Interestingly, I had another chance to deal with an agent on this subject just this morning......
DW will be turning 65 and we've been looking at Medicare supplements and Part D plans. We had an agent/salesman representing Blue Cross / Blue Shield of Illinois over and listened to his pitch. Afterwards I brought up the subject of LTC insurance and he jumped to attention obviously anxious to get onto that subject.
Bottom line - when I told him what I was looking for, catastrophic coverage with a long waiting period, at least 10 years of coverage and correspondingly low premiums, he said he had nothing to offer from any of the six companies he represented.
It seems strange that most plans insure the 90 day - 3/5 yr range. That's the period many of us on this board could self-insure. Where DW and I could use some protection is the unlikely event one of us spends many years in a NH. We could easily self-insure for the more probable event of a 2 year or less stay.
Why would someone buy LTI that only covers, say, 3 yrs when the real danger that needs to be insured against is a long stay?
backtrack on the length of time, and focus on a few other variables, I will bring it back around to "time" in the end.
Most policies give a "daily" benefit- for example $50/day or $200/day. Where I live in Ohio there is a skilled care facility which costs about $5000/month which is about $164/day. LTC in this example would be a "co-pay", covering first $50 of costs (or $100 or $150, whatever the daily benefit was), with patient paying the balance per day, generally billed monthly and reimbursed by insurance carrier monthly.
I would like to give a specific example, this does not represent any specific policy or person.
Assume a person paid $1500/year for 10 years for an LTC policy which started at $50/day benefit with 5% compounding. Assume there is a max benefit of 3 years on the policy (max benefit is $50*365*3=$54750) the year policy is issued.
Then assume premiums went up in year 11 to $2300/yr and that premium was in effect for 7 years. In year 18 assume premiums went up to $3200/year and in year 20 a claim is filed for an LTC.
Add up a few things...
premiums paid are $1500*10+$2300*7+$3200*3=$40,000 in premims
$50 compounded at 5% 20 times (20 years) is a daily benefit of $132
The new max policy payout 20 years later is $132*3*365=
$144540
There are two possible claims
1) the claim is in insureds own home, by someone which helps them get dressed, might cook a meal, might do a load of laundry. Assisted care. This person is in the house for 3 hours and costs $20/hour now, and in 20 years I am assuming that wage increased to $40/hour.
2) the claim is for a nursing home stay which costs about $250/day 20 years later.
In 1) where care is at home, focus on the $144,540 benefit amount. As long as the $40/hour the $120 is less than the $132 max daily benefit, so as long as the care is given, it can be sustained for $40*3 (hours per day)*1204 days=3.3 years=just short of $144,540 max policy benefit.
At this point medicaid kicks in, which means move patient to nursing home, and remember the $144540 max policy benefit for below.
In 2) where case is in nursing home, focus on the daily benefit. If a day costs $250/day the policy covers $132 and insured co-pays the $118 balance. Meaning when analyzing break evens, realize that $40,000 in care was paid up front, but the next $118*3*365=$129,210 is being depleted from assets.
The $132/day exhausts in 3 years because the original policy was $50/day compounded at 5% for the 20 years the person paid into the policy. This total amount is $144,540. After 3 years the person goes to medicare, which is going to pay the nursing home a fraction of the cost ($250/day) from that point forward.
This means the spouse or significant other can keep $144,540 and exclude it for the medicare benefit calculations. Whether in situation 1) or 2), that number is used for the medicare calculation, the length of time (3 years) is only relevant if the full daily amount is being used. Generally in home care is a fraction of the cost of nursing home care.
Here are a few other bits of information.
Statistics show that most LTC claims start in the insureds home. Could be respite care (so primary caregiver can run errands for 2 hours), could be help showering, bathing, cooking (any ADL act of daily living) as defined in the policy.
When you get the policy focus on 4 factors
what you expect your premium costs to be, consider this "co-pays" paid in advance
what the inflation factor is
what the max daily benefit will be
what you expect cost of care to be for a person entering your home
I think it's easier to think a care assistant will make $40/hour in 20 years than it is to guess what the cost of the nursing home will be.
Measure with a micrometer, mark with a paint brush and cut it with an axe.
It might be better to calculate what spouse needs to live on (like $400,000 portfolio using 4% rule=$16k+$24k SS=40k income, so the LTC benefit needs to be $400k/(365*3)=$365 daily benefit for 3 years, or $400k/($365*5)=$219/day for 5 years. Then ask for a policy for that specific daily benefit for that specific time period. This technique protects the assets so the second spouse can live off them after first person to pass does the sporting thing.