1/1/27. I fear this may be a trend that continues where we get a letter every 3 years announcing the upcoming rate increases. We can afford the rate increases, but there is another option.
The cash-out option would give us $66,700 for me and $48,100 for my wife. I don't understand why my cash-out payment would be higher than my wife's, since she pays a higher premium than I, but that's what it says. Maybe because I'm younger; not sure. I figure we could take the cash, invest it, and hopefully have two to four times as much money (in real terms) at the time when one of us needs to go into the nursing home. That's not going to pay for many years of nursing-home expenses, but then again we wouldn't have to jump through the LTCI qualification hoops either. None of our grandparents have needed nursing-home care (all of whom are dead), and we are in good health, for whatever that is worth.
At this point, I've paid $11,700 in premiums, and my wife $13,600. We pay with after-tax money. If we take the cash-out option, will we have to pay income taxes on the difference, which is about $90,000?
Which option would you choose?
Accept LTC Insurance Rate Increase or Cash Out?
Accept LTC Insurance Rate Increase or Cash Out?
A 10-20% allocation to gold has helped with the sequence of returns problem. Some gold held physically is also good insurance against the all-digital-assets problem.
Re: Accept LTC Insurance Rate Increase or Cash Out?
Do you have enough assets to self insure if you cancel the ltci? It’s a tempting offer. You certainly can’t replace it at anywhere near that rate.
Last edited by mhalley on Tue Oct 29, 2024 6:20 pm, edited 1 time in total.
Re: Accept LTC Insurance Rate Increase or Cash Out?
Even with the premium raise, that seems like a pretty good deal. My Dad had CNA and it worked out pretty well. Obviously you can self-ensure, but I am not interested in draining my wealth on health care. We have LTC policies for that reason.
Re: Accept LTC Insurance Rate Increase or Cash Out?
Which part is the tempting offer?
A 10-20% allocation to gold has helped with the sequence of returns problem. Some gold held physically is also good insurance against the all-digital-assets problem.
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Re: Accept LTC Insurance Rate Increase or Cash Out?
Even with the premium increases that is very inexpensive coverage for the benefit provided if needed. You certainly couldn’t buy a current policy for that amount of premium and benefit even with the increases you face over the next three years.
Cheers
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Re: Accept LTC Insurance Rate Increase or Cash Out?
You will only be paying a little more than $3000 per year after the third increase. Your benefit will have increased to a combined $300K/year by the time of that third increase. This is still a very attractive premium for that level of coverage.
Re: Accept LTC Insurance Rate Increase or Cash Out?
The reason I thought the offer is tempting is that the insurance co has no idea how to price their ltci. I expect there will be continued increases as their clients age and the premiums will continue to skyrocket. This is what I call a swag. (Scientific wild ass guess) with no actual basis in fact. I would say to take the offer and buy ltci from a co that has a clue if you still want it. Totally baseless opinion tho. At a minimum I would check to see what other companies are charging.
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Re: Accept LTC Insurance Rate Increase or Cash Out?
Those policies still look worthwhile to me, even with the 3 price increases. The question is: Has something changed in your lives such that you feel you no longer need this coverage?
Consider that these policies provide some protection from financial hardship should one of you need long term care due to an accident or old age. Think of the healthy spouse's financial picture in that situation.
Unless you have many $millions to self-fund, I'd keep the policies at least until one of you passes.
Consider that these policies provide some protection from financial hardship should one of you need long term care due to an accident or old age. Think of the healthy spouse's financial picture in that situation.
Unless you have many $millions to self-fund, I'd keep the policies at least until one of you passes.