“Very interesting on long term care policies tied in with insurance.”
Seems like this is mainly a way for life insurance salespeople to overcome customers’ reluctance to keep their life insurance in place until death (ie buy whole life policies).
A big benefit of LTC was that many policies included a built in annual increase in the amount that will be covered to address rising care costs (ours has a 5% annual increase) but that has proven very problematic for the underwriters, especially when claims were higher than expected.
How is a whole life policy going to offer a payout that keeps pace with the increasing cost of care? Presumably the answer is that they won’t - they are just returning some of your whole life payout early and not aiming to cover the actual costs incurred. If that’s what you want, why not just save up to pay for your LTC (if needed) out of pocket? If you want the insurance policy for the tax benefits then you are almost certainly rich enough to pay for LTC out of pocket anyway.
^ 1. The life w LTC rider typically does not include an inflation adjustment. However, the coverage is way more than the common alternative (no coverage). Not a scam for insurance agents to make money but rather a valuable benefit for consumers to limit risk for expenses that could / would otherwise crush them. If you’ve ever experienced a loved on or friend go through the process without coverage you’ll know how devastating it can be. Lot of people think the best alternative is to spend down and qualify for medicaid. They simply aren’t aware of what that really means, both for surviving spouse and quality of care.
There are other "Linked" products which focus on LTC first (ahead of the life insurance) and include the typical 3% - 5% compund benefit. You simply get a little less up front and it grows. Will aslo affect the amount of life insurance tied to the contract. Like the other products, this is technically life insurance so actuarily sound and claims reserves are predictable like any other life insurance policy.
Seems to me (in practice) most people take an all or nothing approach which is crazy. If affordable, why not cover half the need or three quarters of the need?
This whole topic of agents benefiting is so old and tired. I've literally been hearing it for 30 yrs. Do we benefit? Aboslutely! Should we? Absolutely! No different than any other service provider. Do you care if your attorney, physician, CPA, realtor, casulaty agent, dry cleaner, waitor, mechanic, etc benefit? I would think you would want them to do well so they can continue providing you valuable information. Are there bad players out there? Absolutely, just like in any other industry. Last time I bought a sofa at Ethan Allen I wasn't thinking about how much the sales gal made. I was htinking about how much I'm going to love that sofa. No different here.
Products have expenses. Those expenses pay for benefits. Those benefits are either valuable to you or not. If they aren’t, you shouldn’t buy them. If they are, you should. No free lunch out there.
B. Term life insurance during the years when someone depends on your labor income (or household labor that would otherwise have to be paid for) but stopped when that is no longer the case, plus a separately purchased LTC policy (if desired, and the amount chosen strictly based on your LTC considerations).
I find it hard to imagine A being more cost effective than B (at least for someone who does not already have A). Does anyone have a contrary opinion?
“If affordable, why not cover half the need or three quarters of the need?”
Except that ignoring the annual increases in benefit may mean receiving much less than this. For example 5% increase compounded for 30 years is 4.3 times the original daily payment rate (though granted that level of increase is harder to find nowadays). So by the time you need the benefit, you might only cover a quarter of your LTC costs.
LTC may be worth buying (we did), but if you buy a policy then you should buy one designed for your needs, rather than buying a whole life policy just because it includes some LTC benefits.
I’ve never understood the idea of buying suboptimal insurance policies when optimal ones (like term life, matched to when you have dependents reliant on your earnings) are available. One poster remarked earlier that 97% of term life policies don’t pay out. My reaction was duh, how do you think they can give you $1M coverage for less than $1000 per year otherwise.
To me the issue isn’t that the agents make money. Of course they need to earn a living. It’s that the fees and payments for selling certain kinds of investment and insurance products aren’t clear and transparent and are all over the map. And for some products (annuities and insurance are often among the worst in this regard), the commissions are out of whack with other investment products. To me it is different than buying a sofa. This is someone who is managing your money and is supposed to have your best financial interests at heart and serving a fiduciary duty to you, an element of trust. In the interest of that fiduciary duty and trust, IMO, ALL fees and commissions made by the advisor and their firm should be laid out clearly and explained along with the benefits and drawbacks of the different investment options.
“B. Term life insurance during the years when someone depends on your labor income (or household labor that would otherwise have to be paid for) but stopped when that is no longer the case, plus a separately purchased LTC policy (if desired, and the amount chosen strictly based on your LTC considerations).”
The issue here is that very few companies offer such LTC policies.
Was a bank teller for Chase Manhattan Bank in NYC after high school. Was making $12,000 per year. Took accounting classes at Pace University at 6am and business class at 7pm. Eventually went back to school full time, received 2 degrees, managed a bank branch making $45k per year. Made career change and became professional firefighter. Most rewarding job I could have ever imagined. Have worked 2 jobs for past 30 years and have never worried about providing for family.
I never took for granted a public pension which has been under attack for entire 30 years. I’ve invested 15% of income since day 1. Can retire now at age 55 but won’t. Cant picture my self doing nothin for next 25-40 years.
^ an excellent product (Money Guard) which we sell all the time.
Someone asked why would a linked product be better than term and standalone LTC. It’s not a matter of better. They’re different. The linked benefits address issues not addressed by hte standalone programs. They may be more or less meaningfult o you based on your circumstances. Here are some realites about “traditional LTC”.
Very difficult to buy as underwriting is challenging at best. Probably due to most waiting to long to purchase, the decline rate is huge (like 50%). Not the case with the linked products.
Premiums are not guarnateed generally. For many yrs, premiums were level. About 10 yrs ago, major carriers like John hancock started increasing premiums by double digit percentages.
Most of the carriers who sold these standalone products no longer sell them. The ones that do charge a lot for fewer guarantees. (the life polciies are guaranteed from day 1 - because it's an acceleration of a life benefit they were going to pay anyway.)
Standalone products are mainly use it or lose it. Some have return of premium features. Most don't. BTW - the inflation protection is a good idea. The Money Guard has that but they're all a good idea compared to not having protection.
Whatever makes the most sense to you individually is great. I would just tell you if you’re married and have a nest egg between 200k and 2.5M (or more to be conservative- figure potential risk is each spouse requiring 3-4 yrs in nursing home. Today that would cost 600k-800k. If you have 2.5M you can probably survive that hit. If you have 1M, retirement as you know it doesn’t exist. It won’t for the patient anyway, but if only one of you needs care, it will really hurt the survivor), you need LTC in some form. People with more can self insure without it killing them. People with less, unfortunately, just have to accept the care provided by medicaid (which is hit or miss).
I have no agenda here other than expressing concerns for those without coverage. Take care of it however you see fit. Most people are just unaware of the options. Educate yourself and find a solution that works for you, but please stop getting lost in the meaningless labels of what it’s called (whole life, term, blah blah blah) and purchase what it does.
Not everyone is a fiduciary. I happen to be. I know many who are and many who aren’t. Suffice it to say a good advisor / agent will have the client’s best interest at heart regardless of any regulatory nonsense.
I don’t remember the precise numbers, but there are asset levels where a) they’re too low for you to afford LTCi and b) you can afford to self-fund LTC.
This might sound really “first-worldly,” but if one or both of us is in LTC, you have to figure that we are not simultaneously eating in expensive restaurants, buying expensive cars, taking expensive trips, etc. Most of the LTCi plans I’ve seen don’t pay all that much per day, and they have a maximum.
I might be a buyer for catastrophic LTCi, which would have an exclusion period of a few years and then pay out an exceptionally high daily limit, but as I understand it, those are not legal to underwrite in the US. Pity.
Insurance is not supposed to be a pre-payment plan (eg, most dental insurance), but rather protect against low likelihood / high impact events (eg, umbrella policies).
I agree, I’d be more interested in LTCi that had a 1 year or longer exclusion and then paid out. The premiums would be lower and would provide the benefit when really needed to preserve estate assets for the survivor.
“Very difficult to buy as underwriting is challenging at best. Probably due to most waiting to long to purchase, the decline rate is huge (like 50%). Not the case with the linked products.”
Any insurance that doesn’t have underwriting (unless that lack of underwriting is mandated by government regulation like health insurance, when healthy people are required to subsidize unhealthy people) is inevitably going to look more like a prepaid savings plan than true insurance of an unknown risk. You want to apply for the insurance with the most stringent underwriting criteria that you can pass, because adverse selection will otherwise mean you are paying more than the actuarially appropriate rate. Since this is a college application forum, shouldn’t we be looking at a 50% acceptance rate as a “match” for most reasonably healthy people.
For example, I’m very happy our health insurance is a pre-Obamacare underwritten individual policy that was hard to qualify for. It means that our premium is less than half what we would be paying for a non-underwritten policy with fewer benefits (we have a $3500 per person deductible and $6000 out of pocket max and our family plan costs $1100 per month).
I’m also very happy we took out a strictly underwritten LTC policy 15 years ago when we were young and healthy that is as close as we could get to a catastrophic policy (6 months waiting period, but no lifetime benefit limit). Current cost (after a 20% increase a few years ago) is $100 per month for what is now about a $270 per day benefit, increasing at 5% per year. By the time we might need it (say in our late 70s/early 80s) the benefit should be at least $1000 per day. (And being self-employed I can deduct the premiums too).
When we were shopping for LTCi, premiums were MUCH higher for coverage that was similar—it was like paying for another college tuition and we couldn’t afford it. I likely wouldn’t qualify for any LTCi at this point due to diagnosis of a chronic health condition.
The policies were being promoted by the fed govt and had no screening at all—guaranteed to be issued. Maybe premiums would have been lower if folks had to qualify.
True stringent medical underwriting can make coverage less expensive. Also true that about half applying for fully underwritten LTC coverage will get heavily rated or declined so the cheaper coverage is irrelevent. The Money Guard product mentioned above is “smplified issue”. Very generous underwriting including havings ome cancer and heart related issues over 2 or 5 yrs ago. If your early 60s, your premium typically buys a 4:1 (50k gets you 200k of benes more or less). Amazing to me that people will reposition that 50k into other investments to protect against market risk while not repositioning it to MG to protect against health care risk. The market risk on 50k is 50k. On Healthcare risk it could easily be the 200k. This would protect the 50 and another 150k of the other part of the portfolio.
speaking of LTC, attached is nice statistical overview of the odds of needing it (~50%) and how long (14% for 5+ years). Mathematically, the odds of long term need are ~7% (higher for females); or 93% for no or short-term need.
It gets you the potential of $200k in benefits. (yeah, I get that is the purpose of insurance.) But since only ~7% need max benefits, the expected max payout is 7% * $200k = $14,000. Or, I can keep $50k in the bank growing a say, 3-5%.
As a Finance guy who worked in MegaCorp benefits, I’ve researching LTC for years, and still can’t make it work.
Interesting paper. Makes me think I got a reasonable deal: looks like I’d have a ~30% probability of claiming (male) after the 6 month elimination period, with a median duration of ~24 months. If I can get $1000/day that’s $730K in benefits, so an expected value of $220K for a (tax deductible) contribution of $50K (40 years times $100/mo) - at least a 6-7% ROI even without the tax benefits.
But if the premium cost was twice what I’m paying then the ROI looks a lot less attractive (though in my situation tax deductibility for the premiums might still make it a reasonable deal). And it’s a better deal for my wife since price discrimination by sex isn’t allowed in CA.
We have LTC insurance begun many years ago a few years before a major player exited, but opted to keep lower level coverage when premiums really climbed. Hope to never use it because we are healthy enough not to ever need it - but no magical thinking going on, just risk aversion.
Really have to have trust in your financial adviser. We did purchase annuities to decrease our risk (we have no pensions) and they are doing well - adviser researched and knew his stuff. Adviser has been around a number of years and has built up his office considerable with other partners and as they have gotten bigger, less cost on their transactions with a bigger asset pool. We have our Roth accounts in the asset pool. Have sizable 401k under our own management. We are pretty ready for things in less than 2 years when we are both Medicare eligible and retired.
The separate thread on Medicare plan discussion is interesting - and I have saved our newspaper’s 8 page Medicare Guide which outlines details on various plans in our state along with other information. Next year’s info will be a good comparison for when we do become eligible in 2021.
We are not planning to do LTC insurance, and we have a bucket of money set aside for care, in case we need it. We MAY check into the insurance/LTC thing (our financial advisor told us about the policies, but didn’t push them).
As we get closer to retirement, these decisions feel more and more important. It’s fairly likely I will retire in the next 18 months. My husband will work until 2022. We will be “young” when we retire, but we do have great healthcare through the federal government. It’s expensive, but not nearly what others have to pay.
My aunt has a relatively expensive LTC policy that she has been paying into for awhile. She is nearing end-stage COPD and applied for the benefits so she could get more help than she was currently getting. The tests are so strict that she did not qualify, even though she is on oxygen 24/7. Feeding assistance meant someone spoon feeding her, not that someone shops and cooks for her. Bathing meant someone completely bathing her, not just helping her into tub and dong her back and hair. And if she didn’t hit I think 5 of daily living then they won’t pay. By the time she is there it won’t be much longer for them to pay.
@Singersmom07 – Most of the LTC policies I have seen require the insured to be unable to complete two of the six ADLs without assistance. I would be surprised if a policy required the insured to be unable to complete all five in order to qualify for benefits, but anything is possible. My parents’ policy only included five of the six ADLs, whereas most seem to include all six.
I agree with you that meeting the definition of unable to complete ADL is very strict. We were able to manage around the shopping by having groceries delivered, but the preparation and serving was a challenge. While I eventually received approval for each of my parents to be considered ‘in benefit’, neither lived long enough to receive any return on the ten and twenty years of premiums. These policies seem to be of the most benefit to those who suffer some sort of lingering illness/disease that leaves them wheelchair bound or worse. MS and Parkinsons come to mind.
@Twoin18 – I think you would have trouble finding a way to spend $1000/day. I hired in-home help for 24 hours/day during my mother’s last weeks of life. When you added the employer cost of FICA & workers’ comp, the hourly rate of $27 was $648/day. This is in the NY metro area. Assisted Living would cost far less–perhaps $8K/month and nursing home care maybe $14K.
Does your policy cover in-home care at 100%? My parents’ policy covered in-home and Assisted Living at 80% and nursing home at 100%. The in-home care exceeded the daily benefit limit of $450 by $200, so monthly care at home would have cost $6K/month, even with a $750K lifetime benefit. Your policy’s $1000 daily benefit limit eliminates the cost my mother had.