Hi BobC,
You mentioned you have long term care policies. Could you elaborate a little? Are these like life insurance policies but will pay out if you need money to pay doctor's bills? Also do they get expensive as one grows older? What is the right age to lock in your premiums (I'm assuming that needs to be done)
Appreciate any education / references you can provide to find and identify companies who sell this sort of insurance.
Comments
Early LTC policies were for nursing home care only. Now policies include home health care and assisted living expenses, as well as nursing home care. Some include an inflation rider that increases the benefit payment.
The insurance companies made two major errors during the first 20+ years of marketing LTC policies. They assumed the lapse ratio of policies would be similar to that of life insurance policies, and they were wrong. People who bought LTC policies actually kept them, which meant they would eventually use them. And they greatly under-estimated the huge annual increases in the cost of LTC. This meant many more owners were collecting benefits, and those benefits were costing the insurance companies a lot more than they had anticipated. This combination forced almost all companies to exit the LTC marketplace, either selling existing policies to other companies or simply stop selling new policies. Only are very few companies still market the traditional LTC insurance. Newer options include attaching a LTC rider to a life insurance policy or annuity.
There is a common belief that Medicare will pay for these expenses, and that is simply not true. Medicare does not cover "custodial" care, only medical care, and most nursing home costs are considered custodial in nature. It will pay for skilled nursing care (not LTC), certain home health care, and hospice and respite care. Since the average costs of nursing home care average at least $200 a day (or $70,000 to more than $100,000 annually), it is easy to see how quickly a person's savings and other assets can be depleted. States can put a lien on a person's home if no spouse is living there or if there is no reasonable chance the person will return to living there. Medicaid is an option, but people need to pretty much have no assets at all to qualify. Medicaid can put a lien on your estate, too.
My wife and I bought policies from Genworth a few years ago. We decided premiums would be too expensive to cover the full costs of LTC, so we selected a daily benefit that will pay part of LTC costs, choosing to pay remaining costs from our ongoing income sources. I have found that most people select a similar strategy. Each policy has options for daily benefit, maximum benefit period, and the elimination period (how long you are on the hook for expenses before the insurance company starts paying).
LTC policies are expensive, and the costs to buy a policy increase as you get older. But in our case we looked at what we might pay for LTC if we did not have a policy to help us. We would pretty quickly exceed what our cumulative insurance premiums would be. We found that like most people, we are not wealthy enough to be self-insured. There is always the chance we will die and never use the policies. In this case, LTC insurance is similar to property & casualty insurance...you may never need it, but are you willing to take that risk? We chose to pay some of the expected costs ourselves and have the insurance company pay the rest. Check out your own state's LTC online information resources.
I hope this is helpful. It is just a short synopsis of this very complicated decision process.
Something for me and my better half to think about.
Hope you're doing well. You're as sharp as ever and everyone thanks you for the LTC insurance run-down.
I signed up with MetLife when they first came out through state civil service. Perhaps the most important feature we chose was to have an 'equity' amount that would be forever ours to use regardless of if we chose to stop paying premiums. This is key because our premium has increased enormously since I began. Periodically, we have been notified that due to increases in the costs of LTC, premiums would increase by X. We must accept these increases or after two refusals, they will never offer them again.
We're fortunate that we can still afford the premiums, but can envision a time when we might choose to stop.
That said, we signed up because it seemed to be the difference between a nursing home with or without "good broadband and cable". It also serves as an estate protection device for the healthy spouse. Most patients needing to use this don't survive that long. LTC insurance protects the estate for the survivor.
The other issue we discussed was our wealth level. We used below $1M, forget it and go on Medicaid. Above $5M (perhaps larger these days), as Bob said, you can afford to be self-insured.
just some observations,
and so it goes,
peace,
rono
I know someone who was very sold on this coverage. She and her husband began paying level premiums in their 60s. (Start early and the fixed premium is much lower.) Like term life insurance, the premiums were due every 6 months and covered only that 6 month period. Her husband passed away a few years ago without using any of the benefits. She (in her late 80s) is currently in an assisted living facility and the insurance is paying 100% at about $220/day. It will pay for a maximum of 4 years and then stop. Of course her social security is accumulating in a bank account unspent during this time, so that will give her an extra $100,000 or so should she live out the 4 years.
Everyone is very glad that she has this coverage, and of course it always feels good to get things for free. However: if one adds up all of the premiums paid for 2 people over 20+ years, especially if one considers a modest rate of return on the money, I feel fairly confident that the insurance company came out ahead on the deal. The max they will be out is about $320,00 -- paid out over 4 years.
On the other hand, essentially no one would save earmarked money especially for this purpose, and paying out $220 /day would be painful, so as a financial pain relieving instrument, maybe it is a good thing.
10%: The percentage of people who enter a nursing home who will stay there five or more years
65%: The percentage of people who entered a nursing home who died within one year of admission
5 months: The typical length of nursing-home stay for patients who eventually died in the nursing home
8.94 months: Average length of stay for discharged nursing-home residents (1999)
2.44 years: Average length of stay for current nursing-home residents (1999).
What all this (and other statistics I vaguely remember) tells me is that there's a significant probability that one will need long term care, but in all but a small percentage of cases, "long" is not all that long (months or perhaps a bit longer). That said, in the "worst" case (hard to call living longer a worst case), the stay could drag out for many years.
So it's a pretty good bet that one will either not need long term care, or if one does, it won't be for very long stretches. One can take advantage of this by buying a policy that will cover just 2-3 years. In the highly unlikely "worst" case, one can spend down assets and then Medicaid will kick in. You're not going to wind up in a first class facility, but at least you won't be out on the street.
If one accepts this reasoning, have I got a bridge for you .... No, seriously, there's a program specifically designed for this. Partnership for Long Term Care is a program offered in most states, where specifically identified private LTC plans are coordinated with state Medicaid.
In most states (not all states participate), if you buy one of these plans (that fit the general profile I described above), you won't have to spend down all your your assets before you qualify for Medicaid. Most of the programs are "dollar-for-dollar" meaning that if you buy $300K worth of LTC, then you're allowed to keep $300K in assets. A couple of the "original" Partnership states, NY and Ind., also offer "total asset" policies that allow you to keep all your assets.
These policies are not supposed to cost any more than non-Partnership policies with comparable benefits. This strikes me as a good program. The numbers work because pragmatically speaking, the vast majority of people will be fully covered by their private policies. And because this encourages more people to buy policies, the states will be helped out, so they can pick up the Medicaid tab for the relatively few who need really long term care.
This page contains a brief description and links to details for your state:
http://www.partnershipforlongtermcare.com/ltcinsurance.html
Here's Indiana's FAQ that also serves as a good intro:
http://www.in.gov/iltcp/2362.htm
Regarding Genworth - it's a good company, and I looked at them a few years ago when they were preparing to get rid of their 10-pay option. Many, many years ago, you could buy a LTC policy with a single, jumbo payment up front. This gave protection against the type of premium increases rono described. The 10 year payment plan didn't give total protection, but it was still pretty good, given that one might otherwise be paying premiums for 30-40 years. Unfortunately, the insurers have all shifted the risks to you, the customer. No more fixed number of payment plans (that I know of).
Genworth recently announced that it was being bought out by a private Chinese company. I don't know what effect that will have on its future offerings.
https://www.bloomberg.com/news/articles/2016-10-23/china-oceanwide-agrees-to-buy-genworth-for-2-7-billion-in-cash
https://www.bloomberg.com/news/articles/2016-10-24/genworth-s-lost-decade-ends-in-2-7-billion-china-deal-timeline
It's not easy to find and pay the >$4k every year, and more needed going forward.
But our long-lived parents needed it (it was hugely helpful) and one older sibling will almost certainly, so we are trying to be prudent and foresightful.
Obviously there are arguments to be made for and against state regulation.
I can't think of anything worse than dying with too much money. My Mom recently passed away at 96. She was in a nursing home for all of 4 months. She died poor and happy! Albeit gave up once in the nursing home. That happens to many I imagine. Hopefully, when/if I get infirmed, my neighbor who also happens to be my girlfriend of 17 years will take care of me. I think retirement from a financial standpoint for a single person is a bit simpler than one who is married.
So I guess my point is, you can draw down a huge chunk of savings well before you are "eligible" to be let into nursing care and LTC starts to cover anything.
My wife's mother didn't need the home care, but her relatively short stay (some six or eight months, as I recall) in a "nursing facility" (aka: "death camp") took a huge chunk also.
Well, long story short, my mother passed away last summer as we were trying to find her the care she had progressed to need. At 96, she got her wish.