Long Term Care Annuity ?????

[samclem]

My comment was about insurability.

Yes. I was responding to your "even if they decide later there is a better course of action and they drop it" idea. I'm just observing that the decision to drop such a policy years down the road would be a huge waste of premiums that had been paid at much higher rates in anticipation of higher future likelihood of needing LTC. Luckily, most folks realize this and are not abandoning their policies. That's one reason insurance companies have lost money in this line of products.

 

[REWahoo]

Yes. I was responding to your "even if they decide later there is a better course of action and they drop it" idea. I'm just observing that the decision to drop such a policy years down the road would be a huge waste of premiums that had been paid at much higher rates in anticipation of higher future likelihood of needing LTC..

Why would you not view LTCi the same way as term life?

I bought a term life policy to bridge a potential financial gap for my family until we became FI, could "self insure" and no longer had a need for it. I view the LTC policy we purchased at age 52 in the same way. At some point we can probably self insure and will no longer need it. I don't view that as a waste of premium any more than I view my home insurance premiums a waste if it is never destroyed by a tornado or a fire.

 

[donheff]

Why would you not view LTCi the same way as term life?

I bought a term life policy to bridge a potential financial gap for my family until we became FI, could "self insure" and no longer had a need for it. I view the LTC policy we purchased at age 52 in the same way. At some point we can probably self insure and will no longer need it. I don't view that as a waste of premium any more than I view my home insurance premiums a waste if it is never destroyed by a tornado or a fire.

The reasoning does seem quite different. Term covers a catastrophe that may happen now but won't be an issue in the future. Term rates rise with age and when you can safely dump it you do so. LTC covers a catastrophe that likely will take place in the future. Rates are typically flat. The intent (for many - most?) is to avoid blowing the nest egg and going on Medicaid. If you decide to drop LTC part way in your calculation would seem to require that the portion of your nest egg dedicated to LTC is large enough to generate sufficient funds to match the LTC policy coverage and yet should not be sufficient to throw off income (over anticipated lifetime) that would exceed the LTC premiums.

Using myself as an example, LTC premiums are about $2100/yr (self only). Just using a rough 25x rule as a guestimate that would limit me to a $52,400 "LTC self insure fund" -- anything more would cost me more than the premiums. $52K doesn't even approach the unlimited stay care my LTC policy provides. It doesn't even come close to my FILs much more limited 3 year plan. It would seem that the only way to save up a lump sum large enough to replace LTC would be to invest all the premiums from a young age (i.e. skip the LTC), not wait until you have paid many years in and then drop it.

 

[samclem]

Why would you not view LTCi the same way as term life?

I bought a term life policy to bridge a potential financial gap for my family until we became FI, could "self insure" and no longer had a need for it. I view the LTC policy we purchased at age 52 in the same way. At some point we can probably self insure and will no longer need it. I don't view that as a waste of premium any more than I view my home insurance premiums a waste if it is never destroyed by a tornado or a fire.

Right, but if one wanted to buy LTCi to cover a gap like that (say 10 years or so) it would be much less expensive to buy LTCi as a term policy. Of course, they don't sell that, but the closest thing is to buy a policy without the so-called "inflation protection." For example:
Policy type: $200/day benefit for 5 years, purchased by a 50 YO (info below from the Federal LTCi plan, because the info is easily available)
Option A: With the 5% Inflation protection: Monthly premium is $205
Option B: Without the 5% inflation protection (but with the guarantee that you can always buy additional insurance for an individual of your age at that time). Monthly premium: $55.

So, if you just need the policy for a limited time, it would cost much less to buy the "term" policy than the "whole life" policy. In fact, if you just needed the coverage for 10 years, you could buy twice as much (benefit of $400/day), at about half the price and you'd have even better inflation protection for that period. That's why I wrote to chinaco that an individual shouldn't buy the inflation coverage if they didn't intend to keep the policy for the long haul.

I'd thought about going this "term" route, and even keeping the policy for a long time. Exercising the "future purchase option" every few years gets very expensive as one gets older, but if you had reason to believe you were especially likely to need the LTCi, it might be worth buying. In the interim, you're protected, can invest the difference in premiums, and you can see if your larger portfolio grows enough to allow self-insurance to become a reality. As a bonus, if the insurer goes belly-up or raises rates to unaffordable levels, you've wasted a LOT less money.

Buying the LTCi policy without the inflation protection is, in effect, like buying a "decreasing term" life insurance policy. The buying power of the benefit amount decreases over time as a result of inflation (and so does the premium, since it's fixed). Maybe that kind of coverage makes sense for a lot of folks. Unfortunately, the state "Partnership Programs" only approve LTCi policies that have the inflation protection included. Without the partnership "seal of approval," you have to spend down a lot of your portfolio before you'd qualify for Medicaid. OTOH, with a 5 year LTCi policy, you might be able to transfer your assets to a trust and use the LTCi benefits while the 5 year "lookback clock" ticked down, then go on Medicaid.

 

[FinanceDude]

It would seem that the only way to save up a lump sum large enough to replace LTC would be to invest all the premiums from day a young age (i.e. skip the LTC), not wait until you have paid many years in and then drop it.

I have seen personally several cases where folks dropped LTC after paying premiums for many years, had to go into assisted living and nursing home care, and watched their life saving disappear. People want insurance AFTER they need it, frequently that's like closing the barn door after the horses are long gone..........

 

[ziggy29]

Simply put, until I trust that insurers can properly price the product so that they don't have to keep raising "locked in" premiums because they mispriced it, I'll pass. They market the "buy it while you're young and lock in the lowest rates" thing, but then they often raise the premiums several times, often by very large chunks, before you reach the age where you're more likely to need it.

 

[FinanceDude]

Simply put, until I trust that insurers can properly price the product so that they don't have to keep raising "locked in" premiums because they mispriced it, I'll pass. They market the "buy it while you're young and lock in the lowest rates" thing, but then they often raise the premiums several times, often by very large chunks, before you reach the age where you're more likely to need it.

One thing I have not seen mentioned on this thread is that insurers have assumed a 45 year old person as a beginning pricing model. Also, like I said, there are a couple companies that will take a lump sum and leverage that based on age. No medical underwriting, just a cognitive phone interview. A 75 year old is about 3 times premium, a 55 year old could be as much as 5 times lump sum premium. No inflation or COLA increase, but for some people it is an option, YMMV........

 

[chinaco]

One thing I have not seen mentioned on this thread is that insurers have assumed a 45 year old person as a beginning pricing model. Also, like I said, there are a couple companies that will take a lump sum and leverage that based on age. No medical underwriting, just a cognitive phone interview. A 75 year old is about 3 times premium, a 55 year old could be as much as 5 times lump sum premium. No inflation or COLA increase, but for some people it is an option, YMMV........

Which companies provide that sort of lump sum LTC insurance? Are you describing a life insurance policy with an LTC rider?

 

[FinanceDude]

Which companies provide that sort of lump sum LTC insurance? Are you describing a life insurance policy with an LTC rider?

Yes, universal life with an LTC rider. It is lump sum, but you can get your principal back at anytime.

 

[Huston55]

There are some posts that touch on this but, I'd like to hear more opinions.

Why not self insure via establishing guaranteed income streams that are adequate to cover LTC? For example, if LTC is $5k/mo, why not use SS + pension (if available) + Annuity to cover any remaining gap to establish >=$5k/mo income?

This also dove tales well with the approach of establishing guaranteed income streams for "essential" expenses and retaining a portfolio for "discretionary" expenses.

The pros (no insurance company to hassle with, you don't pay for something you may not need, you get income from the $$$ you 'give up') seem to outweigh the cons (flip side of pros above, risk of increasing costs via premium increases).

Thoughts?

 

[donheff]

Why not self insure via establishing guaranteed income streams that are adequate to cover LTC? For example, if LTC is $5k/mo, why not use SS + pension (if available) + Annuity to cover any remaining gap to establish >=$5k/mo income?

Thoughts?

\Most people do, although it would be hard to self insure against bad scenarios without setting aside a lot of money. Nursing care can cost $60k/yr+ and could go on for years or decades. You can insure for a shorter (much more likely stay) but then you are gambling with loss of estate and Medicaid for your final days. That is OK for some and not for others. I would like to leave a substantial inheritance and find the the $350/mth for excellent coverage for DW and myself to be a reasonable option. The odds are I will pay more than I pull. But DW's father (Alzhiemer's) has already pulled many times more than he paid and he may have quite a bit more time to go.

 

[FinanceDude]

Why not self insure via establishing guaranteed income streams that are adequate to cover LTC? For example, if LTC is $5k/mo, why not use SS + pension (if available) + Annuity to cover any remaining gap to establish >=$5k/mo income?

Most people do not have the means to self-insure. Assisted living is one thing, 24 hour nursing care in many areas can hit $8-$10K a month. Think about needed that for 5-10 years or more......

The pros (no insurance company to hassle with, you don't pay for something you may not need, you get income from the $$$ you 'give up') seem to outweigh the cons (flip side of pros above, risk of increasing costs via premium increases).Thoughts?

Sure, those are pros, but again, can you afford it? I think LTC is a big issue, medical advances mean that folks who died within months 30 years ago now live decades......