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Another “insurance” option that’s often overlooked: A Continuing Care Retirement Community” (CCRC) where you plunk down a lump sum for a guarantee of access to an appropriate level of care for life, even if you run out of money. Not a solution for the less affluent, and it can be a very complex buying decision, but it may be the right one for folks averse to traditional or hybrid insurance.
We bought LTCI in 2003 through my employer. Interestingly, at that time my wife’s Long Term Disability insurance was more expensive than her LTCI. We paid $1,555 that year. In 2019, we paid $7,846. That included some cost-of-living increases we had added over the years. In a way I’m sympathetic toward the insurance companies, although they should have done a better job of pricing their product in the beginning. If I were running the company today that provides our LTCI I would have the same problems they do. There aren’t any good, easy solutions to the problem of increasing LTCI premiums.
I’ll defer to the planners for independent analysis, but the more I hear, the more I am turned off. Rates have apparently increased substantially, and unless you are right in that sweet spot age of mid-late 50s, they say it doesn’t make the most sense.
Candidates for LTC insurance would be those in the mass affluent category–not super-rich but have enough. Low net worth people can depend on government assistance while the rich can self-insure.
People with kids nearby who can help is something to consider, while not an ideal situation and certainly not something you should count on 100%.
It’s good to know some numbers–JPM’s Guide to Retirement shows that there is a 64% chance that a man will need assistance for two or more daily activities. That figure jumps to 75% for women. That assistance can come from family/friends, paid home care, nursing home living, and assisted living.
The duration of paid care after age 65 can range wildly, but the plurality of those paying care use it for under 2 years (47% of men, 35% of women). If paid care is used, over 3 in 10 men and 4 in 10 women require it for 4 or more years.
“Candidates for LTC insurance would be those in the mass affluent category–not super-rich but have enough. Low net worth people can depend on government assistance while the rich can self-insure.”—That is true. How do we define “the mass affluent”? the 90 to 99% of wealth? ( I might be in that group, but I won’t buy it because of its unpredictability. ) But surely the 60 to 90% need assistance, too. Too rich for government help and too poor to pay for adequate assistance without breaking the bank. BTW: if you haven’t seen a nursing home that relies on Medicaid for most of its residents, don’t envy the ‘poor’.
Buying long term care insurance is a complicated decision. My wife and I bought ours when it was offered by my employer back in the early 1990’s and we were in our 30s. It was fairly affordable and my wife and I each bought a policy that covered the maximum daily benefit for 5 years. Our policies cover at home care as well as institutional care. We also have the return of premium option so someone will eventually get all of our premiums back tax free. About every two years we are offered an inflation rider which boosts the daily benefit but also boosts the policy cost. I’ve compared our annual costs with current policy costs and we pay about 1/2 of the current new policy cost for the same new coverage. Our current carrier is not writing any new long term care policies.
I would say the market right now is only affordable if you have a large net worth.
If you have assets less than $500,000 it’s probably more efficient if you go on Medicaid spend down. If you are young enough you can still buy a policy, but as you age ( especially over 65 years old) there is a risk you may be turned down for LTC. In my area, private 24/7 care in a single room can run up to more than $300 per day. It is extremely expensive and some families will be financially stressed paying for more than a couple months of care. If your children can’t care for you it becomes a real dilemma.
As fewer and fewer companies offer LTC insurance, search for an adviser who understands the marketplace and the current options available. It’s more complex as the products vary by state. Try to find an A+ or better insurer who has been in business a long time. It’s probably worth the extra cost to have a very stable insurance carrier.
Truth is I don’t know. The more research I do, the more confused I am. Three choices are buy a policy at a young age, hybrid or self insure. Buying a policy early can and has led to increased premiums when you’ll probably need it the most. Hybrid is fine but why not just keep the money aside and invested versus giving it to an insurance company. The earnings should more than make up for the increased benefits of LTC from the policy. Self insure is a mix of my last thought or using your fully paid off house as a backstop.
As you can tell, I don’t know what to do.
To your question about why not just set the funds aside (compared to a hybrid Life/LTC Rider policy), I’d offer that the one element that can’t be controlled is the risk that you need the funds before you’ve accumulated them. There’s usually no extra charge for the addition of a Chronic Illness (essentially, LTC) rider on a life policy today, so you can transfer that risk to a life insurer with little to no opportunity cost to you.
Yes, provided that you buy a policy at a young enough age, opt for a benefits adjustment over time and go with a top rated company that has been in this business for awhile and is financially strong enough to still be in this business when you will need this benefit. If you have (or expect to have) sufficient other assets, its also wise to not over-buy the dollar amount or time period of any benefit payout, which could greatly escalate the premium cost over time. I hope never to have to use our coverage, but it will help us meet the cost of long term care should it become necessary.
I bought a hybrid LTC insurance policy that I will either use or have my beneficiaries receive as a death benefit. My policy also has a lifetime benefit. Like most buyers I was leery of a policy that could have premium increases and wanted a fixed price. My hybrid policy has that. I had to convince myself that the insurance company would honor this and after resaerching the company I believe that they will as the policy is life insurance based. Now I consider my policy as an asset and do not worry about an unknown future expense and that “peace of mind” is worth it.
The other element in support of your thoughts, James, is that the market for Chronic Illness (essentially, LTC) riders is robust in the life insurance market, while the straight LTC market has become severely restricted. It’s a buyer’s market with the riders on the life policies, but a seller’s market in the straight LTC market.