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Old 03-08-2011, 07:55 AM   #21
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Dgoldenz, can you talk a bit about the 10 pay policies? Who offers these? Is there any wiggle room whatsoever for the insurer to raise premiums or cut benefits once you are in a 10 pay policy that will be paid up after 10 years? Can you give a rough idea of the premium differential between a 10 pay and an annual (indefinite) pay policy?

Thanks.
Transamerica, Prudential, Assurity, John Hancock, and Mutual/United of Omaha are all offering them right now. Of those companies, United of Omaha and Transamerica offer a rider to guarantee the rates for the full 10 years. They both guarantee the rates for the first three or five years depending on your state, but you can pay extra to have them guaranteed to your choice of 6, 7, 8, 9 or 10 years. The other companies do not have rate guarantees and can raise your rates at any time, even for a 10-pay. Just as an example:

52 year old couple, both preferred health risks
$200/day benefit or $6k/month benefit
3-year benefit period (total of 6 years of shared benefits)
5% compound inflation
90-day elimination period
0-day elimination period for home healthcare
Survivorship benefit and joint waiver of premium after claims begin

Genworth has by far the lowest rates, but no rate guarantee. For Genworth:

Lifetime pay premium = $3,742

United of Omaha has the lowest rates for a company with a 10-year guarantee available. For UoO:

Lifetime pay premium = $4363
10-pay with standard 5-year guarantee = $12,310
10-pay with 10-year rate guarantee = $13,824

So as you can see, there is a big difference in premium, but this example is also for a younger couple that may live another 40-50 years. So that begs the question....do you feel lucky that they won't raise rates in the future, or are you willing to accept the risk for the lower premium?

Personally, I would take my chances with the lifetime pay premium and survivorship benefit. It is entirely possible that this couple could live to age 65 and then one spouse drops dead of a heart attack. At that point, the remaining spouse would have a policy paid up for life since there were no claims and they'd still likely come out ahead of the 10-pay as long as their rates didn't double or triple. The survivorship benefit can also be reduced to a 7-year timeframe instead of the standard 10 years for about an extra 3% in premium cost.
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Old 03-08-2011, 08:32 AM   #22
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Thanks very much for the insight. So the cheapest way for this couple to permanently defease the bulk of their risk on LTC costs with no risk of the insurer effectively welshing on its protection promise (short of default) would be to shell out $138k over 10 years. Such protection does not come cheap.

I am generally of the opinion that standard LTC products are, um, not the industry's best work. I would not recommend them to anyone. A 10 pay or single pay policy from a solid insurer would be attractive on a risk reduction basis, but the cost is high. It will be interesting to watch the evolution of this product over time.
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Old 03-08-2011, 08:59 AM   #23
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Thanks very much for the insight. So the cheapest way for this couple to permanently defease the bulk of their risk on LTC costs with no risk of the insurer effectively welshing on its protection promise (short of default) would be to shell out $138k over 10 years. Such protection does not come cheap.
Well, the company can't "welsh" on its protection promise because insurance policies are contracts. They can raise rates, but the benefits are still available. That's no different than a health insurance company raising rates every year to cover claims - policies are guaranteed renewable, but they reserve the right to raise rates.

A single pay with TA using the example above would be about $135k, so the 10-pay with 10-year rate guarantee is the best option if you want a 100% guarantee that those are the rates and when you're done with those payments, you don't have to worry about it going forward. I'd still go with the lifetime pay if I were buying a policy myself given the cost difference.

Here's another perspective - a single year in a nursing home is expected to average $220-230k by the year 2030. With a 5% compound inflation rider and $432,000 starting benefit pool, the policy maximum benefit in the year 2030 would be about $1.14 million. That's for six years of benefits. How many people can self-insure against more than $1M in claims without spending every penny they have? If we take that example out to 30 years (age 82) instead of 20, there is a benefit pool of over $1.8M available. IMO, $4k/year is a low price to pay for that kind of protection when there is a very good chance that one or both spouses will need LTC at some point.

If you were to set aside $135k and earned 5% interest, you'd have around $358k by the year 2030. That will buy you about 1.5 years in a nursing home at that point using the assumption above. The average nursing home stay is around three years IIRC. One of my relatives spent 7 years in a nursing home...where would the other 5.5 years of payments come from?
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Old 03-08-2011, 09:26 AM   #24
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Spare me the agent-speak. I know full well the math and risks here.

My interest in the limited pay products is quite simple. You cannot defease your LTC potential liability by buying a stadard annual pay policy because the insurer always has the option of jacking rates to the moon. As such, you are still effectively on the hook for these costs via premium increases. In contrast, a single pay policy gives one an up front, firm quote on defeasing this risk once and for all with no wiggle room short of carrier default.
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Old 03-08-2011, 10:18 AM   #25
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Spare me the agent-speak. I know full well the math and risks here.

My interest in the limited pay products is quite simple. You cannot defease your LTC potential liability by buying a stadard annual pay policy because the insurer always has the option of jacking rates to the moon. As such, you are still effectively on the hook for these costs via premium increases. In contrast, a single pay policy gives one an up front, firm quote on defeasing this risk once and for all with no wiggle room short of carrier default.
I agree. Limited pay policies with guaranteed rates are the only way to do that at this point, but at a very high price as you noted. Along the lines of "buy term invest the difference," the interest on $135k could potentially cover most/all of the premiums indefinitely if there were no rate increases. Even in this low interest rate environment, a 10-year fixed annuity is paying about 3.8-4% right now. 4% of $135k = $5400/year, which is a good bit more than the premium itself. Lots of assumptions here obviously....every situation is different.
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Old 03-08-2011, 11:21 AM   #26
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Personally, I would take my chances with the lifetime pay premium and survivorship benefit. It is entirely possible that this couple could live to age 65 and then one spouse drops dead of a heart attack. At that point, the remaining spouse would have a policy paid up for life since there were no claims and they'd still likely come out ahead of the 10-pay as long as their rates didn't double or triple. The survivorship benefit can also be reduced to a 7-year timeframe instead of the standard 10 years for about an extra 3% in premium cost.


Please clarify for me the last sentence....I understand that if one spouse dies, the other no longer has to pay premiums. Is that if it occurs within 10 years or after 10 years?
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Old 03-08-2011, 11:29 AM   #27
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Personally, I would take my chances with the lifetime pay premium and survivorship benefit. It is entirely possible that this couple could live to age 65 and then one spouse drops dead of a heart attack. At that point, the remaining spouse would have a policy paid up for life since there were no claims and they'd still likely come out ahead of the 10-pay as long as their rates didn't double or triple. The survivorship benefit can also be reduced to a 7-year timeframe instead of the standard 10 years for about an extra 3% in premium cost.


Please clarify for me the last sentence....I understand that if one spouse dies, the other no longer has to pay premiums. Is that if it occurs within 10 years or after 10 years?
After 10 years. 7 years if buying the "enhanced" survivorship option. If claims occurred within 10 years for a couple that is now age 52, well, you came out way ahead on what you paid in premiums anyway...
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Old 03-08-2011, 11:39 AM   #28
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Well the wife probably wouldn't need LTC for at least 30 years.

Just for fun, if we invest $2600/year at 5% real growth we get ~$172k in todays dollars to use for long term care at age 82. That would certainly go quite a long way.

And if she doesn't need it the kids can inherit it.
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Old 03-08-2011, 11:59 AM   #29
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Well the wife probably wouldn't need LTC for at least 30 years.

Just for fun, if we invest $2600/year at 5% real growth we get ~$172k in todays dollars to use for long term care at age 82. That would certainly go quite a long way.

And if she doesn't need it the kids can inherit it.
That $172k would be the amount available in 30 years, not the present value. $172k in 30 years will likely buy less than one year in a nursing home. The present value of that is about $40k, which again is less than one year in a nursing home.
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Old 03-08-2011, 12:16 PM   #30
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That $172k would be the amount available in 30 years, not the present value. $172k in 30 years will likely buy less than one year in a nursing home. The present value of that is about $40k, which again is less than one year in a nursing home.
No, The growth in the payment is 5% real (inflation taken out). I should have also indicated that the $2600 payment goes up with inflation.

In that case the $172k is in today's dollars.

Anyway, the concept of self-insuring is one that may also be considered.
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Old 03-08-2011, 12:22 PM   #31
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No, The growth in the payment is 5% real (inflation taken out). I should have also indicated that the $2600 payment goes up with inflation.

In that case the $172k is in today's dollars.

Anyway, the concept of self-insuring is one that may also be considered.
Sorry, thought you were using 5% as the interest rate. That's a big assumption for a couple going into their 60's and 70's that would likely have a lower risk tolerance. You can't self-insure against the risk of an early claim though, which is the reason why insurance exists in the first place....your numbers go out the window if a claim is made in year 7 instead of year 30.
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Old 03-08-2011, 12:23 PM   #32
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John Hancock may be quotng the 2011 rates to you. They will tell me about the 2011 inflation adjustment in August.
aren't you also benefiting from group rates at megacorp?
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Old 03-08-2011, 08:06 PM   #33
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aren't you also benefiting from group rates at megacorp?
Yes, Megacorp furnishes the group statistics but puts no money into our LTC policies. Also, we don't have to buy the inflation adjusted premium in August. We can continue to pay the same rate and have the same coverage.
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Old 03-08-2011, 09:16 PM   #34
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Yes, Megacorp furnishes the group statistics but puts no money into our LTC policies. Also, we don't have to buy the inflation adjusted premium in August. We can continue to pay the same rate and have the same coverage.
Well, not really "the same coverage," right? Since the real buying power of your benefit has decreased by whatever inflation has taken place in the nursing home/home care business.

These policies that allow a person to buy more coverage to keep up with inflation are tricky things, I know I sure was surprised to learn how they work. The costs for these "inflation increases" become huge as one gets older because what you are really doing is buying new coverage on an old (maybe very old) person. Many people will find it extremely expensive to keep buying the additional coverage. I'd strongly urge anyone who is planning to keep this coverage into old age to get a real projection of future costs. I think many people will decide to buy the inflation protection now and pay the higher premiums.
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Old 03-08-2011, 10:31 PM   #35
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We can get group rates through DH's work with John Hancock. We are applying soon. However I doubt they will accept me due to kidney disease. It's not real bad, but I do have to see a specialist several times a year. My friend was denied because she sought out patient counseling for alcohol problems.
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Old 03-08-2011, 10:35 PM   #36
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My friend was denied because she sought out patient counseling for alcohol problems.
That will get you declined for just about any type of insurance.
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Old 03-09-2011, 12:30 AM   #37
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After 10 years. 7 years if buying the "enhanced" survivorship option. If claims occurred within 10 years for a couple that is now age 52, well, you came out way ahead on what you paid in premiums anyway...
Just to clarify this point, with Genworth if you opt for the "enhanced" survivorship option, the policy would be paid up after 7 years of continuous payments regardless of any claims incurred if one spouse dies. The 10 year standard option requires that no claims be made to receive the benefit after the death of one spouse.
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Old 03-09-2011, 12:30 AM   #38
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I am hearing so many stories about people who buy LTC insurance, then end up dropping it when rates are raised dramatically. Even a 10 year payin seems to allow 9 chances for rates to become unreasonable. Does anyone offer LTC priced like longevity insurance? That is I can pay a single premium now (at a younger age maybe) and be guaranteed (as well as any insurance contract is) to have inflation protected LTC coverage in the future. That sounds like a risk for the company but exactly what I would want, a way to pay someone else to assume this risk.
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Old 03-09-2011, 12:34 AM   #39
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I am hearing so many stories about people who buy LTC insurance, then end up dropping it when rates are raised dramatically. Even a 10 year payin seems to allow 9 chances for rates to become unreasonable. Does anyone offer LTC priced like longevity insurance? That is I can pay a single premium now (at a younger age maybe) and be guaranteed (as well as any insurance contract is) to have inflation protected LTC coverage in the future. That sounds like a risk for the company but exactly what I would want, a way to pay someone else to assume this risk.
Yes, some companies still offer a single pay. See the discussion earlier in this post on that. In short, it is available, but expensive.
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Old 03-09-2011, 12:59 PM   #40
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Do you know if they care if you have a parent who had Alzheimers? Well, I mean do they deny you?
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