LTC alternatives?

[GaryInCO]

4 years ago I decided I really needed to get LTC covered, so my kids wouldn't get stuck with it. The premiums were going to cost $1000-$1500 a month, basically until I died or went into care. But it took forever to get through the medical qualification process, and before they dotted the last i, I had prostate cancer. My agent said no problem, get it treated and when you have 5 years clean, they'll take you. Then I got lymphoma, and he said uh, have a nice life ... With two cancers nobody would touch me, so I figured I'd just have to self-insure. Which, if I ended up in full care like my mom, would blow through $100k a year or more.

I've been talking to a CFA who has a different annuity-based product that doesn't require medical underwriting. You just have to demonstrate you're in reasonably good condition: balance OK, memory OK, etc. Instead of monthly LTC premiums (which would have racked up about $72k in monthly payments in the last 4 years, with lots more to come), for this program you just drop $100k into it and then you're done. There's a ramp-up vesting period but after 5 years it'll pay me about $6k/mo if I need care. There's no inflation-tracking clause but it does grow slowly at 2%/yr, so it's $5700 after 5 yrs, $7000 after 15 yrs, etc. (But I just discovered the 2%/yr growth STOPS when you start benefits. You're stuck at the level you start at, even during the initial 5-year vesting period. That's a big problem.)

It wouldn't cover everything if I ended up in full-care nursing home like my mom did, but it would definitely help. And it would probably cover everything if I just need assisted living or similar.

If you don't need care, most of the $100k comes back to the kids. It ends up being like a $100k life insurance policy, for the first 17-18 yrs or so. After that the policy value starts to evaporate, so you might want to pull the $100k out at that point. (Your numbers will probably be different.)

So that's much better than I thought I'd be able to find. And actually better than traditional LTC insurance, if I understand it right. But the lack of inflation protection after benefits start is a big problem. The insurer's rating is also marginal: EquiTrust Life, rated BBB+ (S&P) or B++ (AM Best).

Is anyone familiar with this type of policy? Anything I should beware of?

Are there better answers out there?

 

[RetiredHappy]

I have a traditional LTCI policy from Genworth but my husband has a hybrid plan like the one that you are looking at. Please do take a look at Lincoln MoneyGuard (II) policy. We paid $100K up front and it has a 3% inflation built in every year. I would not worry about not having inflation protection after benefits start. That is small potatoes.

 

[Lewis Clark]

How long do the benefits last once you start collecting benefits? Will the policy pay as long as you need it? Or do the payments stop after several years?

When I looked into LTC insurance a while ago, the policies I looked at all had a maximum payout limit. Don't recall the actual numbers but (for example) they might pay up to something like $200 per day, but would only pay for three or four or five years. So the maximum possible payout might have been something $350,000 over the full duration of the payments. My parents had LTC policies and they worked similar to this.

Instead of looking at the maximum daily or monthly payout, I started looking at the maximum payout limit. To me, the question was whether the premiums were worth the possibility of getting the maximum payout of $350,000.

The premiums usually go up every year or two, often by a lot as we age. And not everyone needs LTC. And not everyone in LTC is there for the maximum payout length. These ideas made it easy for us to decide to self-insure for LTC.

 

[GaryInCO]

Thanks @RetiredHappy, I'll look at MoneyGuard. ....whups, no, "Only for use in California." They do cover other states so I'll keep looking.

@Lewis Clark, if I'm reading it correctly, the payments last as long as you do. The guaranteed-value projection shows the contract value going to zero in year 26, but payments continue through the end of the example in year 33.

I would have to check, but I didn't see a "max payout" limit. Which seems hard to believe. In the guaranteed-value example, if I needed care starting in year 10 (when I'm 77), the payment is $6359/month, $76308 per year. It's frozen at that level, but that would still get pretty expensive for them if I lived another 10-15 years.

The premiums don't go up. In this example you pay $100k and then no more.

I agree about the low chance of needing LTC. That's why I wasn't too disappointed when I got denied 4 years ago. But if you DO need it, it could very rapidly eat a big hole in my estate, which I'd rather leave to my children. This policy provides good protection in spite of my medical issues, and most of the funds revert to me / my estate if I don't use them. That seemed like a good tradeoff.

 

[Sunset]

.......
If you don't need care, most of the $100k comes back to the kids. It ends up being like a $100k life insurance policy, for the first 17-18 yrs or so. After that the policy value starts to evaporate, so you might want to pull the $100k out at that point. (Your numbers will probably be different.)

...

This doesn't seem correct..

Are you saying after 18 years , you can pull out the $100K and still have LTC insurance

Seems to me if you die, and didn't use it, the estate gets some back, but remain alive and the money has to stay in for it to cover you if you don't die, even if that means X years later the kids get nothing.

 

[youbet]

Is anyone familiar with this type of policy? Anything I should beware of?

Are there better answers out there?

I'm not familiar with that type of policy but I'll suggest you employ the tactic I find useful in evaluating these sort of things: absolutely understand where and how the insurance company will make money and be profitable from this business and these policies. Does it make sense that the company can provide the benefits it's promising (to those who eventually qualify for benefits) from the earnings generated by the $100k deposits they are holding?

I shopped for conventional LTCI a number of years ago. At that time, the industry was dropping features such as unlimited coverage and increasing premiums. I decided to have DW and I self-insure and have those arrangements set up within my FIRE portfolio.

We're also looking at Type A contract CCRC's.

 

[harllee]

I live in a Type A CCRC and no LTC insurance is needed. I have a whole thread about living here.

 

[ncbill]

4 years ago I decided I really needed to get LTC covered, so my kids wouldn't get stuck with it. The premiums were going to cost $1000-$1500 a month, basically until I died or went into care. But it took forever to get through the medical qualification process, and before they dotted the last i, I had prostate cancer. My agent said no problem, get it treated and when you have 5 years clean, they'll take you. Then I got lymphoma, and he said uh, have a nice life ... With two cancers nobody would touch me, so I figured I'd just have to self-insure. Which, if I ended up in full care like my mom, would blow through $100k a year or more.

I've been talking to a CFA who has a different annuity-based product that doesn't require medical underwriting. You just have to demonstrate you're in reasonably good condition: balance OK, memory OK, etc. Instead of monthly LTC premiums (which would have racked up about $72k in monthly payments in the last 4 years, with lots more to come), for this program you just drop $100k into it and then you're done. There's a ramp-up vesting period but after 5 years it'll pay me about $6k/mo if I need care. There's no inflation-tracking clause but it does grow slowly at 2%/yr, so it's $5700 after 5 yrs, $7000 after 15 yrs, etc. (But I just discovered the 2%/yr growth STOPS when you start benefits. You're stuck at the level you start at, even during the initial 5-year vesting period. That's a big problem.)

It wouldn't cover everything if I ended up in full-care nursing home like my mom did, but it would definitely help. And it would probably cover everything if I just need assisted living or similar.

If you don't need care, most of the $100k comes back to the kids. It ends up being like a $100k life insurance policy, for the first 17-18 yrs or so. After that the policy value starts to evaporate, so you might want to pull the $100k out at that point. (Your numbers will probably be different.)

So that's much better than I thought I'd be able to find. And actually better than traditional LTC insurance, if I understand it right. But the lack of inflation protection after benefits start is a big problem. The insurer's rating is also marginal: EquiTrust Life, rated BBB+ (S&P) or B++ (AM Best).

Is anyone familiar with this type of policy? Anything I should beware of?

Are there better answers out there?

A LTCi salesperson on another forum noted hybrid policies (life insurance with a LTC benefit rider) typically cost around triple (for the LTC benefits) what a standalone LTCi policy costs.

It is usually easier to qualify for a hybrid policy, as you found, but you gotta pay for that.

 

[COcheesehead]

I would first use tools like FireCalc or others to determine what taking an additional $100k out a year in your last 3-5 years really does to your plan. You might be safe self insuring, so stress test your assets. You would at least have access to that $100k until needed.
I would then think about other assets: home value, delaying social security, spending less now, etc.
The biggest question I have for any LTC policy is when will they pay. Had a hybrid policy, since cancelled a few years ago, that would only pay if you had 2 or more of the standard ADLs - activities of daily living. That was a pretty high bar for payment.
I would look at the internal rate of return on that annuity. Fixed income is such right now that you may get something similar without locking up your funds.

 

[youbet]

I live in a Type A CCRC and no LTC insurance is needed. I have a whole thread about living here.

Semantics I guess, but LTC insurance premiums are built into your monthly fees.

 

[GaryInCO]

This doesn't seem correct..
Are you saying after 18 years , you can pull out the $100K and still have LTC insurance

That's my understanding. Here is a sample page from the example quote the agent pulled for me. Notice:
* One premium payment of $100k in year 1. No more, ever.
* "Rider Charges" are the cost of insurance, gradually increasing with age and eventually consuming the contract value.
* The various "value" columns stay in the $100k range for most of the life of the policy. I believe they expect to grow it well beyond that -- maybe that's the $313k "Initial Benefit Base"? That growth would presumably be where they make their money.
* The "Death Benefit" (basically the life insurance policy) stays over $100k for 18 years, then gradually declines.
* The "Cash Surrender Value" is the same as the Death Benefit, and is what you get if you terminate the policy. You might want to pull the cash value out somewhere in the year 16-20 range.
* The "LTC Monthly Benefit" is what you get if you qualify by being unable to do 2 of the ADLs (Activities of Daily Living). That value ramps up in the first 5-year vesting period, then grows 2% a year -- until you start getting paid. At that point the benefit is frozen.
* I'm not sure why it shows benefits after the policy value goes to zero.
* This table shows the "guaranteed" benefits. If the market exceeds their minimum performance level, your policy value grows faster, your benefits are higher, your death benefit / surrender values are higher, and your policy value keeps growing.

That's my understanding anyway. I haven't talked to the agent since I found out there was no inflation protection after you started drawing. And that you'd get screwed if you needed coverage in the first 5 year vesting period, since you paid your full $100k but your benefits freeze at the year-2 (or whatever) level. Possibly those limitations are what make this profitable for the insurance company?

 

[RetiredHappy]

With Lincoln MoneyGuard, the lump sum payment for $100K initially covers about $400K in LTCI, with monthly LTCI benefits of about $6K, and it grows at 3% each year. Once you have depleted the first $110K or so, upon death, it will pay out $10K for funeral expenses. Otherwise, if you have used up less than $110K, then the balance gets paid to the beneficiaries.

 

[Sunset]

That's my understanding. Here is a sample page from the example quote the agent pulled for me. Notice:
* One premium payment of $100k in year 1. No more, ever.
* "Rider Charges" are the cost of insurance, gradually increasing with age and eventually consuming the contract value.
* The various "value" columns stay in the $100k range for most of the life of the policy. I believe they expect to grow it well beyond that -- maybe that's the $313k "Initial Benefit Base"? That growth would presumably be where they make their money.
* The "Death Benefit" (basically the life insurance policy) stays over $100k for 18 years, then gradually declines.
* The "Cash Surrender Value" is the same as the Death Benefit, and is what you get if you terminate the policy. You might want to pull the cash value out somewhere in the year 16-20 range.
* The "LTC Monthly Benefit" is what you get if you qualify by being unable to do 2 of the ADLs (Activities of Daily Living). That value ramps up in the first 5-year vesting period, then grows 2% a year -- until you start getting paid. At that point the benefit is frozen.
* I'm not sure why it shows benefits after the policy value goes to zero.
* This table shows the "guaranteed" benefits. If the market exceeds their minimum performance level, your policy value grows faster, your benefits are higher, your death benefit / surrender values are higher, and your policy value keeps growing.

That's my understanding anyway. I haven't talked to the agent since I found out there was no inflation protection after you started drawing. And that you'd get screwed if you needed coverage in the first 5 year vesting period, since you paid your full $100k but your benefits freeze at the year-2 (or whatever) level. Possibly those limitations are what make this profitable for the insurance company?

I read the table differently, it shows the value and the LTC value as long as you keep the policy..

If you die in the first few years, it shows the death benefit, or you can cash out. But if you cash out say after 10 years, I'm sure they don't pay any LTC. Otherwise cash it out after 3 years and have lifelong LTC.

 

[GaryInCO]

Sure. The policy stays active as long as you leave the cash value with the company. If you withdraw the cash value, the contract terminates. If the cash value runs out, the contract terminates.

 

[The Cosmic Avenger]

I live in a Type A CCRC and no LTC insurance is needed. I have a whole thread about living here.

I was going to suggest looking into CCRCs as an alternative, although I don't know as much about them. The one I looked at for my dad required something like a $600K deposit, I think, and guaranteed to care for him even if he needed more than that for his care. Is that what Type A does?

 

[harllee]

I was going to suggest looking into CCRCs as an alternative, although I don't know as much about them. The one I looked at for my dad required something like a $600K deposit, I think, and guaranteed to care for him even if he needed more than that for his care. Is that what Type A does?

In the Type A CCRC your monthly fee does not go up if you have to move to a higher level of care like skilled nursing or memory care. In the other types of CCRC which are fee for services your monthly fee can go up substantially if you have to move to a higher level of care.

 

[Aerides]

I live in a Type A CCRC and no LTC insurance is needed. I have a whole thread about living here.

You also have a whole thread about the amazing difficulties you underwent to get a LTC policy to pay out for your mother. That has given me food for thought about the value of such policies, especially since I don't have a younger-than-me advocate to spend months getting them to pay up.

 

[Aerides]

With two cancers nobody would touch me, so I figured I'd just have to self-insure. Which, if I ended up in full care like my mom, would blow through $100k a year or more.

At that point though, presumably that's 100% of your expenses. And your/my/anyone at that point, lifespan is not (usually) decades. So, assuming you've planned well for ER, that may fall into a reasonable "bet" to self-insure.

 

[harllee]

You also have a whole thread about the amazing difficulties you underwent to get a LTC policy to pay out for your mother. That has given me food for thought about the value of such policies, especially since I don't have a younger-than-me advocate to spend months getting them to pay up.

True, took me months of many phone calls, mailing, faxes, many hours to get mother's LTC insurance to pay. I think the only reason they paid in the end is that I hired a lawyer who told them he was filing a lawsuit against them and asking for treble damages. In my opinion LTC insurance is worthless. My mother took out the policy in the 80s, paid thousands of dollars in premiums, more than she will ever get out and then when she was diagnosed with Alzheimers and needed the payments the insurance company refused to pay and delayed for months. My mother would have been much better off just putting the premiums in a CD. I could just scream.

 

[steady saver]

We made the decision years ago to self-insure, by investing the money we would've spent for LTC (and not spending it). It's tricky...turns out my MIL has Huntington's disease and had at some point opted in to LTC through her public school teaching. It's been immensely helpful but it took quite a while for her to actually qualify for the benefits. They burned through a lot of money getting 24/7 care before Genworth would cover anything. My own parents do not have LTC and while they could sorely use it for my dad, I'm not 100% sure he would qualify for the benefits b/c they are so picky. Even though my dad is mostly immobile and my mom cares for him 24/7 and they need more help (my mom can get him into the shower more or less and sit him on the shower chair, etc. but she has her own physical/medical issues), I do not think they'd qualify for the benefits even if they had LTC coverage.
DH and I are aware that Huntington's is a genetic disorder with a 50/50 chance of inheriting it which sucks. Both his brother and sister have tested positive for the gene and, at this point, we are skipping testing b/c there is no cure so and the burden of knowing is crushing. Luckily, we feel confident we can weather the storm b/c we prepared for the unexpected. And we've always lived below our means...
So I don't know. I appreciate the help MIL is getting but as we've learned, qualifying for the benefits is pretty stringent and then you've tied up all of that money and you don't get the benefit from it. We know several people whose parents this has happened to.

 

[njhowie]

Be extremely careful with this or any LTC option/alternative out there. Having gone through this with mom, they have extremely stringent approval criteria (the ADLs). You literally must not be able to take care of yourself and require assistance eating, bathing, dressing, taking your meds. These LTC policies are really not there to provide for you, but to take your money and then when the time comes that you do need it, look to deny your claim.

Mom paid for about 20 years. When the industry went through its troubled period, she then paid additional to keep the same level of coverage. Then, when she needed it, they fought us, denying the claim because she was not incapacitated enough. She passed away a year later.

I believe that these policies attract those who have their best intentions/interests in mind and are looking for financial security which an insurance policy would provide. However, I also believe that it's essentially a bait and switch. You're really not buying what you think you are. I agree with steady saver regarding self-insuring. Set the money aside. Keep it in low-risk investments. You then decide when it's appropriate to draw from it. You don't have to jump through any hoops, there is no elimination period, there is no delay, you don't have to justify anything. Also keep in mind, there are caps as to how much the LTC policy will pay out on a daily rate and total over the life of the policy. So, if you go in to a very expensive care facility, it's still going to cost you a lot of money out of pocket...which the premiums saved could help offset.

Will this work out any better or worse than a LTC policy? Nobody has a crystal ball. However, having seen first hand how they operate when the time comes for needing it, I will not do it for me/DW and advise all of our close relatives against it.

 

[Sunset]

Sure. The policy stays active as long as you leave the cash value with the company. If you withdraw the cash value, the contract terminates. If the cash value runs out, the contract terminates.

I read it as, the cash values runs out after many years, but if you left the cash in there, then the LTC part pays if you meet the requirements for LTC.

Of course you would want to check this is true. IF it's not true, this thing has (IMHO) no value.

 

[GaryInCO]

I read it as, the cash values runs out after many years, but if you left the cash in there, then the LTC part pays if you meet the requirements for LTC.

I believe that's correct. The money runs out after 25 years with the "guaranteed" results, and may last much longer in favorable market conditions.

In 25 years I'll be 92. My mother lasted that long and drew from her LTC. But given mid-60s males have a life expectancy of 17 years, and I've had 2 cancers in my 60s, I figure the chances of lasting to my 90s are slim.

 

[gutterman]

My mom had to temporarily go into a nursing home and I was put in charge of contacting her LTC insurance. I called and found the salesperson who sold her the policy many years ago. This salesperson instructed me on how to handle the claim and was very helpful. She also told me to change my mother's cell phone number temporarily, and to change the phone number on the LTC policy to mine. She said the LTC insurance company would call her shortly after her procedure, hoping she was on meds, and convince her to convert or cancel her policy. Said it happens all the time. Sure enough they called me the day after my mom checked in the nursing home.

 

[zippy2020]

Just FYI I wouldn't say inflation is not worth considering. Healthcare inflation has always risen higher than CPI #s, and that is still true today.

Our LTCi policies started with $125/day benefit at 5% compounded per year, and are now $399/day.

Also, be aware that in many HCOL areas, facilities raise their rates regularly. In our region, every facility we researched (9 of them) raised their prices 2-4% per year, every July 1st, without fail. Didn't matter if it was non-profit or for-profit, they all did it at the same time, annually.

Also, if you are in a facility you should research to find out what happens to your contract should the facility be sold. Many facilities are being bought by investment funds and Big Corp., and usually the first thing they do is put in place a new contract.