Self-insuring for LTC????

[Golden sunsets]

I'm interested in the forum participants wisdom on the issue of self-insuring for LTC.

My own situation is as follows:

DH and I each have LTC policies (not linked) that we purchased at 60. Each policy started at $170/day in benefits with automatic annual increases of 5 percent(now about $216/day). The benefits are good for only 4 years of use. Each policy has a 90 day period of residency before benefits kick in. Each policy could be used for in home care. The annual premium for both policies is $5,000.

Our finances are: Fully cola'd pensions, SS total 137,000/year. Total Annual expenses of $185,000, including Fed& State taxes of $50,000 (high partly to cover conversions of tIRA's to Roth over time). TA of $2,850,000. No debt.

I've wondered if we should self insure. What would others do in this scenario?

What do you all do with respect to LTC given your own scenario?

 

[braumeister]

The best rule of thumb I've seen is from this piece from Forbes:
10 Questions To Ask Before Buying Long-Term Care Insurance - Forbes

What’s your net worth? If you have limited income or less than $200,000 in assets, don’t buy private insurance. Medicaid will provide a safety net for you. And remember, if you purchase at 60 you’ll likely need enough retirement income to keep paying premiums for 20 years—and those premiums are certain to increase over time, perhaps outpacing your ability to pay.

If you have a nest egg of $2 million or more, you probably can cover any care you will need out of pocket and can skip buying LTC insurance.

If your wealth is somewhere in between, you could self-insure for long-term care costs by filling a dedicated pot of money (beyond what you’ll need for regular retirement living expenses) that can be used for care if needed and otherwise can go to heirs.

 

[2B]

My father had long LTC insurance and never used it. He did get subjected to several painful increases in premiums that he reduced somewhat by "reapplying" for new policies. It was clear to me that the company was jamming rates up and trapping the policy holders whose health was going downhill with the massive premium hits. What keeps the insurance company from increasing your $5,000 policy cost?

Did I mention I hate insurance companies? I will typically only insure against risks I can not absorb without destroying my finances. I am self insuring for LTC based primarily on what I saw with my in-laws.

My in-laws did not have LTC insurance and both were in facilities. My MIL was in skilled nursing for 2 years. My FIL was in assisted, memory and skilled nursing for a little over 5 years. Between his COLA'd military pension and SS, they cash flowed almost all of these costs. Their assets went almost untouched during the whole process. I can assure you that when your health is so bad that you need "care" you won't be spending money on much else. Having your spouse in LTC will also just about eliminate any spending done by the spouse not in the facility. When the second person is admitted, there's no need to keep a house that will just be sold when they die. From watching the people that were with my in-laws, you never really leave a care facility except by dying.

I think you are in an excellent position to self-insure.

 

[marks]

I have a few thoughts for you: My mother had a really good LTC policy with Transamerica that you probably can't get today. It paid about $170/day with a lifetime benefit. She was in assisted living and skilled nursing for a total of almost eight years. She received about $350,000 in benefits, so this was great for her as she did not have the assets to cover this.

Having dealt with her finances, I can tell you that on top of the daily cost of the LTC facility, the other costs incurred when you are in a LTC facility are:

Medicare premium: $100
Medicare supplement: $245
Rx supplement: $45
Rx copays: averaged $150

She had several operations including two hip-replacements, and there were never any large out-of-pocket expenses (who knows what will happen in the future).

So, her total expenses were about $70,000/year, which it sounds like you could easily afford, even for both of you, which is probably not going to be necessary.

She had a SS check of about $1,100 which covered all that, so she was self sufficient.

In thinking about what my wife and I should do, at this point I am considering self-insuring for the following reasons.

1) LTC premiums keep going up with no limit.
2) If one of us has to go into LTC, I would consider selling our house, renting a small apartment, and using the equity to pay for the LTC.
3) Our financial situation is similar to yours and we have enough to pay for quite a while.

One other note about assisted living: In some facilities, if one of you needs assisted living, the other can live in the apartment for a relatively small additional monthly charge of around $750/month. This basically covers the additional meals for the "healthy" spouse. This option could save a lot of money and allow you to stay together.

 

[Alan]

We self insure for LTC. We have a lot of discretionary spending in our annual budget plus we have been putting $5k a year into an account reserved for LTC for the last 11 years.

 

[daylatedollarshort]

The Medicaid look back period is currently five years. Unless the look back period is extended, with sufficient assets and Medicaid planning, the healthy spouse or kids could transfer assets to healthy spouse / kids / trusts / exempt asset classes and then pay out of pocket for LTC for five years for the spouse /parent needing care.

 

[FIYes]

This topic is something I have been thinking about lately. I have been leaning toward self insuring...in part because I just have concerns that Ltc premiums could rise to an unaffordable level after I had paid in for years and then we would have nothing. I also have a somewhat distrustful attitude toward the insurance industry in general.

My concern with Ltc is more that one of us should need care and leave the surviving spouse in a very tight financial situation. I am not concerned about leaving behind an estate.

 

[REWahoo]

I have been leaning toward self insuring...in part because I just have concerns that Ltc premiums could rise to an unaffordable level after I had paid in for years and then we would have nothing.

I don't follow this line of reasoning.

I view our LTC policies as term insurance, not lifetime coverage. Like any other insurance, it was purchased to cover a risk and I hope to never need it. I plan on cancelling if we get to a point we can self-insure or the premium costs becomes uncomfortably high in relation to the risk.

 

[grasshopper]

Every year my Mom scans her LTC policy to all the boys to ask our opinion, because her premiums are going up 7-10%. Her insurance company always makes suggestions to her to keep the premiums about the same. Guess what, all the suggestions s**k. Mom is lucky that she can afford the increase, and she sleeps better at night knowing that she is covered. Of course she reminds us that it is our inheritance she is spending. Me I am self insuring with Smith&Wesson.

 

[Chuckanut]

I
I view our LTC policies as term insurance, not lifetime coverage. Like any other insurance, it was purchased to cover a risk and I hope to never need it. I plan on cancelling if we get to a point we can self-insure or the premium costs becomes uncomfortably high in relation to the risk.

I have one problem with this. Years ago I purchased term Life insurance. It had a schedule of yearly premiums - minimum, expected and maximum. I made sure I could afford the maximum premium cost as I aged. In other words, I made sure that when I was most likely to need it, I could still afford it. The insurance company could not force the premium costs to become uncomfortably high in relation to the risk. They can and are doing this with many current LTC policies.

AFAIK, there are no long term care policies available today that have a maximum rate guarantee. If I am wrong, please let me know.

 

[Gotadimple]

I don't follow this line of reasoning.

I view our LTC policies as term insurance, not lifetime coverage. Like any other insurance, it was purchased to cover a risk and I hope to never need it. I plan on cancelling if we get to a point we can self-insure or the premium costs becomes uncomfortably high in relation to the risk.

So you are agreeing with FIYes.

He says he is concerned he would put money in premiums into LTC that will increase over time where he couldn't afford the premiums. He would have sunk money into a policy he would have to cancel for inability to pay.

You say you would make the premiums and if you feel you don't need it or can't afford it, you would cancel. Are you expecting any money will be returned to you when you cancel?

-- Rita

 

[Mulligan]

I am with 2B on this... $5000 premium, the first 90 days you self pay, then you are daily rate capped? Premiums appear to be quite high in this area, yet I don't think the insurance companies are making out like bandits. Everyone who pays a premium is help subsidizing the very few that hang on for 10-15 years in these places. Mostly women as we men die off nicely. 2/3 of all men never step one foot in those dreadful doors to live. And less than 10% of the remaining 1/3 last three years. I will keep my money and take my 95% plus chance I won't be held in captivity for more than 3 years.

 

[LARS]

We have gone the route of self-insure as we have substantial assets and no need to leave a large estate. That having been said, my parents did buy LTC, and unfortunately both needed it; so it proved to be one of the best investments they made having paid out at well over 10 times investment.

Pay your money, or not, and take your chances...

 

[daylatedollarshort]

2) If one of us has to go into LTC, I would consider selling our house, renting a small apartment, and using the equity to pay for the LTC..

I think the home for the independent spouse is an exempt asset, so some people might want to actually buy a more expensive home or use non-exempt assets to pay off any mortgage on the current home.

 

[REWahoo]

I have one problem with this. Years ago I purchased term Life insurance. It had a schedule of yearly premiums - minimum, expected and maximum.

Term life policies are purchased for a limited time period. Until that period expires, you don't know what taking out a new term policy will cost, but you can be sure it will be higher than your previous policy. I view LTCi to be similar in that respect.

AFAIK, there are no long term care policies available today that have a maximum rate guarantee. If I am wrong, please let me know.

I haven't shopped for LTCi since 2000. At that time I was able to purchase a policy with a 10 year guarantee of premium.

You say you would make the premiums and if you feel you don't need it or can't afford it, you would cancel. Are you expecting any money will be returned to you when you cancel?

-- Rita

No, but I'm hoping the folks from Publishers Clearing House Sweepstakes will ring my doorbell later today.

-----

I am not in any way defending insurance companies and their strategy of steep increases to LTCi premiums. My point in responding was simply to point out another way to view this type of insurance - as temporary coverage to bridge a gap until you can self insure.

 

[Chuckanut]

FWIW, I know one person who bought LTC insurance several hears ago when it was offered as a one time, lump sum, premium payment. It took a big chunk of cash to buy, but like a single premium annuity, once paid for, there are no more premiums. I doubt if anybody offers such a deal today.

As for me? My long term care plan is like my old age plan - take SS at 70 to get the extra 900-1200 dollars a month (depending any future cuts to the SS payout). Also, I bought extra service credit in my [-]solid gold and platinum[/-] stained pine and brass pension that adds about $400 a month (capped COLA).

 

[Gill]

I don't think you need LTCI. Your income and assets are more than sufficient to cover future costs of long term care.
Bruce

 

[W2R]

I just have concerns that Ltc premiums could rise to an unaffordable level after I had paid in for years and then we would have nothing. I also have a somewhat distrustful attitude toward the insurance industry in general.

This is a great description of my mindset.

What do you all do with respect to LTC given your own scenario?

I am self-insuring.

In a sense, with a policy that only pays for four years, you too are self-insuring for any long term care situation that lasts beyond four years. Your LTC policy pays $216/day for four years, that comes to a total of $315,576 right now. It will increase, but so will my portfolio at some rate beyond inflation, I presume. If one runs FIRECalc and specifies that, say, a minimum of $500K must remain in the portfolio at all times, that half million could be used for LTC.

 

[FIYes]

The idea of paying in for years and then having to drop coverage due to no longer being able to afford the premiums is a concern for me and is causing me to lean toward self insure. I understand he idea of insurance as something you pay for and hope you don't need to use. It is the thought of ever increasing premiums that worries me.

 

[GoodWishes]

After reading the Forbes article, it sounds like the poor and the rich are both fine. It is the people in the middle that have to worry which is often the case.

 

[mpeirce]

It seems like folks who are FI and living off their own assets (no pension income) are best off self-insuring.

If someone is FI based on a nice pension, but fairly low assets, LTCi makes more sense, since they don't have a pot of money to raid to pay for care. They also can use their monthly pension income to pay the premiums for the insurance.

You appear to have both a good pension AND plenty of assets. So self-insuring seems fine to me.

 

[Which Roger]

Is there such a thing as catastrophic LTC insurance? For example, something where you would pay all of the costs for the first few years, then the insurance would only kick in after that. If such a thing exists, it should be dirt cheap, since the vast majority who need LTC only need it for a few years so most policies would never pay out anything. This could provide a middle ground between self insuring (since that's what you're doing for the first few years) and having coverage.

 

[Mulligan]

Is there such a thing as catastrophic LTC insurance? For example, something where you would pay all of the costs for the first few years, then the insurance would only kick in after that. If such a thing exists, it should be dirt cheap, since the vast majority who need LTC only need it for a few years so most policies would never pay out anything. This could provide a middle ground between self insuring (since that's what you're doing for the first few years) and having coverage.

This been brought up before and I believe the consensus was this type of product is not offered. The probable reason is not being able to define the insurers potential long term cost. Catastrophic insurance works for a house because there ultimately is a definable cost to company. But once Granny makes it past 3 years in the home there is potentially no stopping her from making it her new home for 15 plus years. That being said, an affordable product like you suggest would be the only one that would interest me for LTC.

 

[CoolChange]

Is there such a thing as catastrophic LTC insurance? For example, something where you would pay all of the costs for the first few years, then the insurance would only kick in after that. If such a thing exists, it should be dirt cheap, since the vast majority who need LTC only need it for a few years so most policies would never pay out anything. This could provide a middle ground between self insuring (since that's what you're doing for the first few years) and having coverage.

I would seriously consider this kind of policy, especially if premiums were not only low but increases were capped. Otherwise, I will continue to self insure.

 

[Gearhead Jim]

FWIW, DW and I each bought LTC from State Farm about 10 years ago, in our mid-50's. Five year coverage, with inflation increase it's now up to about $560k per person. Initial premium was ~$100/month per person. We have had one premium increase (this year), to about $140/month per person.

Some day, the premiums may become too expensive for us to stomach. But right now; if one of us goes into a home we don't want the other to be impoverished. Wait until we no longer have the health to go racing or traveling, then dropping the LTC makes more sense.