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

[ERD50]

bold mine...

I thought the $400k sounded pretty high too (really, really high), but that is what prompted her to call us and ask about LTC insurance. She didn't want to end up with her kids in the same position. I usually hear the numbers $60-120k per year depending on the quality of the place.

So dgoldenz, you might do a better job of appearing unbiased if you mentioned the "usual case" numbers in your post, rather than only the extreme case 4x number that you heard once, from somebody, with no explanation as to what drove those expenses. Especially when the usual case numbers come out only after you were questioned on it. Which number do you use with a potential client?

I don't know where the $400k number came from, but she said over the course of two years she had spent $800k of her own money on care for her mother, who was about 85 years old.

Funny how we are so accepting of numbers when they tell us what we want to hear?

Lars, dgoldenz has said in prior posts that he is a working insurance broker. So it is probably best that we bear that in mind as we read and evaluate his posts. I tend to be skeptical, too.

+1. Though based on that post you can move me from "skeptical'" to "convinced".

-ERD50

 

[dgoldenz]

bold mine...

So dgoldenz, you might do a better job of appearing unbiased if you mentioned the "usual case" numbers in your post, rather than only the extreme case 4x number that you heard once, from somebody, with no explanation as to what drove those expenses. Especially when the usual case numbers come out only after you were questioned on it. Which number do you use with a potential client?

Funny how we are so accepting of numbers when they tell us what we want to hear?

+1. Though based on that post you can move me from "skeptical'" to "convinced".

-ERD50

Thanks for your skepticism. I send them to Genworth's website to calculate costs for themselves. Check some rates for +20 years and you'll probably be pretty shocked. Here's a link:

2009 Cost of Care: Long Term Care Survey - Genworth Financial - USA

Check out what a Medicare certified & licensed home health aide will cost in Nevada in 2029.....how about a projected $789,000 per year for 8 hours of care per day, 5 days a week? Even at today's rate, it shows an average of $297k per year. The costs vary greatly by state, but you get the idea. Most states at today's rates have private rooms in a nursing home averaging $60-80k per year and an expected cost of $200-250k in 2029. How about a middle-of-nowhere state like Alaska - average nursing home private room is $187k per year today. Hawaii? $152k average today. Massachusetts? $107k average per year today.

What if you're still healthy in 2029 and won't need any LTC until 2039 instead? That's a pretty realistic scenario for someone who is 45-55 years old today.

 

[M Paquette]

Check out what a Medicare certified & licensed home health aide will cost in Nevada in 2029.....how about a projected $789,000 per year for 8 hours of care per day, 5 days a week? Even at today's rate, it shows an average of $297k per year.

Yes, that sounds like a lot. The change from the current 297K/year to the 789K/year (assuming 2009 dollars) figure 20 years from now happens to be precisely a 5% per year increase. That matches pretty well with the 5% over broad inflation that we see in medical costs.

That same rate of inflation will put my medical insurance costs at just over 100K/year in 2009 dollars in 2029. (based on individual insurance costs for FY2010, where DW and I are in the High Risk pool, in my case for a benign, non-cancerous, non-precancerous polyp found several years ago and a mildly enlarged prostate, also non-cancerous).

None of these figures are actually sustainable. They place medical spending as the largest single component of the US Gross Domestic Product in 2029.

 

[dgoldenz]

Yes, that sounds like a lot. The change from the current 297K/year to the 789K/year (assuming 2009 dollars) figure 20 years from now happens to be precisely a 5% per year increase. That matches pretty well with the 5% over broad inflation that we see in medical costs.

That same rate of inflation will put my medical insurance costs at just over 100K/year in 2009 dollars in 2029. (based on individual insurance costs for FY2010, where DW and I are in the High Risk pool, in my case for a benign, non-cancerous, non-precancerous polyp found several years ago and a mildly enlarged prostate, also non-cancerous).

None of these figures are actually sustainable. They place medical spending as the largest single component of the US Gross Domestic Product in 2029.

If you ask me, 5% is probably lowballing the actual inflationary cost a bit, but that's just my opinion. You should be able to get health insurance without the high risk pool given the two conditions you just mentioned if they were really benign and non-cancerous. Is your wife in the risk pool too?

 

[rockyj]

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.

<snip>

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

Latecomer to this thread.. but Audrey's thoughts here, perhaps combined with those who mentioned whole life with LTC early payout provision above, make me wonder if individual whole life policies on both partners wouldn't be a better option than LTC for those who think they may be able to self-insure for LTC for one, albeit with the possible subsequent need to replenish the retirement kitty for the surviving spouse. i.e. First spouse partially depletes the kitty for LTC and upon death his/her whole life death benefit fills it back up for income generation or LTC for second spouse. If no or insginifcant LTC is needed by either spouse, then heirs, estate, charity, whatever gets the insurance benefit. Just a half-formed thought, but it seems like maybe a decent alternative - sleep easy on LTC *and* with the knowledge that some insurance benefit will ultimately go to someone or something you care about. I'd be curious what others think.

 

[dgoldenz]

Latecomer to this thread.. but Audrey's thoughts here, perhaps combined with those who mentioned whole life with LTC early payout provision above, make me wonder if individual whole life policies on both partners wouldn't be a better option than LTC for those who think they may be able to self-insure for LTC for one, albeit with the possible subsequent need to replenish the retirement kitty for the surviving spouse. i.e. First spouse partially depletes the kitty for LTC and upon death his/her whole life death benefit fills it back up for income generation or LTC for second spouse. If no or insginifcant LTC is needed by either spouse, then heirs, estate, charity, whatever gets the insurance benefit. Just a half-formed thought, but it seems like maybe a decent alternative - sleep easy on LTC *and* with the knowledge that some insurance benefit will ultimately go to someone or something you care about. I'd be curious what others think.

A whole life policy of that size would be incredibly expensive to have on each spouse.

 

[jimnjana]

A whole life policy of that size would be incredibly expensive to have on each spouse.

I think the point is that a portion of the LTC costs are covered by Whole Life Insurance policies, personal savings and pensions cover the rest.

jim

 

[kaneohe]

this is a numbers game........but I don't see any numbers

 

[dgoldenz]

I think the point is that a portion of the LTC costs are covered by Whole Life Insurance policies, personal savings and pensions cover the rest.

jim

I understand the concept....but a $1 million+ whole life policy on each spouse would run about $40,000 total per year for someone age 50. At that point you might as well just buy the LTC policy for $4-5k and spend the other $35k on something else. A no-lapse UL life insurance policy guarantees death benefits to age 120, but costs 60-70% less per year than whole life.

 

[beowulf]

The main issue seems to be risk aversion and comfort levels versus self insuring. We took out LTC policies at 55. If the premiums stay the same for 15 years, we will have paid approximately $41K. That's less than the cost of one year in a nursing home or assisted living right now where we live. I'm not selling anything - for us, that's money well spent in the event one of us has an accident, a stroke, severe illness, etc. Most of the people we know who have actually used LTC insurance did it well before their dotage. As far as I know, it doesn't matter why you need the care - whether a car accident or some other problem - it will cover the non-doctor care you need.

If premiums really shoot up, then we will have to reevaluate. But I don't see it as any different from a term life policy (which is the only type of life insurance we have). Our 20 year policies run out at 75. I doubt we will be insurable at that time, or only at an onerous premium. And I see no real reason for life insurance after that age. For now, we look at LTC as term coverage with the risk changing each year.

 

[kaneohe]

I think this quote from Audrey's earlier post is my takeaway from this whole thread...
************************************************************************
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
**********************************************************************

 

[youbet]

For now, we look at LTC as term coverage with the risk changing each year.

Well..... except that LTC is much more difficult to understand than term life including price comparisons vs. features, stability of premiums over time and concern about the company being there.

 

[M Paquette]

If you ask me, 5% is probably lowballing the actual inflationary cost a bit, but that's just my opinion.

My point was simply that continuing growth in the cost of medical care (in constant dollars) above the rate of GDP growth over long periods of time leads to untenable results. That 5% rate, over 40 years, leads to medical costs being 140% of GDP, for example, which is patently absurd.

Something will change in the next few decades. Whether it is a deliberate change, or the result of reaching an economic bifurcation point (a change in the qualitative behavior of the system as the cost parameter changes, often chaotic), is entirely up to us.

Welcome to the singularity. The rest, as they say, is politics, and better addressed elsewhere.

 

[LARS]

I agree M Paquette.

As to the original question, I continue to look at the situation as follows:

Assume a policy today that is for $150 per day or ($55,000 pa) and has a duration of three years (or $165,000 in total coverage in today's dollars until exhausted). Buying the insurance with a 5% inflation factor means that in 25 years you have $508 per day of coverage (and total coverage of $556,000).

So if you are comfortable with $1,100,000 (husband and wife) of exposure 25 years out you can afford to self insure. And to be comfortable with that kind of number, it seems to me if you have a net worth of $3 million plus today (and are not concerned with leaving an estate) you are more than likely fine.

 

[samclem]

I agree M Paquette.

As to the original question, I continue to look at the situation as follows:

Assume a policy today that is for $150 per day or ($55,000 pa) and has a duration of three years (or $165,000 in total coverage in today's dollars until exhausted). Buying the insurance with a 5% inflation factor means that in 25 years you have $508 per day of coverage (and total coverage of $556,000).

So if you are comfortable with $1,100,000 (husband and wife) of exposure 25 years out you can afford to self insure. And to be comfortable with that kind of number, it seems to me if you have a net worth of $3 million plus today (and are not concerned with leaving an estate) you are more than likely fine.

Or simpler (to my way of thinking): If you are comfortable assuming that your portfolio will grow at the rate of LTC inflation, then if you have enough "extra" in your portfolio at the start of retirement to pay the estimated cost of LTC for all parties (daily amount x number of days covered), then you may be able to comfortably self-insure. This "extra" amount is money not needed by the spouse on the "outside" to have an acceptable quality of life.

Unless things have changed/do change, the Medicaid lookback period is 5 years. 5 years of LTC at $150/day = $275K. That's the "extra" amount needed in a portfolio today to pay the expected costs of an individual in my area until they could be eligible for Medicaid. I'd guess lots of folks here have that much they could afford to use for this.

For a couple not worried about leaving an estate, it is likely less of a challenge funding LTC if the first spouse is deceased. Selling the home and physical property and amortizing the remaining nest egg, plus use of SS and any pension income, should go a long way to pay for expected costs..

 

[jdw_fire]

I agree M Paquette.

As to the original question, I continue to look at the situation as follows:

Assume a policy today that is for $150 per day or ($55,000 pa) and has a duration of three years (or $165,000 in total coverage in today's dollars until exhausted). Buying the insurance with a 5% inflation factor means that in 25 years you have $508 per day of coverage (and total coverage of $556,000).

So if you are comfortable with $1,100,000 (husband and wife) of exposure 25 years out you can afford to self insure. And to be comfortable with that kind of number, it seems to me if you have a net worth of $3 million plus today (and are not concerned with leaving an estate) you are more than likely fine.

this comment is definately dependant on the couples age but since you said their exposure was twice what the policy had in coverage i am thinking the couple is going to be elderly in 25 years and that raises the question of why do you so much net worth in excess of the of the coverage is needed to be able to self insure. if both people go into LTC at an elderly age what are the chances that they will be coming out? and since you said they arent concerned with leaving an estate, what is the point of the extra $2 mil? seems to me you dont need that big of a cushion to self insure.

 

[LARS]

jdw_fire,

I suppose the comfort factor is two fold. First there are two spouses and so one may live on for quite sometime after the other "needs" LTC (speaks to your age comment/question). Secondly, the $2 million "cushion" should be more than enough to cover periods of sub-par returns over the 25 years and unexpected withdrawals.

 

[jdw_fire]

jdw_fire,

I suppose the comfort factor is two fold. First there are two spouses and so one may live on for quite sometime after the other "needs" LTC (speaks to your age comment/question). Secondly, the $2 million "cushion" should be more than enough to cover periods of sub-par returns over the 25 years and unexpected withdrawals.

well it seems to me that the amount the couple needs to self insure (over and above what they needed to retire on) is closer to the $165k total benefit you mentioned for 1 person. they should be able to invest that such that it keeps up with inflation (like samclem said). and you only need to have extra to self insure 1 cuz the 2nd can use up the retirement portfolio therefore a single retiree doesnt need any extra. there is something to be said for the point samclem made on the 5 year look back so maybe 5 yrs instead of the 3 yrs you suggested would be better.

 

[haha]

I am very interested in the analysis that could help me decide if I need that kind of insurance or not.

Write down your income and available funds. Is there enough that you could pay the premium? Say if you cut back on your wanton use of food?

Yes?

Then buy the policy!

Ha

 

[LARS]

jdw_fire,

That is correct if you set aside the monies today AND you get the 5% return AFTER TAX compounded. Not an easy task IMHO; hence, having the monies today (and you can use the interest as long as you don't touch principle) ensures success.

 

[REWahoo]

A new twist:

AP sources: Senate weighs long-term care program

 

[charlie]

For DW and I, our desire to maximize our estate for our children trumps everything else .... thus we bought LTC insurance in our 50's.

Cheers,

charlie

 

[rescueme]

years ago we did an article with money magazines planners vs us and they wanted to see if their team of pro's could improve upon the plans we layed down in place.

the big area of dis-agreement was long term care. we were thinking of self insuring. their feeling was with the rules of the game changing all the time and the costs escalating they werent in favor of me doing that. we havent done anything yet in that area but they were probley right.

I remember reading the article. May I ask, what was your current "couple" NW in relationship to the then current advice on "self-insure" options, and more importantly as related to the current advice I recieved (regarding a $2-3M gross estate net worth) in self-insuring?

Thanks....

 

[ronin]

From what little I've read about it, the CLASS Act seems to be financially unsound, estimated by the Congressional Budget Office to run a deficit by 2029. It looks like it started out at a projected monthly premium of $65 earlier this year and now seems to have inflated to somewhere around $125-135. It is possibly a budgetary gimmick allowing a bit of the cost of the Health Bill to be offset in the first 5 years or so.

 

[jimnjana]

I understand the concept....but a $1 million+ whole life policy on each spouse would run about $40,000 total per year for someone age 50. At that point you might as well just buy the LTC policy for $4-5k and spend the other $35k on something else. A no-lapse UL life insurance policy guarantees death benefits to age 120, but costs 60-70% less per year than whole life.

I think the requirement for whole life is less than the 1 million on each spouse after you take into consideration, future value of pensions, social security, and the whole life policies purchased, not to mention any savings that could be tapped. Rather than purchasing the $150 or $200 dollar a day coverage LTC with inflation adjustement, that may be realistically needed to cover LTC costs in the future, whole life policies along with other sources of income can be a way of reducing the necessary amount of LTC coverage. Many people (including myself) balk at LTCI because of the cost and the very real possibility that it may never be needed. In my case, If a reduced amount of LTCI can cover a potential "gap" in my ability to self insure, then it may very well be worth it.