Q: Should I Buy Long Term Care Insurance For My Parents
My wife and I have been advised to purchase long term care insurance for our parents. It's unlikely that either family could afford 65k/yr to care for themselves if needed. It's for them, but essentially is insurance for us and our assets. Do you have any thoughts about this? Do you have any recommendations in general regarding features, good companies, etc?
WCI Recommendation:
Long-term care insurance is one of the most disappointing aspects of personal financial planning. There is no doubt that long-term care is expensive and worthy of insuring against, but there are so many complications when it comes to long-term care that it doesn't make any sense at all for many people to buy it for themselves, much less for someone else. Like many types of insurance, it tends to be sold, not bought, and those who know the most about it are also those who have the biggest financial conflict of interest with regards to your buying it.
Save Money on LTC by Medicaid Planning
Many of us have this image of being incontinent and demented and dying a slow, stinky, painful death living in a cardboard box on a sidewalk somewhere. Certainly I'd rather shell out for long-term care premiums than face that. But that really isn't the risk. In fact, the government has decided that everyone can have long-term care, free of charge, as long as you're poor enough. It's called Medicaid. “But I don't want to live in a Medicaid Nursing Home,” you may say, “I want a nice one!” If you have thought this, I suggest an exercise. Call up a few of the nursing homes in town and see if they take Medicaid. You'll quickly realize that almost all of them do, and that those who do not are not necessarily any better than those that do. So you're not necessarily buying a higher level of skilled nursing facility when you purchase long-term care insurance. This shouldn't surprise anyone in the medical field. Do you provide a lower standard of care to a Medicaid patient than to one with real insurance? Generally not.
So for those who are truly destitute (as defined by your state), they have no need to purchase long-term care insurance. The state provides it! Even if you're not destitute when you need the long-term care, you just need to spend your money on long-term care until you are and, voila! You now qualify for Medicaid. In most cases, you don't even change rooms at the facility when you go from self-pay to Medicaid. The staff will even help you and your family fill out the Medicaid paperwork.
Most people don't want to spend all their money on long-term care. They would rather blow it on something more fun. A lot of times people don't spend all their money and end up leaving it to their spouse (who doesn't need long-term care) or as a last resort, to their kids. Enter Medicaid planning. The point of Medicaid planning is to look destitute, while not actually being destitute. While these laws are state specific, most states allow your spouse a certain amount of assets and income and allow you to give some stuff away to be destitute enough to qualify for Medicaid. They generally have a “look-back period” of up to 5 years, so it pays to read your state's laws carefully before trying this arguably immoral scheme.
What Is Long-Term Care Insurance For?
The point of long-term care insurance is to avoid having to use all your remaining assets on long-term care, not to avoid living on the street. Like life insurance, it's for the financial comfort of your spouse and loved ones.
Long Term Care Insurance vs Self Insurance
Most Docs Should Self-Insure Against Cost of Care. Long-term care is expensive, but it isn't like being sued for a million bucks or having a baby in the NICU for 6 months. According to Genworth's handy calculator, the average cost of a single room in a nursing home in my state is $72K per year, and ranges from $61K in Texas to $125K in New York. $72K is a lot of money, but it isn't for someone with a couple of million in assets or an income of $150-200K per year. Home health aides, adult day care, and assisted living are even cheaper. Most doctors who follow the advice on this blog shouldn't have any trouble amassing a nest egg of $2 Million. (20% of a 200K salary x 30 years at 5% real = $2.8 Million). Even if you're in the nursing home for 10 years ($720K) that's not going to deplete the nest egg. With insurance, the cheapest option is always to self-insure, as long as you can handle the consequences. Most doctors can self-insure long-term care. But what if you end up needing long-term care before you've amassed that nest egg? You should have long-term disability coverage to meet that need.
The People In The Middle
The people who can really benefit from long-term care insurance are the well-to-do married middle class. I'm talking about those with nest eggs of $250K-1.5 Million without any pension. If you're single with no one depending on you financially, well, no big deal. You spend your nest egg on long-term care until you're broke, then Medicaid kicks in. But if all your income is going toward long-term care, what is your spouse going to do? These folks could really benefit from long-term care insurance. Unfortunately, long-term care insurance sucks.
Is Long Term Care Insurance Worth It?
Long-term care insurance is far more similar to disability insurance than it is to life insurance. Life insurance is very straight forward. You're either dead, or alive. Those in my line of work know there's a little more nuance to it than that, but suffice to say that by this afternoon, the nuance will be gone. But if life is white and black, disability is 50 shades of grey. Long-term care insurance is more like that. You get to argue with the insurance company that you really need long-term care. You may just want someone to come in to the house and make you a meal and help you bathe, but they think you can do it yourself. To make matters worse, your premiums generally aren't guaranteed, and if you make payments for a decade or two and then the company goes out of business (because they weren't charging enough or weren't run well), you'll have to start all over (with higher premiums) if you can still get insurance at all.
These are not mere theoretical concerns. Michael Kitces, at Nerd's Eye View, notes that Genworth (40% of the marketplace) scaled back its options dramatically last year, including the elimination of the unlimited benefit period. That's like buying disability insurance that only pays you for the first few years of disability. That's not the financial catastrophe you want to insure against. Prudential and Unum have left the marketplace completely. Many companies have also raised premiums on older policies. These policies are definitely written in the insurance companies' favor.
Erik, one of the Bogleheads, recently argued:
No, it's not the case that people without long term care are simply ostriches. Many of us aren't falling for the illusion of peace of mind when it is obvious that, in its current state, the LTC insurance market is dysfunctional; it's simply not working the way other insurance markets like homeowners and auto insurance do….
Can anyone be confident that the package of services they're buying today will be sufficient to cover their needs in the future? With homeowners insurance, you know what you're getting if worse comes to worst: a new house that will be comparable to your previous house. There are many levels of care assistance that might be required later in life, and there's a very significant likelihood that you won't even understand the decision, let alone participate in it.
I'd love to see an LTC insurance market that looks and works like auto or homeowners insurance, with well defined costs and benefits, and that provided the typical insurance advantage of spreading risk. But that's not how it appears to me. No, I worry that it may be the people who are buying LTC today, with the expectation of using it 20-30 years from now, who are the ostriches.
Buying Long Term Care Insurance On Others
My retired parents own a LTC policy. I think that's great. They're middle class folks with a good pension and a nest egg falling into the “middle range” discussed above. If the policy actually pays out, I may get a slightly larger inheritance that I am unlikely to need anyway. But if I were in the situation of the questioner above, and an adviser were recommending I buy LTC insurance on my parents, well, that's a completely different issue. First, I'd question his motives a little. How much does he stand to make if I follow his recommendation? Second, what is the big deal to me if my parents and/or in-laws have to spend down to Medicaid levels. If they can't afford to self-insure this risk, it's not like I have to pay for it. Medicaid will pick it up. Even if my choice is between paying premiums and possibly getting a larger inheritance or not paying premiums and possibly getting a smaller one, I'd be more inclined to take the bird in the hand. But what about my mother-in-law if my father-in-law goes in to the nursing home and spends all their money? I suppose some might prefer to pay LTC premiums rather than be in the position of having to support their mother in law financially, but I think I'd rather self-insure that risk.
The Features I'd Want in a Long Term Care Policy
If I were going to buy a LTC policy, I'd want a policy with an unlimited payout of unlimited duration, but with a significant deductible, perhaps even as high as 2-3 years worth of care, or perhaps a $10-20K deductible per year. I'd want to make sure it covered care at home, assisted living, and a skilled nursing facility. Benefits should be indexed to inflation of LTC expenses (not just CPI-U). The goal would be to insure against the financial catastrophe, and self-insure the rest. Unfortunately, I don't know of a policy on the market that meets these very limited criteria.
My Plan for Long Term Care Costs
Those planning for retirement should be cognizant of the possible additional burden that LTC can put on a retirement plan, and ensure they have sufficient assets/income to be able to cover these costs. I expect to annuitize a significant portion of my nest egg using SPIAs, to cover a basic standard of living and use the rest of the nest egg for variable expenses (like vacations and long-term care). An adequately sized nest egg combined with guaranteed income should allow me to cover LTC for myself and/or my spouse without having to ever spend down to Medicaid levels or resign the remaining spouse to a cardboard box.
What do you think? Do you own a LTC policy? Do you plan on buying one? Would you buy one on your parents? Why or why not?
You say:
“But what about my mother-in-law if my father-in-law goes in to the nursing home and spends all their money?”
In California the “Community spouse”, the one who doesn’t go in the nursing home, is allowed to retain $115,920 plus IRA’s in the community spouse’s name, household goods, personal effects, a car, the house, jewelry, etc. are all totally excluded, regardless of value, and the at home spouse can retain these, as well as the CSRA of $115,920.
Also:
California law allows the community spouse to retain a minimum monthly maintenance needs allowance (MMMNA) of $2,898. This amount is adjusted annually by a cost of living increase. Under the “name on the instrument rule,” the community spouse may retain any income received in his/ her name alone. It is important to note that the $2,898 amount is a floor.
Thus, if the community spouse’s monthly income is less than the MMMNA of $2,898, he/she may receive an allocation from the institutionalized spouse’s income.
Thanks for a great article.
I think the original question had more to do with filial support laws, which were not addressed at all in the response. A google search of “filial support laws” should familiarize the interested reader with the nature of these laws, and the many states where financially responsible adult children could be held financially accountable to provide (in part) for their parents.
The main part of the filial support law in my state was repealed in the 1970s and the other part has never been enforced. I suspect the experience in most states is similar.
PA is enforcing, as States are going broke providing for Medicaid.
Interesting. As if anyone needed another reason to leave PA. As I recall it has some brutal estate/inheritance tax laws as well.
Filial support in PA has NOTHING to do with state Medicaid benefits. The filial law in PA is the right of a private creditor to sue the kids for debts of the parents.
The state has no right to go after kids’ assets or require kids contribute to their parents’ care if on Medicaid – federal law prohibits this. It’s often confused with Medicaid “Estate Recovery” that allows the state to collect from any assets that remain in a Medicaid beneficiary’s (the parent’s) estate. The kids may think or want this to be their money, but it is not. The state, under Medicaid, can also seek to disgorge assets of the parent improperly or fraudulently gifted to the kids to attempt to qualify for Medicaid – but, again, that’s seeking to recover the parents’ money; it’s not forcing the kids to pay.
Good write-up. I’m not a fan of LTC insurance (I don’t sell any insurance). It seems to be an expense that’s better for those who don’t have the discipline to save on their own and expect to need it.
It’s similar to the difference between whole-life and term-life insurance. Term-life seems to be a better longer term option for those who invest the difference. If the insured would invest the premiums in their own accounts, they should be fine by the time they need it. If they don’t need the LTC, they have more to live on and/or pass down.
For those who buy LTC, but don’t save enough for retirement, their risk is in staying healthy and living outside of assisted living.
it isnt similar to whole life vs term. Those who need help saving the premiums are exactly those with the highest lapse rates for whole life. Anyone who cant save the difference/invest the difference should avoid the products.
It seems the same people who are at risk of lapsing on their whole life insurance would lapse on their LTC and shouldn’t buy either.
if thats what you meant then i agree
My father spent 10 plus years in assisted living because of macular degeneration combined with insulin dependent diabetes. His room rent was about $2200 per month which included some nursing care, food, transportation, and utilities. His civil service pension was around $3300 per month. He had around $600000 in CDs. He had a negative cash outflow only in the last 6 months after a stroke at age 92. He elected to stay with assisted living with 24 hour sitters rather than going to a real nursing home. He did not have LTCI. I really think it would of been one more layer to deal with. I think SPIA combined with social security at age 70 will work well with maximum flexibility.
additionally most polices one can reasonably purchase today are limited to 3-5 years so likely he would have been in a similar spot. As you mentioned, he didnt need to deal with the layer as well. He decided to do it and paid for it. I have a colleague whose mother went into a nursing home. She did have LTCi and talking to this friend he couldnt see any reason why it wasnt paying (he is also a lawyer prior to med school). Even he had to get help from a separate lawyer to get payments started.
On a different front- is no one bothered by the gaming of a system for the poor? Don’t get me wrong, my own family has used medicaid for nursing home care. I am not saying that the suggestion is out of the mainstream. The fact that so many people do it without a thought is what troubles me. I find it sad that medicaid is used to protect the affluent or middle class from having to see grandma die. Or actually paying to have that feeding tube placed. No, make Mom and Dad seem poor that way I dont have to take them in and even better I dont have to pay for their care. I think if someone was paying for this stuff there would be fewer contracted demented patients that we were “doing everything for”.
I agree there’s a moral issue there.
When my grandmother was in a nursing home many years ago, the nursing home did many interventions that she did not want, and we, her family, did not want. But they could charge for it, keep her alive a little longer, and therefore keep the bed occupied. That was one of the few times so early in my career where I saw $$$$ as the major influence in someone’s care. (I see it more now than ever before, right or wrong)
According to http://www.ltcoptions.com/, long term care insurance providers offer coverage that range from $1,000 to $7,000 in a year. It’s steep for most people but they need not worry because there are variety of ways to make their rates affordable. They can design a smaller policy, choose a shorter benefit period or lesser benefit amount, avail discounts and by purchasing early. Having a private insurance is more secured for me rather than relying on what the government has to offer. Government programs offer long term care benefits that are limited. It’s better to take matters into your own hands than to rely into something that will only provide you with limited benefits.
Please know that you have an extreme lack of information on long term care aspects. I made up a saying when I was working with a head set on as an Expert Senior Living advisor – I would have callers complain: “Why didn’t my physician tell me this? Or my case manager? Or my DME” – I needed firstly to calm them down, so I would say:
“Everybody knows a lot about everything, but nobody knows everything about it all….and sometimes we all make mistakes” – the last part would make them chuckle a little and I’d go on with my advisement. So I will advise you that you have some flaws in your advice on long term care, and – yes, I AM VERY qualified to teach long term care.
I spoke with thousands of distressed family members calling and here were the common themes:
1) Shock that MediCARE does NOT pay for the nursing home (beyond the rehab located w/in a nursing home if patient is deemed able to do PT etc and THEN only following a 3 DAY/night stay in a hospital and only “up to” 100 days. If Dad/mom shuffled into old age disability w/o the hospital stay, no initial Medicare coverage
2) Stunned that Home Care can cost as much or more than an Assisted Living
3) An overall lack of knowledge about the beautiful Assisted Living options and CCRC’s out there (THANKS Baby Boomers!)
4) Disappointment that, no – you can’t buy “traditional long term care insurance” now for mom/dad will never get through the underwriting (actually there are 2 products which may be used here – but most don’t know about)
You may view my credentials under Google: Carole B Starr MBA Retirement Planning
Oh, and by the way – our parents “Financial Advisor” advised our parents to stay in the market and not buy Long Term Care – Mom, at age 96 is in a very beautiful assisted living – with ice cream parlor/juke box…Hoyer Lift bowel and bladder incontinent – but can still grand slam you at bridge – her care is superb – no skin break downs – a happy place at $10,000/month -she is in her 4th year and running out of money (Mom and Dad lived happily in a LOW level of care for 4 years prior at the national average cost of $3,000/month….lost Dad – Mom went to the ER came out incontinent and feeble). HAD they bought the policy I recommended at the time, we would not be worried about her finances. Everyone now regrets not buying the LTCI
Anecdote is not the plural of data. It is hard to get dispassionate advice about a product from someone who makes a living selling it.
I wholeheartedly agree. Like in medicine the diagnosis is always obvious after it has been made.
These scenarios appear to be talking about people in retirement age. I may have overlooked a scenario for purchasing LTC for a young person, so I have some questions. For example, my wife is a stay at home mom without any income and is therefore not able to sign up for any disability insurance. We are in our early 30’s and are serious minded about debt elimination (student loans). I am an associate dentist and own my own LLC (S-corp) and have a DI plan for myself. I am most worried about a scenario that may require LTC for my wife that would essentially drain me financially as we are starting our debt elimination journey. Potentially 60K a year in care expenses would be devastating. I don’t think LTC insurance is something I would want to carry for a long time, but wonder if there is any sense to having it now while I am not self-insured. I may have a severe lack of understanding of LTC insurance and what it can be used for, as well as the age at which it can be used, but from what I can tell you are eligible to use it at any age when deemed necessary.
I understand I am being extremely paranoid and the likelihood of anything devastating happening is low. I am pretty aggressive with my insurance plans/coverages to protect my future earnings and wonder if this is another layer that is worth adding on.
Any feedback is appreciated.
Not commonly bought at that age, but if you can find someone to sell it to you, should be pretty cheap.
Bringing back this thread! Has anyone found any good policies?
I’m an only child and my parents are both in they’re late 60’s (my dad turns 70 in a couple years). They’ve unfortunately only have about 300k saved up, and live in a house that’s paid off thats worth roughly 800k (I paid down the mortgage/house over the past 8 years).
My wife and I are both physicians and gross roughly 800k and are on general path towards living frugally and retiring early. That being said, I’d love to have the peace of mind knowing they’re covered later in life.
Any suggestions?
If your parents are still in good health there are many options from “traditional” pay-as-you-go coverage that offers the most benefit per dollar of premium paid, to “hybrid” plans that combine life insurance with LTC benefits. If you’re paying the premium, a life+LTCI linked plan could have you named as the beneficiary of the death benefit if your folks never need care, but these plans obviously cost much more because you’re buying the life insurance coverage in addition to the LTC benefits. Don’t just get an “accelerated death benefit”, look for a plan that not only accelerates the base death benefits, but also has an extension or continuation of benefits rider that provides additional LTCI benefits (and optional inflation increases to the benefit) after the base DB is initially used up – there is one plan that even provides a lifetime/unlimited benefit extension. Note that there is also a traditional type of policy that now has unlimited/lifetime benefits too. Oh, and there IS a plan that has a 3-year Elimination Period “deductible” and then inflation-adjusted lifetime/unlimited benefits! It has to include a base annuity (your own money to help self-fund the deductible period), but does exactly what the O.P. asks for!
Yes, lots of options, making the shopping difficult, especially when you really don’t know where these companies will be at in 10-20 years when you are most likely to need the services. Best to self-insure if possible, but when not possible, it’s a gargantuan task, especially now with the cash value life insurance riders thrown in. Yet another way to sell a whole life policy, just what we need.
Some of my recommended agents do LTC. I know Set for Life does. Why not start there?
https://www.whitecoatinvestor.com/websites-2/insurance/
The state of WA is requiring all residents to have LTC. So I am forced to get a policy. Any ideas where to shop? I had my insurance broker send me some quotes, most are outlandish.
Paul, I’m up to my neck in WA state LTCI opt-out quotes and biz. I’m a broker with multiple companies and plan type options. Follow the WA link on my homepage, and find the quote request form link to get started: http://www.comfortltc.com
– Bill
… BTW, my agency is part of a group that has the endorsement of the WSMA (WA Medical Association) for this opt-out LTC coverage process!
I am a healthy 30s year old doctor in training still in Washington state and must pay an uncapped tax or take this one chance to opt out (this is the only time anyone is allowed to opt out) by buying my own LTC insurance. It seems like now we are required to have it “added on” to whole life insurance and we cannot buy it alone. Any insight on this? I had never looked at LTC insurance before
I don’t think that’s actually true, but you may be in a bit of a pickle up there. Why not call up an insurance broker who does LTCI and talk about your current options. It’s a very fluid situation up there right now.
Natalie, unfortunately I’m not sure there any options left for someone under age 40 in WA state. Most carriers have (temporarily) exited the WA market, and the options for under age 40 were cut off over a month ago. On a brokerage basis I have NO qualifying options remaining for under-40. You might try Northwestern Mutual (life with LTC rider), but better act FAST as there’s no guarantee they’ll remain in the market much longer nor that they can even get you issued before the 11/1 deadline.
(Note that “traditional” or “stand-alone” LTC insurance does qualify for the opt-out, but ALL those plan designs from all carriers were pulled from the WA market weeks ago. So, IF you can find anything left to apply for, it will be a life+LTC rider plan.)
I imagine the recommendations against LTC insurance are still the same, but I wanted to double check since the original post is now almost a decade old.
Pretty much. Try to get rich enough that you don’t need it. If you can’t, then buy it.
The article is almost a decade old and it’s misinformation and unfounded opinions remain as fresh as ever. There are still two LTC insurance companies that have plans with unlimited/lifetime benefits. There’s even a plan with two to three-year waiting period (that you have to partially pre-fund with the company’s annuity to buy the unlimited LTCI benefits). Many of the life (or annuity) based “hybrid” policies even offer guaranteed premiums (for substantially higher premiums than “traditional” coverage). And the “traditional,” stand-alone LTC insurance plans are now priced with all of the past pricing mistakes already baked-into the new premiums going forward. In most states (other than NY), Medicaid doesn’t pay for home care or assisted living if your income is over about $2500/month … so the “just wait and go on Medicaid” advice is worthless if you’d prefer to stay OUT of a nursing home! Get with an independent LTC insurance specialist licensed in your state who represents multiple companies and multiple different types of policies.
If the industry is getting better, that’s great.
I still hope most white coat investors can afford to self insure this risk.
Hope is not a plan. Most of the conventional wisdom regarding self-funding for long-term care (“self insuring” is an inappropriate misnomer as there is no insuring, no broad pooling of the risk) are misleading. For example, pronouncements of when someone can self-fund for LTC expenses are based typically on simply having a certain level of assets. But this presumes that there are assets not already fully-allocated for other purposes, primarily for ensuring a sustained – and growing – level of income that can’t be out-lived.
Planning for professional LTC expenses is not a question of how much someone has in assets, but rather what is their income (produced by those assets), cash-flow and on-going expenses for continued lifestyle needs even if care is needed.
In a vacuum it’s conceptually easy to assert that given enough assets – and the income it produces – a SINGLE person can self-fund by simply shifting their independent lifestyle (income) to a dependent, impaired, need-for-care lifestyle. And even if they have to slowly invade principal this can be more accurately predicted, managed for a single life need.
But first-things-first – and this is what is to commonly glossed over in the lazy, “If you have $X-million in assets you can self-fund for LTC,” terms – for couples the larger problem is the FIRST need for care. In other words, how can you continue to support the life and lifestyle of the still-independent spouse AND pay for care needs at the same time? While also maintaining enough assets to keep the surviving spouse financially secure as long as he or she may continue to live?
This is a first a home care funding issue. And with professional home care costs exploding – now easily $30+/hour and on track to continue to out-pace inflation with the existing labor shortages and pending Boomer demand – we are facing a minimum of $5000/month today for just part-time home care (40/hours/week). This will easily be $10,000/month (net) in just 15 years – for part-time home care.
The question is both, where/how will you get an EXTRA $5000+/month (after tax) to pay for part-time home care?! And, how will it FEEL to have to take that extra income monthly for an unknown duration while in the middle of an emotionally-charged need for care for a loved one?! This is especially problematic if the extra income must come from liquidating principal faster than what is ideal for continuing longevity concerns.
Insuring for LTC is also not a zero-sum decision: to insure 100% of all possible potential costs vs. nothing. It’s often best used as a small hedge, to take the pressure off, to enable a careful, thoughtful reallocation of assets and income especially in a bear market without panic, or to preserve other lifestyle, active gifting and/or estate planning priorities.
My wealthiest clients – even those who could easily afford the premium for a “Mercedes” plan – purchase a loaded Malibu: $4000 to $6000 per month of starting benefits with automatic 3% to 5% benefit inflation increases and a total, shared pot of money equal to six to eight years of care – well above even a high-average length of care needs for one. If the first spouse to need care uses up all the insurance coverage, so be it, as this has preserved all the personal financial resources to more-properly self-fund for a surviving spouse.
How many millions do you think someone is likely to spend in long term care? I’d say a couple million pretty much covers it, right? The math isn’t hard. $100K a year x 5 years is a pretty big LTC bill. $2 million is 4X that. I hope most white coat investors retire with well more than that.
But you keep selling. Of course you think what you sell is awesome. But it’s an unnecessary product for most of my audience.
Would love a reboot on this debate either as a podcast episode or a blog post. I am in the self-insure camp for as much as I can but I also may be susceptible to confirmation bias here as this is the answer I am looking for to forgive myself for avoiding this topic altogether.
I’m not sure anything has really changed on this topic in the last decade except the WA state requirement for insurance. I pretty much still feel the same way. Become a multimillionaire and self insure is the best option. But a married couple with a six figure portfolio should probably buy LTCI.
My point is it’s not just about having $X-million in assets, that income and lifestyle must be considered as well, and that this is especially critical for married/partnered clients.
Let’s take your White Coat Investor with $4-million in invested assets (forget the house, cars, stuff). And let’s assume he or she is married. At retirement what is that $4-million designed to do? Provide a stream of income that will hopefully grow with inflation that neither one will outlive. After that they may (or may not) have estate plans for heirs and/or charities, but let’s just focus on the two lives first.
The question is NOT what are their assets. The question is what is their income and ongoing lifestyle needs?
$4-million at a 4% “prudent withdrawal rate” = $160,000/year. The couple likely has Social Security income as well, let’s call it another $60,000/year, so $220,000/year gross income. Can we say for sake of discussion that their net, after-tax income is $165,000 or $14,000/month? (Less if you think the the PRR should be lower.)
What are their living/lifestyle expenses? Likely $14,000/month.
Here’s my question: If the husband needs care – let’s say part-time home care at $6000/month – can his wife continue to live the way she/they want on only $8000/month? When I ask this income vs. lifestyle expense question in this fashion the answer is always, “No!” A recent White Coat client and his wife with this exact circumstance said that they would be OK, comfortable with being able to spend $12,000/month no matter what. So they can afford to co-insure only $2,000/month if one needs care while both are alive.
If they spend-down assets to provide the extra $6000/month (this is net, so if the majority of assets are in qualified funds, the spend-down rate is actually higher), what does that do to the ongoing income and long-term asset security for the surviving spouse? What if they need to liquidate an extra $8000/month gross right in the middle of a down market? Maybe they can sustain an asset spend-down for a year or two of care, maybe not much, but 4, 5, years of care?!
Either of these folks as single people with the same assets and income CAN easily self-fund, from income! But where it gets tricky is paying for care AND supporting ongoing lifestyle needs and future financial security for couples.
When my dad needed care he and my mom were similarly set financially. For close to a year they spent $5000/month on home care. My mom, a life long educator with a masters degree, asked me several times during that year while writing checks to the home care agency, “When this is all over will I still be OK [financially]?” I – and their financial planner – could have explained how, yes, there was plenty of money to continue pay for care, prudent withdrawals, markets, investments, etc., and that she need not worry … but it was much easier to simply say, “Dad’s LTC insurance is paying more than $10,000 every month, and so far you’re only spending $5000 – you’re not touching any of your own assets or income.”
Hey, I agree LTC insurance is not right for everyone – maybe they have tens of millions of dollars and an excess that’s not already allocated for other priorities – but properly designed to put the emphasis on first-to-need-care benefits for couples which also limits premium cost to just what is necessary, it’s a valuable hedge – financially and/or emotionally – even for very wealthy clients.
Give me a break. People in LTC facilities (or getting at home LTC), even people with just a spouse in a LTC facility (or getting at home LTC) aren’t running around going on trips to Paris and driving their RV around the country or whatever that is going to spend all that money. That $60-100K a year that you are spending on LTC is replacing some expenses–travel, entertainment, food etc for at least one of the spouses.
So sure, run the numbers on your expenses and what your portfolio can support, but most of the time a multimillionaire couple is going to conclude that they don’t need LTC insurance. And pretty much every single multimillionaire will conclude the same.
Sounds like your parents blew a lot of money on LTC premiums that they didn’t need to pay. Hope there wasn’t something else they would have preferred to spend that money on, or that they would have preferred to give it to you instead of an insurance company.
My parents didn’t “blow” any money. They spent about $36,000 in total premiums over about 12 years. During the one year my dad was on claim, they received more than $140,000 in paid benefits. And what if my dad had needed care for 3-years, 6-years, or more? My point was there is both a financial value (which is potentially many times greater than any investment strategy) AND an emotional, peace of mind value to having coverage.
You said the benefit received by your parents was less than $60K above. You also said they were “set” financially, so I presume multimillionaires.
At any rate, glad your family was happy with your policy. But I’m not surprised that someone who sells LTCI for a living thinks it’s awesome.
You have it. As you are so sure of yourself and all others’ personal desires and lives, I shall leave you to your self-deception. TakeCare!
Amazing how those who sell a financial product think the % of appropriate buyers of that product is so much larger than those who have no financial dog in the fight.