Long Term Care Insurance: Min net worth to not buy?

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RooseveltG
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Long Term Care Insurance: Min net worth to not buy?

Post by RooseveltG » Mon Nov 23, 2009 9:08 pm

I recently discussed long term care insurance with a friend in the insurance business. He said to me that anyone with a net worth of 2.5-3 million should not buy one of these policies.

I had never heard that before, even though it does not apply to me.

Is there some magic net worth or way of determining if you don't need one of these policies?

Thanks.

Roosevelt.[/b]

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Peter Foley
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Post by Peter Foley » Mon Nov 23, 2009 9:42 pm

I had a similar discussion with a financial planner (CFP). He put the number at about $2M. Above that you can self insure. Certainly that is an opinion, and certainly no one knows the future. I find it interesting that the numbers were in the same ballpark.

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Post by Christine_NM » Mon Nov 23, 2009 9:52 pm

$2 million per couple is cutting it pretty close. I could see $2.5 million per individual.
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Post by richard » Mon Nov 23, 2009 9:54 pm

Google "high net worth long term care insurance." Opinion seems split between self-insure at something above the $2-4 million range and buy insurance anyway. Some of the articles seem to be by those wanting to sell insurance, so must be taken with the usual caveats.

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Post by MnD » Mon Nov 23, 2009 9:59 pm

My Mom was spending about $90K a year (from taxable investment income, rollover IRA investment income and Social Security) all the way from independant and healthy retired home-owner to long-term care patient. No LTC coverage but she did have a good medigap policy and she was not a multi-millionaire. LTC in her case would have seemed like a waste of money as her costs stayed pretty flat despite a very big change in living situations. The sale of the family home alone when she moved in to assisted living would have paid for several more years of LTC.

I guess the big risk if uninsured would be if one partner continued an active retirement and home ownership costs, while the other was in high-level LTC.

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Post by Ron » Mon Nov 23, 2009 10:10 pm

Peter Foley wrote:I had a similar discussion with a financial planner (CFP). He put the number at about $2M. Above that you can self insure. Certainly that is an opinion, and certainly no one knows the future. I find it interesting that the numbers were in the same ballpark.
We had the same discussion with our elder law attorney while updating our trust documents last year. While he's not a "finance guy", he did say that in the many cases that he had seen over many years related to end-of-life expenses, a couple who had a minimum estate net worth at/above $2M could self-insure.

- Ron

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Post by nisiprius » Mon Nov 23, 2009 10:19 pm

I don't think it's that hard to figure, and it's the same for any kind of insurance. Let's say some event will cost $X. If you can "afford" to pay $X, that is if absolutely have that much held securely in reserve and you don't mind spending it if the event occurs, then you don't need insurance. On the other hand, if the event occurs you'll have $X less to leave to your kids. If you simply can't afford to pay $X, then you need the insurance.

Now, for long-term-care insurance, how much is $X? Well, that's always the tricky part with any insurance, but I can tell you how much insurance we carry. The insurance my wife and I are carrying now would pay $175 a day for a maximum of twelve years (total for both of us, "shared-care" option, if I enjoy nine years in a nursing home then she only gets to enjoy three). The maximum we could get from the insurance company is about $750,000. Of course, it was all a painful compromise and that isn't really enough coverage. And it has a 5% per year compounded increase built in. Since self-insuring long-term care implies someone wealthier than I, let's up that to a round million.

Broadly speaking, then, if you are confident that you will always have a million to spare--in something reasonably safe and liquid and cashlike, a million-dollar boat won't do--and you really have earmarked it for long-term-care (and haven't kidded yourself by earmarking it for several different contingencies that could all happen), then you can sanely choose to self-insure.

How much net worth do you need to have to stick $1,000,000 in a bank account as your "long-term-care self-insurance fund?" I think closer to a $4 million than $2 million, but that's the ballpark. Oh, and you'd better not siphon off the interest on it. In fact you'd better keep adding to it, as the inflation rate for long term care is something like 6%

Is that $1,000,000 figure insanely conservative? The simple answer is no, spelled A-l-z-h-e-i-m-e-r's. 10, 12 years in a nursing home is not at all out of the range of things that have happened to people I know. And the higher your income, the nicer the nursing home you'd want and $200 a day is definitely the low end.

Why would you choose to self-insure? Well, the insurance company makes a profit so it's bound to be cheaper, statistically. Why would you choose not to? Because although if you have enough money you can allow for a highly unpredictable million-dollar expense, it's still grotesquely inconvenient. And if the total cost of the premiums is, say, $100,000--that's distinctly on the high side--your kids might prefer to know they're getting $900,000 than to know they'll probably get a million but might get nothing.
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Post by bobbyrx » Mon Nov 23, 2009 11:19 pm

Both spouse and I have LTC insurance. As one who worked in the LTC field, I have several additional thoughts on the subject.

1) Buy a policy with inflation protection.

2) You are really purchasing a bucket of money to fund LTC over a set period of time. e.g. $225/ day for 3 years= $82,125/year. This will cover your nursing home in most states but in some states, like New York, nursing home expenses are over $150,000/year. You may want/need to move if necessary.

3) The "look back period", in which you cannot transfer assets to kids used to be 3 years. It is now 5 years. Buying a policy that covers a lifetime of services is quite expensive. Since the average nursing home long-term-stay is 1.5 years, I suggest a 3 year policy. If a long-term stay seems probable (eg Alzheimer's), consult an elder care attorney immediately upon admission to shelter assets beyond 5 years. Fund years 1-3 from your policy, and fund the gap from year 3-5 from savings.

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Post by flowerbuyer » Mon Nov 23, 2009 11:42 pm

My mom has severe Alzheimer's dementia, and has a long-term care policy which covers ONLY nursing home care, with annual premium under $1000. However, because she has investments worth over $2m, and a good income from pensions, she is living in a small, licensed private care home. The cost is $48,000 per year, and includes everything except depends, medication and medical care. Her medigap policy pays for home health nurses to come to the home and give her an annual physical, administer flu shots, provide physical therapy if necessary. The care she is receiving is personal, and far better than she would receive in a nursing home. Good nursing homes in our area cost around $90k to $100k per year. Rather than use her LTC insurance for a nursing home, we are paying for her care in the small private care home because of the high quality of care. She may live in this home for ten years because other than the Azlheimer's, she is extremely healthy.

If she becomes a "2-person lift" we would have to move ther to a NH, so are continuing to pay for the LTC insurance because of it's relatively low premium, and it's payout ,if we need it, is far greater than it's cost.

We have not done anything to "protect" her assets for heirs because there is no way I want my mom in a medicaid-paid facility when she can afford the high-quality care she is receiving now. If there's money left over after she dies, fine. If not, I know she has received the best care possible, and to me that is what is important.

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Post by funnymoney » Tue Nov 24, 2009 12:05 am

LT care seems to be a tricky business. We just lost my mother, the third of our four parents. The first had Alzheimer's and was in a NH for about 8 years -- most policies would have run out before that period of time. He was on Medicaid for a long time. The second was self-pay and then had a policy cover some of his care but only for a year. He ended up on Medicaid for 4 days, but still had to run down his savings to the required level to allow his spouse to have what she was allowed (house, car, some savings and annuities to provide income). In the end, the insurance made no difference because they ended up in the same place and his care woudn't have changed. The third parent just passed away and MOST care was paid for by Medicare because her care largely followed hospitalizations and was considered rehab. She had a few months of self-pay; we'll see what the insurance decides to pay, but it is unlikely to amount to anywhere near what she paid in. So in NONE of these three cases did LT insurance amount to anything more than a bucket of warm spit. When I talked to the advisor who sold the insurance and annuities, he stated that we should consider LT care insurance a kind way to support those nursing home facilities.

There was an interesting twist tho. My parents owned a home on about 18 acres; several smaller contiguious pieces constituted the 18 acres, but because they were all connected, they were considered part of the home the surviving parent was allowed to keep. After the death of the first parent, the land was divided and sold and provided a nice nest egg. Had they lived in a house on a smaller, less valuable piece of property, the survivor would not have had the ability to have such a nice $$ amount available.

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Post by 1210sda » Tue Nov 24, 2009 9:11 am

Scenario A: Two Spouses

Financial Assets: $2,000,000
Cashflow from assets: $80,000 (at 4% SWR)
Soc Sec for both: $30,000
Total Income: $110,000 ($80,000 + $30,000)
Current Expenses: $80,000 (this is key)
Expenses for One Spouse at home: $60,000 (75%)
Surplus Cashflow: $50,000 ($110,000 minus $60,000)
Cost of Nursing Home: $70,000
Annual needs from capital for NH: $20,000 ($70,000 minus $50,000)
Times 5 years equals : $100,000.
This is how much it would cost this couple to provide for 5 yrs at a NH.

Scenario B: One (Surviving spouse) person.

Financial Assets: $2,000,000
Cashflow from assets: $80,000 (at 4% SWR)
Soc Sec: $20,000
Total Income: $100,000
Current Expenses: $80,000 (this is key)
Surplus Cashflow: $80,000 (since person will not live at home)
Cost of Nursing Home: $70,000
Annual needs from capital for NH: $10,000 excess ($80,000 less $70,000)
Times 5 years equals : $50,000 excess
This is how much it would cost this person to provide for 5 yrs at a NH.
Also, this person should probably be able to sell her/his home and get additional capital to provide for NH care.

As always, the devil is in the details, but following this approach using your own numbers might be helpful.

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Post by VictoriaF » Tue Nov 24, 2009 9:37 am

flowerbuyer wrote:We have not done anything to "protect" her assets for heirs because there is no way I want my mom in a medicaid-paid facility when she can afford the high-quality care she is receiving now. If there's money left over after she dies, fine. If not, I know she has received the best care possible, and to me that is what is important.
What are the rules and customs for the transition from an assets-paid facility to a Medicaid-paid facility?

Let's assume that I get the Alzheimer's disease and need 10 years of the nursing home care. Let's further suppose that my assets will cover a high-quality home for 5 years, and when they are depleted I will become eligible for Medicaid.

- Will I be transferred into a different, lower-quality home?
- Will a "nice" home not even accept me if I don't have a Long-Term Care coverage?
- Would my Social Security (and possibly SPIA) be able to fill the gap between the Medicaid coverage and the cost of the "nice" facility?
- Will I be in such a state of confusion (five years into Alzheimer's) that I would not care about the quality of the facility?

Victoria
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Post by Ron » Tue Nov 24, 2009 10:50 am

VictoriaF wrote:- Will I be transferred into a different, lower-quality home?
- Will a "nice" home not even accept me if I don't have a Long-Term Care coverage?
- Would my Social Security (and possibly SPIA) be able to fill the gap between the Medicaid coverage and the cost of the "nice" facility?
- Will I be in such a state of confusion (five years into Alzheimer's) that I would not care about the quality of the facility?

Victoria
I would say it depends on state law (Medicaid is state run) along with the published practices of the home.

Just to cite a situation of a former co-worker; her mother was put into a Alzheimer care facility after her husband (who was caring for her) passed.

After a bit over three years (and liquidation of the estate) she was still in the same facility. Under their rules, nothing changed. They accepted Medicaid for her continued care (and still there, five years later), and will continue to be there till she passes.

I'm sure that there is no standard answer; each case must be researched on its own.

- Ron

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Post by Bob B » Tue Nov 24, 2009 11:02 am

VictoriaF wrote: - Will I be in such a state of confusion (five years into Alzheimer's) that I would not care about the quality of the facility?

Victoria
You likely would not care. It is your family that would care.
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Re: Long Term Care Insurance: Min net worth to not buy?

Post by mcmd » Tue Nov 24, 2009 11:45 am

RooseveltG wrote:Is there some magic net worth or way of determining if you don't need one of these policies?
I think a solid case can be made that the truly uber-rich (somewhere north of 10-25M in net liquid assets) need not be concerned with LTC but those who are "minor" millionaires should at least consider a strategy that provides catastrophic protection. I would generally define catastrophic coverage as one which may attach after either 180 or 365 days, max. 5 years, and may not provide 100% of the daily costs but does provide some level of inflation protection. This way there is some financial support in the event of an LTC claim, but premiums should be quite "reasonable".

Most people I meet that are in the 1-3M asset range have non-liquid assets such as small businesses or property that are not easily converted to cash or at great disruption to lifestyle.

Just something to consider.
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Post by flowerbuyer » Tue Nov 24, 2009 11:53 am

VictoriaF wrote:
flowerbuyer wrote:We have not done anything to "protect" her assets for heirs because there is no way I want my mom in a medicaid-paid facility when she can afford the high-quality care she is receiving now. If there's money left over after she dies, fine. If not, I know she has received the best care possible, and to me that is what is important.
What are the rules and customs for the transition from an assets-paid facility to a Medicaid-paid facility?

Let's assume that I get the Alzheimer's disease and need 10 years of the nursing home care. Let's further suppose that my assets will cover a high-quality home for 5 years, and when they are depleted I will become eligible for Medicaid.

- Will I be transferred into a different, lower-quality home?
- Will a "nice" home not even accept me if I don't have a Long-Term Care coverage?
- Would my Social Security (and possibly SPIA) be able to fill the gap between the Medicaid coverage and the cost of the "nice" facility?
- Will I be in such a state of confusion (five years into Alzheimer's) that I would not care about the quality of the facility?

Victoria
The home my mom is in does not accept medicaid, nor do the majority of small care homes. The private care homes are licensed for from 1 to 6 people, depending upon the size of the home. So, if mom were to run out of money (which she won't), and go on Medicaid, we would have to move her to a much larger facility, ie nursing home. We have four large dementia care facilities in our area, and only one of these will accept Medicaid, even if you start out as private pay.

I thank God every day that my mom has always had a conservative, buy-and-hold investment philosophy. She bought everything (except groceries) at thrift stores, and invested every extra penny she had, because she never wanted to outlive her money. I only wish I had learned much earlier in life to follow her lead!!!

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Post by Steelersfan » Tue Nov 24, 2009 4:03 pm

I'm well below the asset levels that are described here, but I'm self insuring anyway. My continuing sources of income in retirement will cover most (but not all) of the expenses of LTC. If I need to tap into my investment portfolio even to a moderate degree, that's an acceptable risk to me given the (un)likelihood of requiring many years of LTC.

My point is that you not only have to take into consideration your asset levels, but also your continuing retirement income stream, to make an informed decision.

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Another solution

Post by Taylor Larimore » Tue Nov 24, 2009 5:09 pm

Pat and I are considering a nearby life-care community for the time we are not able to care for ourselves.

East Ridge Retirement Village provides Independent Living, Assisted Living and Skilled Nursing Home Care which negates the need for long-term care insurance.

Four Ways to Cover the Cost of Long Term Care

There is more than one road to the hereafter. :wink:
Last edited by Taylor Larimore on Tue Nov 24, 2009 5:23 pm, edited 1 time in total.
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Post by gd » Tue Nov 24, 2009 5:22 pm

Bob B wrote:
VictoriaF wrote: - Will I be in such a state of confusion (five years into Alzheimer's) that I would not care about the quality of the facility?

Victoria
You likely would not care. It is your family that would care.
It is often the other way around. You would not understand what the problem was, that something could be done about it, and you could not discuss it or make decisions or requests. But unless you are flat-out vegetative, which comes very late in the game, your behavior would probably clearly indicate stress from a bad environment to someone skilled in recognizing it. Alzheimer's patients can be extremely sensitive to poor quality care. Your family probably would have no idea, and dismiss it as the disease.

If you don't think it matters what happens after you lose self-awareness, assisted suicide is a logical choice if you can figure out how do do it without putting accomplices at risk.

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Post by flowerbuyer » Tue Nov 24, 2009 6:49 pm

gd wrote:
Bob B wrote:
VictoriaF wrote: - Will I be in such a state of confusion (five years into Alzheimer's) that I would not care about the quality of the facility?

Victoria
You likely would not care. It is your family that would care.
It is often the other way around. You would not understand what the problem was, that something could be done about it, and you could not discuss it or make decisions or requests. But unless you are flat-out vegetative, which comes very late in the game, your behavior would probably clearly indicate stress from a bad environment to someone skilled in recognizing it. Alzheimer's patients can be extremely sensitive to poor quality care. Your family probably would have no idea, and dismiss it as the disease.

If you don't think it matters what happens after you lose self-awareness, assisted suicide is a logical choice if you can figure out how do do it without putting accomplices at risk.[/quote

Bob, you are so right about the awareness issue. Though mom is in the later stages of the disease, she still is very aware of what is going on "in the moment". The care manager who evaluated her said she would not do well in a large nursing home or dementia facility environment because of that awareness.

As for suicide being an option, that really isn't with Alzheimer's because you can no longer make an informed decision, or really plan anything in a logical fashion.

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Post by VictoriaF » Tue Nov 24, 2009 7:02 pm

flowerbuyer wrote:As for suicide being an option, that really isn't with Alzheimer's because you can no longer make an informed decision, or really plan anything in a logical fashion.
Are there any living will provisions for Alzheimer's?

Thanks,
Victoria
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Post by flowerbuyer » Tue Nov 24, 2009 7:27 pm

VictoriaF wrote:
flowerbuyer wrote:As for suicide being an option, that really isn't with Alzheimer's because you can no longer make an informed decision, or really plan anything in a logical fashion.
Are there any living will provisions for Alzheimer's?

Thanks,
Victoria
Alzheimer's is a terminal disease, in and of itself. However, most people with it die of underlying conditions, such as pneumonia, heart attack, or stroke. My mom is very healthy, physically. A living will, or health care directive, allows you to designate what type of care you want at end-of-life, or in the case of a terminal illness. Not having artificial hydration or infusion feeding is one of those choices. The person whom you designate as your Durable Power of Attorney for Healthcare should be sure your wishes are carried out. Otherwise, there is nothing specific to Alzheimer's that I know of.

I have been taking care of my mom, or managing her care, for five years now. The same with her finances. BTW, I keep monthly spreadsheets detailing all of her invetments, her income and expenses, just in case the non-involved --by choice--siblings have questions about how "their inheritance" is being spent!

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Post by bluemarlin08 » Tue Nov 24, 2009 8:01 pm

Way to much attention is focused on nursing home care. According to some sources, Genworth, 80% of claims are for home care, that can and often does stretch many years of costs. Certainly one can self insure, one should consider self insuring your home and auto coverage as well if one has this plan strategy. All I know is I witness folks dealing with ltc costs and I can tell you without a doubt, those that have insurance are much less stressed than those that are writing that check every month. It even gets resentfull at times when kids are handling the cash, it is their inheritance. Few see the dynamics as some of us. If the premiums for LTC come from excess money, IMO, one should look at insurance again. All of my clients with net worth's over 5 million to a max of 35 buy ltci. This is just my opinion.

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