How much do you need in Net Worth to not need Long Term Care Insurance…

[WhoDaresWins]

I thank my lucky stars that dementia does not run in my family. We tend to live long healthy lives and/or die quickly when the time comes. Hence, my un-plan to just pay as I go for my care. It's risk but then isn't everything.

 

[WhoDaresWins]

my understanding is that alot of places, once you are in, wont kick you out when you run out of money and have to go on medicaid, so maybe the care wont be all that bad after all.

In PA, if you run out of money in a nursing home, they cannot kick you out. You then qualify for Medicaid. Some personal care homes and assisted livings will keep you if you have been full pay for a number of years. Now, if you had a private room, you might have a roommate if your money runs out. You should get an agreement like this in writing naturally.

 

[ChrisC]

In PA, if you run out of money in a nursing home, they cannot kick you out. You then qualify for Medicaid. Some personal care homes and assisted livings will keep you if you have been full pay for a number of years. Now, if you had a private room, you might have a roommate if your money runs out. You should get an agreement like this in writing naturally.

This is true in virtually every place I've heard about, whether it's required by external Federal/State policies or something that facilities just do -- I don't know. But a good strategy has always been to find the best care or assisted living facilities on a private pay basis and then shift over to Medicaid when private resources have been depleted. The problem with spending down all assets and relying on Medicaid initially for long term care is that you limit your choices to only those facilities that accept Medicaid patients initially.

 

[REWahoo]

This is true in virtually every place I've heard about, whether it's required by external Federal/State policies or something that facilities just do -- I don't know.

That was the case with my recently-deceased FIL. His facility would not admit new residents under Medicaid, only private pay. But had he survived long enough to exhaust his private pay resources he could continue to stay under Medicaid.

 

[samclem]

This is true in virtually every place I've heard about, whether it's required by external Federal/State policies or something that facilities just do -- I don't know. But a good strategy has always been to find the best care or assisted living facilities on a private pay basis and then shift over to Medicaid when private resources have been depleted.

So, do they run a check to see how deep the patient's pockets are before accepting them? Obviously, the care facility is taking a big risk if the "full rate" private payments stop after 3 months and they have to take whatever Medicaid send them for 10 years.

Seems they could even ask for the patient to post a bond or some other arrangement to prevent all funds being put into trust shortly after the patient checks in.

 

[REWahoo]

So, do they run a check to see how deep the patient's pockets are before accepting them? Obviously, the care facility is taking a big risk if the "full rate" private payments stop after 3 months and they have to take whatever Medicaid send them for 10 years.

You'd think they would want financial info in advance of acceptance but they didn't ask for anything* before accepting my FIL. He was still within the 100 days Medicare pays for skilled care when he was admitted, so we weren't even asked for advance payment of the first month's basic services.


* Other than our assurance he would be "private pay" once his Medicare eligibility was used up.

 

[jimnjana]

A friend of mine (retired insurance guy) recommended that we consider a life insurance policy that has a LTC feature, rather than a regular LTC policy. He suggested two companies that offer these, but I have not checked them out. My understanding is that you can use the insurance value to pay for LTC, or, if LTC is not required, the payout is upon death.

Has anyone looked into this approach?

Advantage would be that there should always be a payout, either to heirs upon death or to pay for long term care.

I'm using this approach while I delay making a decision to buy LTCI. My life insurance policies are thru the Army Airforce Mutual Aid Association(AAFMAA). They allow a monthly withdrawl of 2.5% of the value of the policy per month to cover LTC costs including at home services. We chose to pay our polices off in a 7 yr period so this expense stops in another 30 months. With AAFMAA we can get 100% of our premiums back if we select to cancel the policies Plus the accumulated divies less expenses, currently the net dividend on our policies are about 5.8% (7.1% less expenses). Because both my wife and I have COLA'd pensions I think our needs for LTC insurance are not as great as some. But with rising LTC costs, it makes me wonder whether a small amount of LTCI may make sense.

 

[kaneohe]

Lots of tangents in this thread, I'm going back to the original post.

Have you thought about running FireCalc?

Use one of the "average cost" links (here's MetLife's http://www.metlife.com/assets/cao/m...arket-survey-nursing-home-assisted-living.pdf) to estimate how much you would want so that you can pay for your own LTC. Put that number in as a lump sum estate target in FireCalc. Fill in all the other info, and run it. If you are happy with the result, you have "enough" to self insure.

If you like, you can then get a couple quotes for LTCi policies that would provide the same amount of money. Then run FireCalc again without the estate target, but with the additional annual spending for the LTCi premium. Compare.

This seems to me like the most straightforward way to approach this issue. What I don't understand is what people mean when they say they are going to self-insure. Does this mean they are going to accumulate a dedicated lump sum (separate from retirement funds) equal to some "average" number of years of care......which seems to come out to about 300K for 4 yrs or 750K for 10 yrs. If that is what the goal is, won't it always be cheaper to buy LTC insurance since you won't be buying all those years but only the statistical "expectation" of the years that you will need that care (plus insurance co. profits).

 

[Alan]

This seems to me like the most straightforward way to approach this issue. What I don't understand is what people mean when they say they are going to self-insure. Does this mean they are going to accumulate a dedicated lump sum (separate from retirement funds) equal to some "average" number of years of care......which seems to come out to about 300K for 4 yrs or 750K for 10 yrs. If that is what the goal is, won't it always be cheaper to buy LTC insurance since you won't be buying all those years but only the statistical "expectation" of the years that you will need that care (plus insurance co. profits).

Some years ago we decided to start saving for LTC in a separate account excluded from our retirement savings so not part of the SWR when we RE.

Currently we are both 54 years old and the account, which is on automatic is a VG Wellington fund and we auto pay $200/month which an expense in our RE budget also. The account currently stands at $17.3k.

Will it be enough? Who knows, but we are planning on a very generous RE income with lots of fat ( >$30k/year above basic budget) so the additional LTC fund doesn't need to fund the whole amount. If there is only one of us left alive when LTC is needed then the whole RE income stream is available to pay for it.

 

[kaneohe]

Anyone know approximate LTC premiums as a function of age when policy purchased or an online site w/ such info?

 

[Alan]

Anyone know approximate LTC premiums as a function of age when policy purchased or an online site w/ such info?

You could have a look at Consumer Reports

There’s never a good time to buy. Premiums escalate as you age. For example, a plan that costs a 50-year-old $1,625 annually will run a 60-year-old $3,100 and a 70-year-old $7,575.

Many insurance agents recommend you buy young to lower your annual premium. Say you buy at age 40 and pay a relatively modest $685 annually. But the average age of people admitted to a nursing home is 83. That means you might pay for nearly 40 years before knowing whether you’ll need to use the policy.

Insurers also say that if you buy young, your premium will stay low. But it will rise if the company needs the increase to pay claims that are greater than expected. Such hikes aren’t small. "There have been cases of premiums not just doubling but increasing 800 percent," says Phyllis Shelton, president of LTC Consultants, a Nashville, Tenn., company that trains long-term-care insurance agents.

Such coverage really shouldn’t be considered before age 60 except by those with chronic diseases. Insurance agents, however, wax on about the policies’ benefits (See Sales pitches and their catches), often pushing the plans on people in their 40s. And no wonder. Agents can reap hefty commissions--50 percent of your first year’s premium and 10 percent of your payment for every succeeding year.

 

[dgoldenz]

Anyone know approximate LTC premiums as a function of age when policy purchased or an online site w/ such info?

Completely dependent upon age, health, and type of benefits. Premiums are all over the map depending on what you want and what company you are looking at.

 

[smjsl]

... This is incredibly important because long term care premiums are never guaranteed - they can increase at any time.

This is one of many reasons why I would not consider buying LTC.

Even though dgoldenz later noted that by law companies have to charge a person based on their group, nothing prevents them from charging whatever they want to that group if the group turns out to be unprofitable to them.

My plan is the same as...

I don't have LTC insurance and don't plan to get it. I do have a plan. If I should become elderly and feeble I will either go to a really nice assisted living or personal care home or hire in-home help either through an agency or privately. I don't want to wrangle with insurance companies in my dotage. If I have some kind of massive stroke and wind up bedfast in a nursing home all my resources will go to pay for my care and if I burn through everything, well, I guess I will be on Medicaid and hopefully won't know it.

I figure in case of LTC, I'd rather have extra 2-3k after tax income per year than worry about events that may or may not happen and even if they do, I could have enough money by that point to cover them, and even if I don't, the system may by that point have enough to cover me...

 

[samclem]

Anyone know approximate LTC premiums as a function of age when policy purchased or an online site w/ such info?

The federal LTC Insurance program has a good site. You can only buy this if you are a federal employee, family member of a fed employee, or a fed retiree. But the rates aren't much different from a standard policy bought on the "outside" (in my limited experience). The fed plan is slightly more expensive than a "regular" policy for a person in good health without big risk factors. The site above is the best place I know to get a ballpark estimate without talking to a salesman. If you want to go straight to the calculator, it is here, but it's better to start at the link above unless you already know all the LTCI jargon

 

[kaneohe]

Thanks, Alan and samclem for those links. I suspect the decision not to buy is easier if you are single and are only putting yourself at risk. If someone will suffer the consequences if you don't have LTC, the decision of whether or not to self-insure seems like a much more serious decision. The task of building both a ER stockpile and and self-insured LTC stockpile simultaneously would seem to be a challenging task for most, I would think.

 

[Alan]

Thanks, Alan and samclem for those links. I suspect the decision not to buy is easier if you are single and are only putting yourself at risk. If someone will suffer the consequences if you don't have LTC, the decision of whether or not to self-insure seems like a much more serious decision. The task of building both a ER stockpile and and self-insured LTC stockpile simultaneously would seem to be a challenging task for most, I would think.

Absolutely, planning for LTC is a very tough and personal decision to make. If you insure and never have need you use it you beat yourself up over all the lost premiums, but if you self-insure and come up short of your needs you are just as miserable or worse.

 

[samclem]

One thing that wasn't clear to me when I started looking into this was the whole issue of inflation protection. As you can see on the Fed LTCI site, they offer 5% inflation protection, 4% inflation protection and the "Future Purchase Option." With the 4% and 5% plans, you pay a premium that never changes over the years. With the FPO plan you are given the option to buy more coverage to keep up with inflation.

The FPO option is much cheaper than the others. For example, in my case the FPO option would cost just 25% of what the 5% inflation protection plan would cost for similar coverage. That's a LOT of money--a difference of about $150 per month. I figured this might be a smart approach--just buy the FPO option and, as inflation happened I'd just keep increasing my premiums to keep my "real" benefit the same. I liked the idea of buying the inflation increases roughly as they were needed rather than paying a bunch of premiums up front to cover the impact of inflation decades in the future.

But it doesn't work out very well. Over the years as you buy the additional insurance you buy it at the rate the company charges for an individual who has reached that age. Older folks pay a LOT for each additional dollar in the benefit amount. If you play around with the spreadsheet you'll see that it's very expensive (to the point of unaffordabilty for me) to keep the same "real" coverage as you get older.

 

[kaneohe]

If you insure and never have need you use it you beat yourself up over all the lost premiums.

.....this could be applied to any insurance......one mental adjustment might be to ask whether you would rather collect on this or any insurance. I suspect I'd rather spend the $$$ and not be involved in any auto accident, lawsuit, earthquake, nursing home,etc. As they say you can't necessarily control events, only your reaction to them.

 

[Alan]

.....this could be applied to any insurance......one mental adjustment might be to ask whether you would rather collect on this or any insurance. I suspect I'd rather spend the $$$ and not be involved in any auto accident, lawsuit, earthquake, nursing home,etc. As they say you can't necessarily control events, only your reaction to them.

I agree which is why I said it is a very personal decision.

I pay as little insurance as I can without staying awake at night worrying about it. High deductibles on auto insurance, no collision coverage on older cars, etc. (I do have umbrella coverage to help me sleep )

With LTCi I believe we are high enough earners and have started early enough to self insure.

 

[audreyh1]

This seems to me like the most straightforward way to approach this issue. What I don't understand is what people mean when they say they are going to self-insure. Does this mean they are going to accumulate a dedicated lump sum (separate from retirement funds) equal to some "average" number of years of care......which seems to come out to about 300K for 4 yrs or 750K for 10 yrs. If that is what the goal is, won't it always be cheaper to buy LTC insurance since you won't be buying all those years but only the statistical "expectation" of the years that you will need that care (plus insurance co. profits).

I think of it in terms of: if one of us spends say $500K (today's dollars) on LTC, is there still enough portfolio nest egg left over for the surviving spouse to have a decent quality of life? If yes, then the surviving spouse should also have enough leftover for their LTC if needed.

We don't keep it as a separate account, it's considered to be part of our retirement fund. And the simple assumption is that the surviving spouse won't need quite as much of a retirement nest egg as a couple does. Say, if a couple had a $2M nest egg that supported $80K annual withdrawal, and 1/4 of it went to long term care for one of the couple. Would it be reasonable for the surviving spouse to get by with 3/4 of the annual withdrawal or $60K? Maybe, maybe not - depends on the couple. I guess you have to figure out how big the retirement fund needs to be.

BTW - I have heard numbers like $3M to $4M threshold nest egg for self-insure LTC. That would mean that after covering one spouse that say cost $500K, the surviving spouse would still have 83% to 87% of the portfolio which doesn't seem like that bad of a "paycut" for going from two people to one person living off the nest egg.

Wouldn't it be cheaper to buy LTC insurance? Maybe if it were absolutely guaranteed to be there when you needed it, and it were truly adequate inflation-adjusted coverage, and that you maintained it without interruption, and that you handled the increasing premiums over time. But some of us prefer to "take our chances" of not needing it, or not needing much, and if it turns out otherwise, well we better make sure our retirement fund is big enough to have enough left over for the surviving spouse. So then, if your retirement fund is big enough, why buy insurance? That's what it really comes down to.

It's when the retirement fund cannot survive the costs of LTC for one spouse without leaving the other destitute or in a very bad poor situation that you absolutely must buy the insurance.

Audrey

 

[samclem]

(What follows is a random idea, not a recommendation).
One thing I've thought about is buying LTCI without the inflation protection in a conscious attempt to affordably insure against an unlikely but devastating occurrance--early incapacitation. If either DW or I start to break down to the extent that we can't perform 2 of the 5 "functions of daily living" in our 80s, odds are that other biological systems will also be on the decline and that the grim reaper will make an appearance in a relatively few years. Paying for care out of savings would be possible for a few years without gravely endangering the financial security of the other spouse. Also, at that point hopefully many decades from now, our portfolio might have climbed one of those many "alternate future" upward growth lines shown in FIRECalc and the money will be there so things won't be that tight.

But what if a stroke, accident, or other unlikely but possible event puts one of us in need of care much younger--in our 50s or 60s? Like a bad stock market in the early years of retirement, this could crash our portfolio before compounding had a chance to work its magic. The other spouse could well be left in a tight financial situation with expended resources and continuing big LTC bills. Also, a relatively young person in a NH or requiring daily in-home care is going to be stronger and likely to remain alive much longer. From a financial perspective, this is the worst situation.

So, maybe buy that cheap LTCI policy without the inflation protection. It will provide, in effect, declining real coverage over the years, which may be just what is most needed as true insurance against the most unlikely but catastrophic eventuality. And, if LTC is needed in our 80s, the policy will still pay off. Yes, the benefit will have eroded a lot due to inflation, but the $150/day checks from the insurer should still buy something (good coffee and a back rub?).

According to the OPM LTC web site, a 50 year old can buy a LTCI policy that pays $150/day in benefits with no cap on the duration of the care for a monthly premium of about $55 if the plan has no inflation protection. The same benefits with the automatic 5% annual increase in benefits carries a premium of $214 per month. These rates are probably similar to those available through other carriers. That's a big difference, and $55 per month, $100 for both of us, might be worth doing, whereas $420 (for the 5% inflation protected plan for both of us) definitely is not within our budget.

One other thing: As I noted previously, the premiums go up a lot if you decide to buy the benefits needed to keep up with inflation in future years--but that option is available. As the years go by, if there's reason to believe you are becoming especially likely to need LTC well ahead of the average bear, you can start paying for the inflation protection, thereby stopping the erosion of benefits. The added premium might be well worth it if it looks like you'll likely need the benefits.

 

[kaneohe]

I think of it in terms of: if one of us spends say $500K (today's dollars) on LTC, is there still enough portfolio nest egg left over for the surviving spouse to have a decent quality of life? If yes, then the surviving spouse should also have enough leftover for their LTC if needed.

We don't keep it as a separate account, it's considered to be part of our retirement fund. And the simple assumption is that the surviving spouse won't need quite as much of a retirement nest egg as a couple does. Say, if a couple had a $2M nest egg that supported $80K annual withdrawal, and 1/4 of it went to long term care for one of the couple. Would it be reasonable for the surviving spouse to get by with 3/4 of the annual withdrawal or $60K? Maybe, maybe not - depends on the couple. I guess you have to figure out how bit the retirement fund needs to be.

BTW - I have heard numbers like $3M to $4M threshold nest egg for self-insure LTC. That would mean that after covering one spouse that say cost %500K, the surviving spouse would still have 83% to 87% of the portfolio which doesn't seem like that bad of a "paycut" for going from two people to one person living off the nest egg.

Wouldn't it be cheaper to buy LTC insurance? Maybe if it were absolutely guaranteed to be there when you needed it, and it were truly adequate inflation-adjusted coverage, and that you maintained it without interruption, and that you handled the increasing premiums over time. But some of us prefer to "take our chances" of not needing it, or not needing much, and if it turns out otherwise, well we better make sure our retirement fund is big enough to have enough left over for the surviving spouse. So then, if your retirement fund is big enough, why buy insurance? That's what it really comes down to.

It's when the retirement fund cannot survive the costs of LTC for one spouse without leaving the other destitute or in a very bad poor situation that you absolutely must buy the insurance.

Audrey

Thanks, Audrey, sounds like you've thought it out well.

 

[ChrisC]

According to the OPM LTC web site, a 50 year old can buy a LTCI policy that pays $150/day in benefits with no cap on the duration of the care for a monthly premium of about $55 if the plan has no inflation protection. The same benefits with the automatic 5% annual increase in benefits carries a premium of $214 per month. These rates are probably similar to those available through other carriers.

Those figures are puzzling to me. Perhaps, at some point you price yourself out of LTCi with age. My wife and I purchased, at ages 48 and 51, seven years ago, a FedLTCi policy that has a $150 DBA with a 5 year cap on duration and with the 5% automatic inflation adjustment. Our premiums for both of us are $202 per month. (Premiums I can now pay from the HSA I set up a few years ago.) Thus far, with the inflation adjustment our DBA has now risen to $201 and our lifetime benefit has increased from $273K to $363K. As mentioned before, our premiums would actually slightly go down (with some added coverage as well) if we dowgraded to a 4% inflation adjustment, at ages 56 and 59.

Of course, this is a choice driven by personal circumstance and risk tolerance.

 

[Independent]

This seems to me like the most straightforward way to approach this issue. What I don't understand is what people mean when they say they are going to self-insure. Does this mean they are going to accumulate a dedicated lump sum (separate from retirement funds) equal to some "average" number of years of care......which seems to come out to about 300K for 4 yrs or 750K for 10 yrs. If that is what the goal is, won't it always be cheaper to buy LTC insurance since you won't be buying all those years but only the statistical "expectation" of the years that you will need that care (plus insurance co. profits).

I think the easiest analysis comes from assuming that you will put aside a separate, dedicated LTC fund. Presumably, you don't spend the earnings because they have to stay inside the fund to keep it growing with LTC cost inflation.

But, it's probably more efficient to hold all your assets together. That allows you to use any "extra" earnings as they arise. It probably depends on where you are putting your LTC fund -- stocks or TIPS?

Theoretically, the insurance strategy has exactly the advantage that you specified. You only need to pay enough premium to cover the average costs which include people who never pay for LTC and people who have short periods of disability. However, insurance also comes with the additional expenses of marketing, underwriting, administration, and profit. Further, you have the risk of insurance company mis-management that results in high premium increases or poor claims service.

Another consideration: Suppose you set up an LTC self insurance fund, but you use hardly any of it, and die with a lot left. That will be a real disappointment to some people but not to others. Those who feel pretty good about leaving money to the kids aren't particularly upset over this "inefficiency" of self insuring. Those who truly want to die broke are upset.

I think this last is a very common approach. Lots of people don't want to spend all their assets because they want an "emergency fund". The emergency they are really concerned about is LTC, but they often won't admit that. They are okay with carrying the emergency fund all the way to death. If they never need it, the kids get it. If they do, the kids get nothing, but at least "we coverd our own expenses without being a burden". Insurance may be more efficient, but this approach isn't terrible.

 

[ChrisC]

I think this last is a very common approach. Lots of people don't want to spend all their assets because they want an "emergency fund". The emergency they are really concerned about is LTC, but they often won't admit that. They are okay with carrying the emergency fund all the way to death. If they never need it, the kids get it. If they do, the kids get nothing, but at least "we coverd our own expenses without being a burden". Insurance may be more efficient, but this approach isn't terrible.

On the other hand, some might take out LTCi precisely because they think, if the risk becomes a reality, that it alleviates one headache from family members and that it might leave more money on the table for a surviving spouse (for him or her to carry out retirement plans) and later for heirs. It's not unreasonable to self-insure -- one can self-insure against any risk. And some risks are well worth self-insuring -- I seldom, if ever, buy extended warranties on products or title insurance on real property in some cases. Yet, there are some risks, even those I might have significant control over, that I would find it foolish for me to self-insure: the gravity of the harm that might result from the risk occurring is so great, irrespective of its potential likelihood of occurrence, that I sleep much better at night with having that risk taken care of by insurance --e.g. professional malpractice insurance.

With insurance, one leverages dollars and passes on most of the headache and cost of the potential happening of an event to someone else. That to me is the basic issue of whether you obtain LTCi. If you can truly afford to absorb the headache and cost, then why bother with any insurance? I know, I know, I know, LTCi is different because it's a new product, not much seasoning, etc. Here's a good overview of the insurance issues: ConsumerReports.org - Long-term-care insurance 11/03: Long-term health care, elderly care, disability insurance plan.