Good Advice on Long-Term Care Insurance

Based on my recent long-term care insurance post, many people are thinking about the same issues I am -- namely, what to do about it.

Shortly after I posted that piece, I ran into this article from Kiplinger's that IMO has some decent advice regarding long-term care insurance. The highlights of their advice:

Instead of buying enough long-term-care insurance to cover the full risk, you can keep the premiums more manageable by making some trade-offs.

Rather than buying a policy that provides lifetime benefits, go with a plan that offers benefits anywhere from three to five years. Advisers also prefer "shared benefit" policies for married couples. A three-year shared-benefit policy provides a pool of six years of coverage to divvy up between spouses. If you need five years of care and your spouse needs one, you're both covered. Such a policy costs about 15% more than two separate policies with three-year benefit periods.

Because you may wait 20 or more years to tap your policy, your daily benefit should keep up with rising costs. The 5% compound inflation protection is the gold standard, but some companies are offering cheaper policies that boost benefits by 3% a year. The 3% annual boost has kept up with general inflation recently, although the cost of care often rises faster than general inflation.

It's important to work with an agent who deals with many insurers, because the price differences can be huge.

Ryan says the major long-term-care insurance companies include Genworth, John Hancock, Mutual of Omaha, MassMutual, New York Life and Northwestern Mutual. "Make sure you give your agent as much of your medical history upfront, so the agent can match your risk with the company that can make the best offer," Ryan says.

Even with these cost-saving moves, Ryan says policyholders should be prepared for a premium increase of up to 20% every five years. To cap your future premiums, you can buy a "ten pay" policy. You pay more each year, but premiums end after ten years. Make sure you ask the insurer that it won't impose new charges after ten years.

Lots to comment on. Here are my thoughts:

• If you manage your finances correctly throughout your lifetime, their suggestions seem right on target. You should have enough saved up to cover much of your long-term care, so a three or five year plan seems appropriate. And the fact that you can share it with your spouse makes it an even better option for married couples.


• I have to think that inflation will be higher in the future than it has been in the recent past, so the 5% cost adjustment seems like a no-brainer to me.


• Where, oh where do you find a great long-term care insurance agent? Anyone have any suggestions? Ask friends and family? I have a good agent who helped me buy my disability insurance policy, but he's now out of that business. Perhaps I could ask him to refer someone who he's worked with.


• Anyone had any experience with any of these: Genworth, John Hancock, Mutual of Omaha, MassMutual, New York Life and Northwestern Mutual? Our company's 401k is with John Hancock, but I have no insurance experience with them. I believe my dad used to work for Northwestern Mutual for a short time selling permanent life insurance, but I have no direct experience with them either.


• That ten-pay policy seems interesting. I would need to run the numbers to see if it was a good deal, but there's something attractive about paying for a fixed amount of time and having the policy paid off. I guess it's kind of like an annuity -- you give them a set amount of money and that's it, it's all benefits from there on out. I wonder if they have a "one pay" where you can simply plunk down one lump sum and have all your benefits paid for in a single transaction.

In addition to the above, I ran into this copy of "Let's Talk", a PDF magazine from Genworth. It reminds us of another issue -- that our parents may need long-term care insurance. It suggests ways for bringing up the topic with them. Add this one to the "awkward conversations" list, just like talking estate planning with your parents. Ugh. It's bad enough we have to deal with these issues for ourselves, but we also need to work our parents through them.

Comments

[Nashville]

One year ago when my wife was 60 and I was 58, we took out a LTC policy with Genworth. In this economy, I was keen to go with a company least likely to go belly-up so I went with one of the biggest. My intent was not to cover all LTC expenses but to provide enough supplemental help to keep our assets from drying up quickly and thus keep premiums lower.

Our coverage is for a shared 10 years with a current monthly max of $4,500 with only 3% compound inflation. Our annual premium is $3,600. Initially I was going to go with a shorter term but we were entering a period of my mother-in-law's beginning Alzheimer's and I could foresee our assists disappearing quickly if same happened to either of us so I think I erred on the side of caution. But we can afford the premium and I sleep better.

[Matt]

I recently attended our office LTC presentation and came out with the following info from the policy UNUM was offering to us.

1.If you were to die and not go into a nursing home there would be no reimbursement or benefit paid.
2.You stop paying you lose all benefit of all premiums paid. So look at a premium that you can pay for life.
3.The suggestion was to buy some now and then in 5 years add another policy on top of the old one. But you may need to qualify for the new coverage and show insurability.
4.Some LTC is good even if it does not cover the full cost. I guess they mean that you will go bankrupt slower than if you had none.
5.You can get inflation protection but the inflation protection is simple. Meaning that if you have a simple inflation protection of 5% that coverage will only double every 14.4 years no matter what inflation is.
6.They can request a rate increase throughout the policy.
7.It is more affordable when you are younger at 50 than at 60 by about half. Makes sense. You might have a better idea of actually having a claim at 60 than at 50.

I am still not sure about this insurance. The thought of paying all the premiums with the thought that if I never make it into home care or nursing home situation that it is just lost.

I guess it is like playing the lottery and not hoping to win. Paying all the premiums and hoping you never are actually in that sort of situation to actually use the benefit.

[William R. Borton, CLU, RHU, REBC]

The only alternative to self-funding, or spending down all your assets and applying for Medicaid is insurance.

The type of insurance you buy will depend on your budget, way of thinking and the advice you receive. If all you can afford (now) is a "traditional" LTC insurance policy, then that approach is better than nothing. That said, the premium will increase, perhaps several times over the years.

The 10 pay option is far more expensive than you may think and that approach still doesn't address the "use it or lose it" objection. Shared benefit plans can make a lot of sense, if both spouses are insurable. The 5% COLA is expensive, far more expensive that the 3% COLA, so weigh the future benefit against adding shared benefit provisions.

Genworth and John Hancock are stock companies. The others are mutuals. All else being equal, price stability should be greater with a mutual company.

A really great LTC agent should sell more than traditional LTC insurance and should focus on a holistic process of education, asset and income assessment analysis. Avoid agents for sell for only one, or two, carriers and who don't discuss hybrid plans. Many LTC insurance specialists focus almost entirely on traditional plans (perhaps because that is what they know?) to the exclusion of hybrids.

Hybrids come in several variations, and if the consumer can afford the initial outlay, may be the best alternative. When considering a hybrid, ask if the policy is a reimbursement (like all traditional plans) or indemnity plan. Indemnity plans offer far great flexibility at claim time. Also ask if underwriting is based on morbidity (think disability), or mortality (think death). Conditions that could cause you to be declined based on morbidity underwriting may be insurable with mortality underwriting.

I was able to obtain a mildly "rated" hybrid policy, that was underwritten based on mortality, for a client who has multiple sclerosis. Needless to say, he was pleased.

[Bruin]

We have Mutual of Omaha policies. Since my wife and I do not have an identical health profile, we could not get the shared policy. Since we are in our 40s and have a long time horizon, we pay extra for a return of premium rider that allows us to recover the premiums paid if we die before using. (Some policies are by age. As with any details, the terms vary by company and riders selected.) We are pleased with the agents we dealt with.

[Old Limey]

I'm 77 and my wife is 79 and we are currently quite healthy. We have sufficient assets to cover any eventuality, don't have LTCI, and were never keen on the idea of it.

This is our plan.
We live in a 4br, 3ba home, paid for of course, that's in a very nice neighborhood and close to all amenities. Our city of 110,000 people in Silicon Valley, CA has an excellent modern Senior Center offering lots of services. One of the services is that, upon request, they have a long list of experienced people that will come to your home and provide various levels of care for as many hours/day as are requested. The hourly rates are not cheap but you would hardly expect them to be. Personally, my wife and I would much prefer to stay in our home in an environment that we love, and close to our beautiful garden, and if needed, just pay for however much help is needed.

We have two acquaintances in their early eighties, of modest means, that are now in a difficult situation. The wife got fed up with having to cook and clean so, a year ago, she talked her husband into selling the very nice home they have owned for many years, close to everything, for over $800K, and using much of the proceeds to buy into an assisted living facility. From a choice of various types of units in which to live, they chose a 2br. condo that came with maid and housekeeping services and 3 meals/day in a community dining room. The facility also provides lots of hobby classes and public rooms and is situated in a beautiful area with lovely views. One problem is that you have to get onto a busy freeway to go anywhere (even to a small shopping center). They also provide a facility where members can recuperate from minor surgeries or heath issues but they have many restrictions on the type of health issues that they are able to accept and certainly cannot take people that need skilled nursing. The husband recently had major stomach surgery and spent several weeks in the hospital in the intensive care facility and required feeding and breathing tubes for several weeks. Now he is out of the hospital but in a skilled nursing facility and there is no way the assisted living facility will accept him back until his health improves. On top of that he now has Alzheimers that is getting progressively worse and the assisted living facility has never accepted Alzheimer's patients.

Bottom line - they have sunk a great deal of their capital into buying into the facility and are stuck with the monthly cost which is several thousand dollars/month.
They are now victims of a very hasty, impulsive and shortsighted decision and financially are between a rock and a hard place as what best to do.

Staying in your own home gives you lots of options that they no longer have.

[Lurker Carl]

I have an uncle with severe dementia in an assisted living facility. The monthly fee is paid by his pension, SSI benefit and the rest from savings. Right now, the portion from savings is about $500 per month but that goes up each year. I don't expect that level of care and cost to be available to me If I or my wife reach his age. At this point, we hope we can care for each other or one of our offspring can step up to the plate as they have seen us do for our elder family members.

I don't see LTC insurance being affordable into the distant future, just like health insurance is becoming harder to pay for as time goes forward.

Take good care of yourself and stay active mentally and physically as you age. The future is uncertain on many fronts, not just personal finance and overall health. As the Chinese proverb claims, we live in interesting times.

[Old Limey]

A follow up om my previous post. I was just informed that the husband has died. It's bad news for him but it does solve the financial and logistical problem for his wife.

[Catherine]

We switched to a high deductible health insurance policy and the savings in monthly premiums more than cover our LTC policy. I am 44 and my spouse is 49.

I don't fear that we will never make a claim on all the premiums we have paid. I barely used the health insurance for which I've paid as much as $13,000 annually until switching to a high deductible plan. I'm grateful that I never needed made a claim on our auto insurance, and made only one small claim on our homeowners when a burst sewer line required digging up our driveway.

Also, I don't fear not having the resources to pay for care in our old age. I'm more concerned with a sudden illness or injury within the next few years bankrupting us and leaving one surviving spouse basically destitute. We've been fortunate that neither of our parents required custodial care of any kind and our mothers are healthy and fit well into their eighties. (Still dancing, both of them.) But luck is not a financial plan. Other families we know have not fared so well.

We have a friend who had a heart attack at age 50. The neighbor did CPR for 10 minutes while waiting for the ambulance. The good news is that he survived. The bad news is that the loss of oxygen to his brain caused short term memory loss and he can no longer be left alone. He must be in a dementia facility or have 24x7 custodial care. To qualify for medicaid, they needed to spend down their assets. In order to retain 50%, the wife had no option but to divorce him. Fortunately, they have understanding children who could serve as health-care-proxy for their dad, but this is not the second half of life that anyone envisions. Another friend has ALS. A few women we know have MS. A thirty-year old father of two living nearby dove into a swimming pool and suffered a spinal injury. The cost of care that each of these families endured can and does leave the surviving family members impoverished.

I hope never to make a claim against our LTC policy, because I hope to be mentally competent AND ambulatory on the day that I slip from this earth. So far as I can tell, hope & luck is not a financial plan.

[Funny about Money]

Well. I have long-term care insurance, originally purchased from TIAA-CREF through my job. That organization got out of the business of insuring old folks and foisted the policies on to Metlife. We now are told that Metlife wants to get rid of its policy holders by raising the premiums steadily until most people can no longer afford them. Mine went up from about $75 last year to over $100 this year. I expect hikes like that regularly from now on, and have no idea, having been forced into early retirement, how long I can hang on to this policy.

To make matters worse, I was laid off my job right about the time the periodic opportunity to elect to have your premiums increased so that your benefit will keep up with inflation. I asked for a grace period, since I didn't know whether I would even be able to keep my home, much less pay insurance premiums. This was granted. And...the result was that I lost that option, and I never will be allowed to purchase more coverage to keep up with inflation.

If something happens to me now, this will be OK: if I'm living in a nursing home instead of in my house, most of my Social Security can supplement the insurance payments to cover most or all of present-day nursing home costs. But if I live for another ten years and then get sick, I could be up the creek.

About all you can do, when you're looking at old age, is pray for a car wreck or a plane crash -- one that will do you in quick.

[PennySaved]

I have long term care insurance through the federal employee program and John Hancock is the insurer.

[John Larsenn]

I just did an analysis of modern-day Long Term Care premiums on my blog. What I found was that a 4 year, $100/day policy only provided 3x leverage when purchased at age 55, if held to age 78, and then fully exhausted all benefits.

The hard part is fully exhausting one of these policies. Recent claims data from Genworth (a large claims payer in the industry) indicates that 45% of claims last less than a year. Once one passes the one year mark, they're "Average" claim is then 2.9 years more.

The numbers may have been overly "gracious" to saving because I used a 5% compound rate of return on investment, which these days is hard to find but in the future may not be so bad.

The four scenarios I outlined were:

1) Save money interest free: $78,476 saved.
2) Earn 5% Interest: $222,608.57 saved by age 78.
3) Invest in S&P, achieve 8% annual growth: $380,755.46 save by age 78.

4) Buy LTC Insurance, fully exhaust policy: You’d have a combined “pool of money” of $1,144,677 by age 78

Given the current state of premiums, etc. this may be a case for saving, but it highly depends on family history too.

[slinky]

I have my long term disability insurance through northwestern mutual. I also did am internship with them during college. Good company, nice policy. One cool thing is that the company pays dividends on the insurance policies that help pay the premium. Also helps that I got a nice discount on policies through them from a job I ended up only staying three months at. :)