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Long-Term Care Insurance - Is it worth it?

Started by Chief, October 29, 2018, 11:43:16 AM

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Hello Forum, I am looking for advice on whether or not to pursue long-term care insurance. I realize this question often depends on specifics, which I will add at length below, but would appreciate any feedback or opinion on the subject especially if you're not interested in reading all of the details.

This specific scenario involves my mother-in-law. One plan she is considering offers $108,000 in care -- $3,000 per mo. for 36 mo. of Nursing Home care or $1,200 per mo. for 7.5 yrs. of in-home care. This amount includes a compounded inflation adjustment of 3%. The phase-in period for care would be 0 days for In-Home and 90 days for Nursing Home, once requirements for care have been met. The annual premiums would be around $4500 and there is a clause that these could be increased. There is also not a death benefit. The only payout would be for long-term care if it is needed. Other hybrid options that include life insurance are a possibility.

I think this is basically everything for the policy. Let me know if you have a question and I can try to answer. My mother-in-law is 69 years old, a smoker, married, lives a less active lifestyle (probably a 3 on a scale of 10), has a history of dementia in the family and would prefer her children don't have to worry about finances when she is older. Her husband is ~67, more active than he should be, with a history of strokes and skin cancer, and generally expected to be survived by her. They both have a pretty decent amount of money and the cost of the premiums is not a concern. Also, if the care policy is not pursued, they should be in decent financial shape to support themselves even if long-term care is needed. The policy would, though, allow them to leave a potentially larger inheritance if care is needed.

My wife's opinion is that her mother will almost definitely end up like her own mother -- having dementia and needing long-term care. That would make this policy a no-brainer. My opinion is that there is a lot of uncertainty in whether this care will be needed since most people don't need long-term care longer than 3 months (in which case the 90 phase-in would exclude payments). Due to the uncertainty, my own initial preference would be for her to remain in charge of her own finances and not be locked in to a policy that will last for the rest of her life, including with premiums that can increase at any time. I also wouldn't expect her to need this care for another 15-25 years. By my math, this would give a max value of $54,638 at 15 years ($108,000 in benefits minus FV of premiums with -3% inflation at $53,362) and $30,445 at 25 years ($108,000 - $77,555).

My mother-in-law is somewhat split. I think that because she is uncertain, she doesn't want to commit to a policy for the rest of her life. I certainly don't want to tell her what to do with her money, but would like to present both sides to her. Any feedback would be appreciated.


My wife and I have a LTC policy through Genworth.  We have a joint policy with a 5% compounding benefit for a total of five years of care between us.   Our premiums have only been raised once for 15% in 6-8 years.  We are lucky.  For years we could take a state tax deduction when it was offered in our state.  We got the policy to insure that either of us will have quality care without having our financial holdings get wrecked because of a 6-figure$ nursing care bill.  It will also help maintain some quality of life for whoever is the caregiver as well.  The average use for an LTC policy for a person is about 2.5 years.  If it ends up years longer, we have an least 5 years to make a plan on how to tackle a longer term situation assuming only one of us needs it.  If it becomes longer, I would consider moving overseas where I can get a bigger bang for my medical dollar for care.

There is a point where it doesn't make sense to have a policy.  If you are able to generate enough income from your holdings to pay for nursing care costs while also maintaining your daily living expenses, you probably don't need it after a point in time.  One thing about LTC carriers is that you may have to fight for reimbursement when you submit claims for expenses.  LTC is a losing game for almost any insurer.  When it was first developed, actuaries were too dumb to figure the real costs involved medical costs. Insurance companies have gotten hammered for the last 5 -6 years because of the sloppy work actuaries did the decade before.  I don't think a lot FIRE people would need to buy LTC because their holdings may have enough principal to take a $250,000-$500,000 hit over 2-4 years and still come out okay after this period.  Hopefully, enough will be smart enough to deploy a plan to go overseas if such a unfortunate event happens if costs accelerate quicker than they expect.

If I looked at a new policy today,  I would probably skip it. Because my policy premium has been relatively flat, it is a bargain compared to new policy. For the thousands of dollars of premiums paid in a year for a new policy,  it makes sense to put that same money into an aggressive HSA or stock account and let the value build over a 5-10 year period if possible.  That chunk of money is completely in your control and you'll never have to have an insurance company limit what you can do with it to provide quality care to your loved one.   I expect that I may have to hire an attorney to go after my LTC carrier if I ever need to use the policy because LTC companies can be that hard to work with to get reimbursement.

One thing you should consider with your mom is having all of her assets turned over to a trust to the point where she has no money/assets in her name.  If she needs nursing care, she would then be eligible for Medicare/Medicaid programs since she is worth nothing monetarily.  When she has assets/income, the gov't will have her burn that up before she will qualify for gov't programs.  If you have a trust,  then you can direct money to her care while also taking advantage of gov't programs.  ABLE accounts may offer other options  if she already disabled.   Take advantage of all the gov't programs available.  Have them pay for it. Go ahead and take advantage of what is owed to you as a taxpayer.   Make a plan to strategically plan your assets by taking advantage of what the gov't and other financial entities  (trusts, HSAs, ABLE accounts, SSI, etc.) can give you.


A few things to consider in regards to LTC insurance:

* Health care cost increases, including those of long-term care, have typically outpaced CPI. Should your mother-in-law need LTC later in life, a 3% compounding benefit will leave her/you exposed to additional out of pocket expenses

* LTC is VERY expensive. Genworth releases an annual survey of the Cost of Care that can be broken down by major metropolitan areas. (I am in no way affiliated with Genworth. The survey results are free, and widely referred to by consumer advocates such as AARP, and the insurance industry). The U.S. average monthly cost of care in 2018 for an assisted living facility was $4,000. The monthly cost of a semi-private room in a nursing home was $7,441.42.

* Dementia care patients typically require the longest duration stays in LTC facilities. This leads to lower monthly benefits that do not come close to covering the full out-of-pocket cost of care. That said, most of the elderly will require LTC at some point - whether it's rehab due to a fall, post-surgical care etc.

* In the case of memory-care, LTC insurance companies require that the insured be deficient in at least 2 Activities of Daily Living (ADL). These ADLs include bathing, dressing, eating, using the toilet, mobility/transferring, maintaining continence. There is an emotional toll and financial cost that comes with providing in-home care before the insured (your mother-in-law) would qualify for LTC benefits.

* Finally, the vast majority of types of Dementia are not hereditary. Your mother-in-law may be lucky and never need memory care. The Alzheimers Association (the best know form of dementia) has some helpful information about these topics.


A word of caution about placing assets in a medical trust in order to qualify for Medicade. As medicade eligibility is means-based, states have a look-back period of all gifts/asset transfers of the person-in-need, around 5-years depending on your state. Should the person-in-need require care within that 60-month window, their medicade eligibility would be rejected, and would be required to spend down all assets prior to qualifying. An eldercare attorney will be able to help with state eligibility, asset spend-downs, and trusts.