Long Term Care Update 2010

[Bestwifeever]

Quote:

Originally Posted by GregLee And disability in old age is an unlikely event?

Most people don't live long enough to be disabled, so yes, I think it's unlikely (unlike death).

[Arnie]

We decided to self-insure. We've set aside our Roth's and are planning to dedicate self-insurance funds every month once we are no longer Roth eligible. (Wouldn't have to be the Roth's', its just a way of thinking about segregating it now.) With this approach we will have some funds for that low probability disabling injury and/or for something later in life. Assuming we can keep the discipline, this gives us the most flexibility. If rates are affordable later we can take another look, or use it for the cure like Nords mentioned. Given our track record, if we cannot keep the discipline, its probably because we needed the money for survival so again "flexibility".

[Nords]

Quote:

Originally Posted by GregLee And disability in old age is an unlikely event?

Yes, although the insurance industry would have you believe otherwise.

After all, they sell "life insurance" to millions of people when we all know full well that every one of them is going to end up dead anyway.

Sort of the ultimate "survivor bias" data skew.

[youbet]

Quote:

Originally Posted by Arnie We decided to self-insure. .

We did too. But if I could find a policy with a 2 yr waiting period, I might go for that. We're petty well set for covering a year or 2 of LTC without impoverishing one another. We want something that would help if one of us winds up being "in the home" for many years. So coverage that would kick in after 2 yrs would serve us fine. Of couse, I'm assuming that the 2 yr waiting period would mean low premiums since we'd be much less likely to ever use it than a policy that kicks in after a short period, such as 90 days.

I can't find anything like this. I wonder why it's not offered?

[SunsetSail]

Quote:

Originally Posted by GregLee I'm not sure all of this discussion takes adequate account of this fundamental principle: there's no free lunch. If an insurance company doesn't expect to get substantially more money from you than you get from the company, it is not going to sell you LTC insurance.

A key component of life insurance profit is the calculation that a certain number of policy holders will cease paying their premiums at some point in their policy and the benefit will never be paid out.

I would assume that this is similar with LTC - a certain number of people will die before they are in need of LTC. So you may be oversimplifying the analysis a bit with the statement about getting more money from you than you get from the company unless you are talking about the insurance company's net across all holders of LTC in the aggregate, but that doesn't really apply to this situation.

The problem is that instead of a fixed payout amount, there is an uncertain payout over a period of time. I don't think the insurance companies have figured out how to properly price the policies. I don't see how they can given how many variables there are for costs. If they sell too low a premium, then they go under. If they sell too high, it isn't a good deal. I'm staying away, but I'm young.

[Arnie]

Quote:

Originally Posted by youbet We did too. But if I could find a policy with a 2 yr waiting period, I might go for that. We're petty well set for covering a year or 2 of LTC without impoverishing one another. We want something that would help if one of us winds up being "in the home" for many years. So coverage that would kick in after 2 yrs would serve us fine. Of couse, I'm assuming that the 2 yr waiting period would mean low premiums since we'd be much less likely to ever use it than a policy that kicks in after a short period, such as 90 days. I can't find anything like this. I wonder why it's not offered?

I asked for and received quotes on a one year elimination period. Not sure if longer are available because I did not ask.

Quote:

Originally Posted by SunsetSail The problem is that instead of a fixed payout amount, there is an uncertain payout over a period of time. I don't think the insurance companies have figured out how to properly price the policies. I don't see how they can given how many variables there are for costs. If they sell too low a premium, then they go under. If they sell too high, it isn't a good deal. I'm staying away, but I'm young.

Unless they are selling a policy with an unlimited benefit period and/or a CPI based inflation index wouldn't they know the maximum payout amount? I'm guessing most policies written now do not involve those factors since they are priced accordingly. Maybe not so in the past.

[Gearhead Jim]

Going back to my comments in post #13...

Today I was talking with our State Farm agent and discovered that we were one year yonger than I thought when we bought the LTCI (54 & 52 vs 55 & 53). The premiums are correct, $100/mo for DW and $104/mo for me. The inflation rider has raised the total payout available per person to $520,000.

I asked him what they would charge for essentially the same policy today at 54 & 52, the premiums had almost exactly doubled.

[dgoldenz]

There are no policies with two year elimination periods that I know of. Even if there was, they wouldn't be much cheaper than a one-year elimination period. It's the same thing as taking a $10k deductible instead of $7k with health insurance. In most cases, the cost difference isn't worth the extra risk.

[Arnie]

Quote:

Originally Posted by dgoldenz There are no policies with two year elimination periods that I know of. Even if there was, they wouldn't be much cheaper than a one-year elimination period. It's the same thing as taking a $10k deductible instead of $7k with health insurance. In most cases, the cost difference isn't worth the extra risk.

In the quotes I looked at I noticed the average increase in annual premium between 365, 180, 90, 60, 30, and 0 day eliminations was about 12% for each jump down. Whether or not that is significant is an individual call. Of course, I'm not an agent and only have very limited data.

[dgoldenz]

Quote:

Originally Posted by Arnie In the quotes I looked at I noticed the average increase in annual premium between 365, 180, 90, 60, 30, and 0 day eliminations was about 12% for each jump down. Whether or not that is significant is an individual call. Of course, I'm not an agent and only have very limited data.

Yes, but there comes a point where the tradeoff is no longer worth the increase in risk. Taking on an extra year of elimination period is risking another ~$80-100k in today's dollars of your own money. In 20 years, that will be more like $200-300k of your own money. Would you take that extra risk to save another few hundred dollars a year? I wouldn't. If you have the money to self-insure that long, you probably have the money to spend the extra few bucks it would cost for the earlier elimination period.

[samclem]

Quote:

Originally Posted by dgoldenz Quote: Originally Posted by Arnie In the quotes I looked at I noticed the average increase in annual premium between 365, 180, 90, 60, 30, and 0 day eliminations was about 12% for each jump down. Whether or not that is significant is an individual call. Of course, I'm not an agent and only have very limited data. Yes, but there comes a point where the tradeoff is no longer worth the increase in risk. Taking on an extra year of elimination period is risking another ~$80-100k in today's dollars of your own money. In 20 years, that will be more like $200-300k of your own money. Would you take that extra risk to save another few hundred dollars a year? I wouldn't. If you have the money to self-insure that long, you probably have the money to spend the extra few bucks it would cost for the earlier elimination period.

Assuming Arnie got a quote for a 5 year policy, I'd definitely choose the one year elimination period over a zero/short one. Given the 12% per increment savings, this policy will cost 40% as much per month. DW and I could afford the $100K hit to the nestegg to cover care expenses for this very significant event for a year--it wouldn't be fun, but then the whole situation at that point ain't great, is it? After that, the potential for nestegg exhaustion for the remaining "outside the nursing home" partner would start to be more critical, and we'd need the safety net of insurance.

The premium savings of a long elimination period would be considerable: For example, the premium for a 55 YO buying 5 years of coverage at $200 daily benefit with a 90 day elimination period is $250/month (Federal LTCI program). By taking Arnie's quote, we'd expect the premium to be 36% more for a 0 day elimination period = $340 per month. With a 1 year elimination period, it would be $136 per month. That's a very considerable difference. Sock that $200/month you saved into the diversified retirement portfolio (4% pa real growth) every month for 25 years (when NH care will be a more likely need) and you'll have that $100K sitting there--more than enough to cover NH care for the elimination period. And, in the likely event it's not needed for LTC, it's available for the kids, some charity, etc rather than recarpeting the HQ of an insurance company.

I self insure for every risk I can. I buy insurance only to protect against the calamities that might ruin us. Buying it just to avoid possible discomfort or belt tightening is not cost efficient.

[flyfishnevada]

My long term care plan is bacon. Morning, noon and night once I turn 70 and hope for a massive heart attack between 80 and 85.

I'm only half kidding. We just put my FIL in assisted living and my DW went through this with her grandmother because her mom wouldn't step up. It ain't pretty. We will likely buy the insurance or self insure, but I hope I never have to use it.

[dgoldenz]

Quote:

Originally Posted by samclem Assuming Arnie got a quote for a 5 year policy, I'd definitely choose the one year elimination period over a zero/short one. Given the 12% per increment savings, this policy will cost 40% as much per month. DW and I could afford the $100K hit to the nestegg to cover care expenses for this very significant event for a year--it wouldn't be fun, but then the whole situation at that point ain't great, is it? After that, the potential for nestegg exhaustion for the remaining "outside the nursing home" partner would start to be more critical, and we'd need the safety net of insurance. The premium savings of a long elimination period would be considerable: For example, the premium for a 55 YO buying 5 years of coverage at $200 daily benefit with a 90 day elimination period is $250/month (Federal LTCI program). By taking Arnie's quote, we'd expect the premium to be 36% more for a 0 day elimination period = $340 per month. With a 1 year elimination period, it would be $136 per month. That's a very considerable difference. Sock that $200/month you saved into the diversified retirement portfolio (4% pa real growth) every month for 25 years (when NH care will be a more likely need) and you'll have that $100K sitting there--more than enough to cover NH care for the elimination period. And, in the likely event it's not needed for LTC, it's available for the kids, some charity, etc rather than recarpeting the HQ of an insurance company. I self insure for every risk I can. I buy insurance only to protect against the calamities that might ruin us. Buying it just to avoid possible discomfort or belt tightening is not cost efficient.

I think you missed my point. I was talking about the second year, not the first. The difference in premiums between a 0 day EP and 365 day EP is substantial. The difference in price between a 365 day EP and 730 day EP (if it was available) would not be that much.

[Gearhead Jim]

Just a thought...

Our house is worth about $400k and a very good homeowners policy costs about $1200/year.

My LTC insurance is a good policy that covers up to $500k, also cost about $1200/year.

In either case, a partial loss is possible; probably more likely than a total loss.
But it seems that the premium for similar exposures is similar. Not sure what the chances are of a loss on the house policy vs on the LTC, but i certainly know more people who have spent big bucks in nursing homes than who have had big losses on the home insurance.

[Arnie]

Quote:

Originally Posted by dgoldenz I think you missed my point. I was talking about the second year, not the first. The difference in premiums between a 0 day EP and 365 day EP is substantial. The difference in price between a 365 day EP and 730 day EP (if it was available) would not be that much.

How much of a point can you make about the price of something that does not exist? Just playing with you ... useful to know that it does not exist.

[Independent]

Quote:

Originally Posted by dgoldenz Yes, but there comes a point where the tradeoff is no longer worth the increase in risk. Taking on an extra year of elimination period is risking another ~$80-100k in today's dollars of your own money. In 20 years, that will be more like $200-300k of your own money. Would you take that extra risk to save another few hundred dollars a year? I wouldn't. If you have the money to self-insure that long, you probably have the money to spend the extra few bucks it would cost for the earlier elimination period.

This kind of argument can be used to "talk down the deductible" on any type of insurance. IMO the best the buyer can do is look at four scenarios (buy or don't buy the lower deductible, incur the loss or don't incur the loss) and see where he's at financially in each.

Since I assume that the extra premium for the lower deductible more than covers the extra claims (because insurers have expenses that vary with premium that are loaded into the premium rates), I lean toward the higher deductible until the potential loss gets "too big" to bear.

[dgoldenz]

Quote:

Originally Posted by Independent This kind of argument can be used to "talk down the deductible" on any type of insurance. IMO the best the buyer can do is look at four scenarios (buy or don't buy the lower deductible, incur the loss or don't incur the loss) and see where he's at financially in each. Since I assume that the extra premium for the lower deductible more than covers the extra claims (because insurers have expenses that vary with premium that are loaded into the premium rates), I lean toward the higher deductible until the potential loss gets "too big" to bear.

I agree, it just depends on the numbers. If you had a $200k Ferrari and asked about raising the deductible from $2500 to $50k, I bet the difference wouldn't be much, if such an option existed. In my experience, when the deductible reaches a very high number, you don't save that much. Think of a two year EP on LTC as a $200-500k deductible.

[bamsphd]

Quote:

Originally Posted by dgoldenz I've never been an advocate of single-pay premiums for any type of insurance. I think when you look at the cost difference of a single-pay versus a lifetime pay with a survivorship benefit, the lifetime pay will make more sense, even with the potential of a rate increase. Genworth even has a 7-year enhanced survivorship benefit as an optional rider. The 10-year benefit is built into the policy.

I don't think I understand you. Personally, I would only consider a single-pay premium LTCi policy, because I otherwise assume the insurance company could potentially keep "raising" me until I have to drop out. Is there some limit on the potential for rate increases that I'm unaware of, or do you have some other logic?

Personally, my "ideal" policy would be purchased with a single one-time payment, would have something like a 5 year exclusion before any benefits were paid, but then would cover me and the wife for life with inflation adjustments. Basically I want a policy I don't expect to ever collect on, but which will cover us before all our assets are gone in a worst case scenario.

In the mean time, we self insure.

[dgoldenz]

A survivorship benefit would only be for a husband/wife purchasing together. With a survivorship benefit, if premiums are paid for 10 years and then one spouse dies before using any benefits, the policy is then paid up for life for the other spouse, no further premiums required while benefits continue compounding however they were originally chosen.

[Brat]

We purchased a joint premiums paid up in 10 years policy when we were in our 50s. Opted for a 90-day wait period (the longest wait period was only marginally cheaper), inflation rider.

I think LTC insurers actuarial assumptions are being hit by healthy people dropping their policies because they are in a financial pinch. The insurer then must increase premiums because the characteristics of the insured pool changed. A single premium paid up, or a 10 year paid up for younger purchasers, would avoid much of that.