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LTCI: yes or no?

Home Insurance LTCI: yes or no?

  • Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1210
    Joined: 02/15/2016

    A partner asked my opinion on his LTCI policy the other day, so I thought I’d get the group’s current thoughts.  His situation: male, about 40 yo, married to SAHM, no health issues that I’m aware of, I think his parents are still in good health. He started a policy a year ago and is wondering if he should keep going or stop. Annual premium is $8500 but subject to increase. Current benefits are $200/days, $1400/week, max benefit $365k (5 years), 3 month elimination policy. 5% inflation adjustment rider on benefits.

    We discuss finances pretty freely, so I know he’s in a good financial situation. Lives a modest lifestyle. No loans other than mortgage, which was around 1x his income initially, probably 6 years into the mortgage. Income $400k+ most years. Maxes 401k, HSA, and his/her backdoor Roths.

    What would you recommend?

    #228971 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3946
    Joined: 01/08/2016

    not to keep it.

    #228976 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2477
    Joined: 01/03/2017

    It has been a while since I looked at one of these policies but I believe the consensus is to self insure regarding this. For the people that end up needing long-term care, the duration usually doesn’t make it worth it. He’d be better off investing the premiums.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #228981 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1644
    Joined: 01/08/2016

    no

    #228987 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1210
    Joined: 02/15/2016

    That’s where I was at to. I didn’t know if others are worried about the price of long term care outpacing inflation or if there is benefit to increasing the length of the elimination period.

    #228988 Reply
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 53
    Joined: 05/25/2019

    Big “NO”

    Average age of a person that needs LTC is 80 years old and needs it for 4 year, $7500/month (total $360K in current value).  Paying $8500/year (subject to increase, another NO) for 40 years (total $340K) to get $365K benefits, is insane to me.  He should put his $8500/year into S&P500 that gains 5%/year and have ~$1M when he is 80 year old.  He will have $365K for his LTC and leave $635K to his family instead of to insurance company.

    #229142 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 836
    Joined: 02/06/2016

    If you are poor, the government will pay for your LTC through Medicaid when you run out of money.

    If you are upper middle class and can afford the premiums, the LTC insurance might make sense, but you have to make sure the benefits are generous enough to justify the cost.

    If you are well off and plan to retire with a net worth of perhaps 5MM, then it makes more sense in my view to self insure.  We looked at LTC insurance and the benefits and loss of flexibility didn’t seem worth it.

    In all likelihood, many cases of disability can be handled by hiring a helper in the home.  If you go through the LTC insurance, you lose flexibility.  You have to hire through an agency rather than privately, at more than double the cost.  When a family member of mine became disabled, we directly hired a home helper full time, live-in, at a fraction of the cost and for a better quality person than could be provided by the agencies we tried.

    #229146 Reply
    Hank Hank 
    Moderator
    Status: Attorney
    Posts: 1272
    Joined: 03/27/2017

    Under $500K-$1M, go with Medicaid if you have to.  North of $2.5M or $3M+, self insure.  It’s the uncomfortable middle where long term care insurance might make sense, but it’s a terrible product that isn’t financially viable.  Best advice is to get over the net worth hump as quickly as you can and just self insure.

    #229148 Reply
    Avatar Physician Finance Basics 
    Participant
    Status: Physician
    Posts: 29
    Joined: 06/02/2019

    if there is benefit to increasing the length of the elimination period.

    Click to expand…

    … that would be great for many people considering LTCI. But not many policies offer that at this time. In fact, industry observers think that may be the next step in LTCI policies… increase elimination period to 2-3 yrs from 2-3 months: would bring down cost for insurers and therefore premiums, too.

    As per a Vanguard study, about half of all retirees incur LTC costs; 25% incur some- averaging $100,000 and 15% of retirees spend an enormous amount, more than $250,000. An elimination period measured in years would be a boon for that last 15%. And would serve as true insurance, whose purpose is to prevent catastrophe.

    We’ll just have to wait and see if these policies will come out.

    Blogging and videocasting about the basics of personal finance at http://physicianfinancebasics.com

    #229166 Reply
    Liked by Vagabond MD
    Hank Hank 
    Moderator
    Status: Attorney
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    Joined: 03/27/2017
    15% of retirees spend an enormous amount, more than $250,000

    Click to expand…

    How is this an enormous amount?  If you have $2.5M, it’s 10% of your net worth.

    At $1M or $2M in costs for long term care or memory unit care per spouse, then I might be interested in insuring against that risk.  Then again, if I’m that far gone with no realistic hope of recovery, I might hope my family would put me out on an ice flow.  Rapid onset lead poisoning or a little too much propofol might be more economical and more humane at that point.

    #229186 Reply
    Liked by Vagabond MD
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2582
    Joined: 09/18/2018

    Not many options available now. I have two policies (spouse and I). My intent is not the 80’s, it is a coinsurance for a specific period. The Medicaid route completely destroys a spouse’s or children’s finances if one hasn’t prepared for it. The 5 year look back is tough to deal with. It is not an investment, which most seem to be running numbers, it’s more like term life insurance (for a purpose). ALL policies have a base rate and adjust up based upon 5 year brackets (defined in the contract not based on new pricing). Financially, it is terrible, just like term life insurance.
    At least if my wife or I have a stroke, we have a base amount per month to work with. We can use in home, relatives, or facility.
    It’s similar to the guaranteed issue DI policies.
    It’s a he// of a lot cheaper than the price mentioned.
    I would suggest a physician consider the potentially cost of LTCI when pricing OoDI and the limits.
    Self insurance is always better financially, unless you need it sooner. Don’t try to cover all the costs, DI won’t cover your earnings.

    #229219 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1210
    Joined: 02/15/2016

    Big “NO”

    Average age of a person that needs LTC is 80 years old and needs it for 4 year, $7500/month (total $360K in current value).  Paying $8500/year (subject to increase, another NO) for 40 years (total $340K) to get $365K benefits, is insane to me.  He should put his $8500/year into S&P500 that gains 5%/year and have ~$1M when he is 80 year old.  He will have $365K for his LTC and leave $635K to his family instead of to insurance company.

    Click to expand…

    But there’s a 5% increase rider on the benefits, so after 40 years, the benefits are much higher than the initial $365k. Does this change anything?

    #229242 Reply
    Avatar Physician Finance Basics 
    Participant
    Status: Physician
    Posts: 29
    Joined: 06/02/2019
    15% of retirees spend an enormous amount, more than $250,000

    Click to expand…

    How is this an enormous amount?  If you have $2.5M, it’s 10% of your net worth.

    Click to expand…

    The Vanguard study said more than $250,000…. it did not specify the upper limit nor the average. The risk is with “long-term” LTC rather than “temporary” LTC, such as post-hospitalization SNF or rehab care, which lasts weeks-months and is often paid by Medicare, to a significant degree.

    At $1M or $2M in costs for long term care or memory unit care per spouse, then I might be interested in insuring against that risk.

    Click to expand…

    You are right here… the commonest cause for long-term/ongoing LTC is dementia. Others that rank right up there are stroke, Parkinson’s, severe osteoarthritis. This is scary to me a physician because these are very common conditions, not rare diseases.

    The median nationwide cost for a pvt nursing home room in 2016 was $92,000. It varies by region and “a private room in a high-end nursing home can cost 50% or more than the average for a particular location”. Take 5 years in there and you are down $500k. 10 yrs and it’s a million. And about 16% of people need 2 yrs or more of LTC, that’s not an insignificant number.

    Then again, if I’m that far gone with no realistic hope of recovery, I might hope my family would put me out on an ice flow.  Rapid onset lead poisoning or a little too much propofol might be more economical and more humane at that point.

    Click to expand…

    This is easier said than done. These are chronic conditions, not conditions where CPR/DNR status or feeding tube is being acutely considered or death is imminent. That would actually make it simpler. Medicare often pays for hospice care.

    *I have quoted the Vanguard Mercer Study from 2018 for this information.

    Blogging and videocasting about the basics of personal finance at http://physicianfinancebasics.com

    #229252 Reply
    Liked by Tim
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1210
    Joined: 02/15/2016

    Any insight into what more than 2 years means? The difference between 2 years and a day vs 5 years is quite significant

    #229258 Reply
    Avatar Insurancepro 
    Participant
    Status: Financial Advisor, Insurance Agent
    Posts: 42
    Joined: 03/26/2019

    40 is much younger than the typical LTCI purchaser. Better to invest the premiums and see what insurance or planning options are available in 20 years.

    #229264 Reply

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