Long Term Care Insurance

[stephenandrew]

Without going into all of the details, I am able to purchase LTC insurance from Genworth for myself and wife for about $2800 per year ($200 per day coverage, max coverage for 4 years, 90 day waiting period). My wife and I are both 45, hope to have a nest egg of somewhere between $2 and $3 milion when we retire plus pensions of around $60,000 (total) per year hopefully around 58 years old. We would like to leave some assets to our children subsequent to our death. Any thought on making this purchase? Would I be better off investing the amount myself? I would characterize myself as being prudently risk adverse. Thanks.

 

[MasterBlaster]

Stephenandrew:

Some questions for you...

What will $200/day buy when you are 80 and need the care ?
What would $2800/year invested buy in real terms ?

What is the likelihood that you'll be in a nursing home for more than a few months ? Would your assets likely cover that expense ? Can you self insure ?

here is what consumer Reports had to say about Long Term Care Insurance...

A CR investigation, for which we reviewed 47 policies, reveals that for most people, long-term-care insurance is too risky and too expensive. As with health insurance, you must keep paying to keep it in force. If premiums rise, you may have to drop the coverage, possibly losing everything that you’ve paid. The policy’s benefits may cover only a portion of the total expense. Many policies are packed with catches that can keep you from collecting. Finally, there’s no guarantee that long-term-care insurers, some of which have weak balance sheets, will be around 20, 30, or 40 years from now when you need them to pay.

CR recommends that you skip LTCI if your assets are greater than $1.5 MM

Check out the article here:

ConsumerReports.org - Long-term-care insurance 11/03: Long-term health care, elderly care, disability insurance plan.

 

[Goonie]

I had been checking into LTC insurance for a couple of years, researching the pros and cons, and all of the various coverage options, etc. Shortly after my 50th BD, I made the decision to purchase a policy endorsed by my pension fund, from Prudential. I have $180/day with inflation protection, 90 day waiting period, home care/assisted living/nursing home coverage, 10 year coverage.

The home care will pay not only 'professional' assistance (or whatever the proper term is) but it also will pay a friend or relative who would render care.

I know the 10 year thing is longer than statistics would normally recommend, but I wanted to be sure that I had all my bases covered (as much as is possible). If I ever get to the point where I need assistance (regardless of how much or where), I had to take into account that, other than my Mom (who's 80), I have no one else around to tend to me. My nearest relatives are 700 miles away, and I don't think I could handle them being around me very much anyway.

After the initial 90 day waiting period, if I needed in-home assistance, say 2 days a week, the LTC would pay for it as 2 day...not as a week! So it would work out to 104 days out of 365. At that rate, it would pay those 104 days for 35 years. That is an extreme example that is EXTREMELY unlikely, but it illustrates the principle.

There's a lot more detail to my policy, but those listed above are the highlights of it. BTW, the cost is just over $2100 a year.

Anyway, I know I'm a lot more comfortable knowing I have this coverage in place IF I ever need it. I'd rather have it and never need it, than need it and not have it! And me being single, it's just something that I felt I needed to weigh out very carefully and thoughtfully.

(YMMV)

 

[donheff]

DW and I are in a similar situation to you but add a decade. We purchased LTC through the Federal Government program. Our research at the time (pre Consumer Reports) indicated that those with more money would benefit through protection of assets in the event of a catastrophic long term care situation. Also, the Office of Personnel Management oversees the insurance contract that provides the care and would, presumably, pressure the carrier to correct deceptive practices and would switch coverage in the event of failure.

 

[stephenandrew]

What will $200/day buy when you are 80 and need the care ? I should have mentioned the policy I am considering provides for an inflation adjustment of 5% per year, so I think my purchasing power will be protected.
What would $2800/year invested buy in real terms ? I did the math and, if I did it corectly, assuming an 8% annual return and 2.5% inflation, I would have slightly more than $200,000 in current dollars if I invested this myself through 2040. It is a pretty tidy sum of money, but it is obviously not a guaranteed return (though I suspect it is a pretty reasonable estimate). Itr is hard to compare the accrued amount of the investment to the cost of the insurance, however, because if I need LTC tomorrow (car accident or something), then my investment horizion will obviously be a shorter period of time.

What is the likelihood that you'll be in a nursing home for more than a few months ? From everything I have read, the likelihood is pretty low, though I guess that is why I am consdering the insurance---becasue I don't know what will happen in our case. I agree (and hope) that you are likely correct, however. Would your assets likely cover that expense ? Can you self insure ? CR recommends that you skip LTCI if your assets are greater than $1.5 MM I have seen this figure as well, and assumed this was per person, so in our case (wife and I), I assume we would need $3 MM to self insure. This would be the upper limit of what we would expect to have as our "nest egg" when we retire. Again, thinking that I would like to preserve some of our assets to leave to the kids, and we would be right at the "threshold" of being able to self insure, made me think LTC insurance might be appropriate.

Thanks for helping me try to focus my attention on the correct issues.

 

[cj]

Interesting - stevenandrew indicates that they want to preserve assets to pass along to the kids. So if it's a high priority to pass assets to children, then in any and all calculations for ER, LTC decision, SWR, etc., you should subtract out the amount you want to pass down, right? e.g., if you have $2M in assets, but you want to leave $1M to the kids, then you should do all of your calculations assuming you only have $1M in assets and budget with that amount.

I don't have kids, and I don't really understand the logic. With my parents, I know how much money they have (the amount is modest, but probably sufficient for them at 75), and I hope they spend it all and enjoy every last penny, and that when the last one of them passes away, there is only enough left to pay the undertaker!! I don't expect them to take care of me. I'd be hard pressed to take on $2800 a year for the rest of my life so that there is money for the kids after I'm gone. The exception would be if there is some sort of disability, where one or more children can't provide for themselves. Absent that, help them with education, and teach them how to manage their finances, and let them be proud that they can make it on their own. But that's just me. Apologies if that is too harsh or selfish!

As MasterBlaster said, I'm also leery about taking out a policy for something I most likely won't need for at least 30 years - who knows what could change until then (there’s no guarantee that long-term-care insurers, some of which have weak balance sheets, will be around 20, 30, or 40 years from now when you need them to pay")?

CJ

 

[ChrisC]

Ah, if we could predict the future our decisions would be so much easier. My wife and I purchased LTC at 50ish in a program sponsored by our employer, the Federal Government. We have a policy that covers us for 5 years with inflation protection. Not sure we made the right decision and we will be re-evaluating it annually as we grow older, in light our health and financial conditions. You still have several years to consider this decision but at some point delaying a decision might foreclose your opportunity to obtain insurance at affordable rates.

Two recent personal events for us have buttressed our decision to purchase LTC. First, we had a dear friend who was about to retirement go into hip replacement surgery -- he didn't fare so well and came out in really bad shape, initially in a semi-vegetative state; he's now breathing on his own and possesses cognitive awareness -- his recovery has been absolutely remarkable over the last 12 months but I suspect he will be getting long-term nursing care at his home for several years. He had no LTC insurance and this is a big drain on his resources. In many respects, people tend to view LTC insurance as covering health risks as we get older, but it also covers the unforeseen accidental risks that we all face.

Second, we had to place my mother in a nursing facility. We're scrambling around to fund these expenses from the limited assets she possesses. We hate to see her home liquidated to fund all of these expenses, but this is the likely scenario for her. This experience made me realize that LTC insurance might make this transition much smoother for those who have to look after others, though the reports about LTC insurers fighting claims has been distressing to me.

Good luck.

PS. I think there are earlier threads on this topic.

 

[MasterBlaster]

CR recommends that you skip LTCI if your assets are greater than $1.5 MM I have seen this figure as well, and assumed this was per person, so in our case (wife and I), I assume we would need $3 MM to self insure.

Note that if the probability of one of you needing long term care for more than a few months is low...

then the joint probability of both of you needing long term care for more than a few months is really really low (specifically it is low squared).

So for example if the probability of one of you needing care for more than a few months is 1 percent (0.01). Then the probability of both of you needing care for more than a few months is 0.01 percent (ie 0.01 percent is 0.0001 == 0.01*0.01).

Use your own numbers, however you can see that the likelihood of both of you needing extended care is almost negligible.

 

[Goonie]

I always thought LTC and nursing homes were just for the elderly, until a friend of mine ended up in one a little over 3 years ago. We went to school together from kindergarten through HS, and he had never been sick or had any medical problem, other than the normal childhood stuff. One day he tripped going down the basement stairs and wacked his head. After he was released from the hospital he spent over a year in a nursing home, then he had to have in-home assistance for several months after that.

He didn't have LTC ins, and he hasn't been able tho return to w*rk since then. He's now having to spend down his nestegg at a much younger age than he had intended or planned for. He was only 46 at the time of his accident....a fairly long way from being elderly. His situation is also a good reason to think about a disability policy if you're still w*rking.

Knowing what he has gone through was one of the reasons that I decided on a LTC policy. (Even though I positively won't ever fall down my basement stairs. I don't have a basement! )

 

[MasterBlaster]

Disability insurance for a working person is necessary.

Long term Care insurance is... questionable.

 

[Goonie]

Disability insurance for a working person is necessary.

Long term Care insurance is... questionable.

Agreed, MB. Is LTCI for everybody? Most likely not. But it's something that (IMHO) everybody needs to think about and research and 'run the numbers', to determine whether it would be beneficial to them or not. There are many factors that come into consideration in making one's decision, like family health history, ability and/or desire to "self-insure", age, whether there are close family members near by or not, and of course, risk tolerance.

All of that took me a couple of years to ponder and hash out. Besides, the amount of the premium that I pay per year, would only cover less than 2 weeks of a nursing home stay here, after the 90 day waiting period of course.

Like all insurance products.....it's insurance against the unknown.

 

[chinaco]

We have chosen to have an LTC policy. After seeing how many people run into problems as they age... it seems like a prudent choice if one can afford it.

I have noticed that some people think LTC is a good idea and others think it is a poor choice.

Having a policy that will pay for in-home care/assistance is very important. I suspect that No One wants to go to a nursing home!!!

Another key aspect of LTC is that it protects the family assets for the surviving spouse... in addition to giving the spouse money to provide care for the loved one.

True enough, the insurance company could go out of business, maybe cancel the policy (subject to certain rules), raise premiums, etc. At this time, unless one is wealthy... LTC might be as good as it gets to avoid the financial risk and/or defray costs.

Probably the best advice is to do your best (Things in your control) to remain healthy (exercise, diet, etc)... but prepare for the worst.