Long Term Care Insurance

[NancyV227386]

Hello,

I was looking into LTC insurance for myself and my husband and found it very expensive and I am unsure if we will be able to continue the premium payments into retirement, especially if the cost goes up. Does anyone have experience with Long Term Care Insurance and opinions on whether or not it is worth the cost?

thank you,

Nancy

[charlesr65693]

I have the same question as Nancy.  I have been paying for long term care for about 15 years.  My policy says it will pay for 6 weeks (+/-) of care.  What happens then?  My agent says that I will then get assistance from Medicaid.  I am not eligible for Medicaid because my net worth is too high.  So is it worth continuing to pay my Long term care premium?

[ReTiReD51]

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Another option a revocable or irrevocable trust avoids the probate process. Plus, you can avoid Medicaid estate recovery with a trust. You’ve worked hard your entire life wouldn’t you like to leave your heirs a little inheritance.

An irrevocable trust protects the assets of the trust creator, you, from creditors and lawsuits. That’s because the trust maker after 5 years will not own property in their name after the assets have been funded into the name of the trust.

You don’t have to have a million-dollar estate to have a trust. See an estate/elder law attorney. It’s not as expensive as you think.

[Tonster521]

@ReTiReD51 There are advantages and disadvantages to both revocable and irrevocable trusts. I suggest folks review the tax implications with a tax professional before transferring property (Real Estate as well as Investments/Savings) to an Irrevocable Trust. Such Trusts are taxed at very high rates. For example, for 2020,  the 37% tax rate begins at $12,950 of income for an Irrevocable Trust. Moreover, if you sell the house you transferred to the Irrevocable Trust, I believe you are no longer eligible for the $250,000/$500,000 single/married capital gain deduction on the sale of your house. There are many moving parts and concerns. That is why I suggest you review your situation with an attorney as well as a tax professional

[ReTiReD51]

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@Tonster521  I absolutely agree 100% with you. Everyone should seek the advice of an Elder Law Attorney before even considering a revocable or irrevocable trust.

[GailL1]

@ReTiReD51 

Of course, that's an option but personally, it goes against my good conscious and it takes control and choices away from me.  I have also seen people do this to have the VA pick up some of their assisted living cost and they had lots of money & property going into such a Trust.  Then I think about the shape of these government programs for the elderly poor - Medicaid and the VA; which is only gonna get worse with the number of (really poor) baby boomers entering late age.  Why should somebody that can/could pay, if they desire such care, have this option?  

[ReTiReD51]

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Let’s talk about Middle America and Trusts. Trusts only have authority over things that can be legally titled in the name of the trust. Typically, people title their homestead and maybe a car to a trust. Some if they can afford might transfer their savings over to a trust. But with the average Americans retirement savings totaling less than $60,000 most would want and need those funds to live on. Same goes for your pension if you title that to a trust what are you going to live on?

So, most cases in Middle America a trust won’t protect your savings from any government spenddown. But you might be able to pass your home on to your grandkids.

Most of us pay into the system our entire working life and fortunate enough to never have to take much if anything back from the system.

You can think of a trust as a legal loophole for middle America or an estate planning tool for those Americans that fall between the cracks of upper and lower America.

[GailL1]

@ReTiReD51 

Better pay attention to what the current administration is considering - doing away with the stepped-up basis of inherited assets -  this is one part of his tax plan which I totally agree  - perhaps the heirs can be given a choice of how they want to pay these taxes - 

1.  Stepped up basis remains - the heirs pay the tax between the old basis and the new one.

2.  Retain the old basis and when the heirs sell it - they pay taxes from the old basis and what they sell it for - most likely a huge taxable amount.

Came back to edit and give a link ~

MSN.com 05/04/2021 - Biden's proposed tax changes would impact trusts, estates | Elder Law 

[GailL1]

@NancyV227386 

Of course, it is worth it if you have money / assets that you want to protect - the rich can pay out of pocket, the poor have Medicaid - as others have said it is only those in the middle of these groups that this insurance is really for -  But even being worth it might not be enough - worth means that you can afford it for the long, long term.  

Long Term Care Insurance has really changed since it was 1st introduced.  There are actually very few insurers that are continuing to sell policies.  It is a tricky marketplace especially right now with all us baby-boomers coming out.  😃  There are some hybrid policies out there that combine life insurance with a long term care policy but beware  - KNOW WHAT YOU ARE BUYING - read all the fine print.  Price is just one consideration - make sure you know how the policy works specifically - when will they pay, for what (ADL), what sort of documentation of need?

Do your research on the types that are available, pay attention to the actual financial health of the insurer and their exposure to this marketplace.  If a company fails, there is a Guaranty Assoc. that would take over but most likely benefits would be reduced or premiums increased.

Here is a current and good beginning place to learn - there are some imbedded links that are also very important.  And on the right hand side you can read about some of the different types.

National Association of Insurance Commissioners 02/09/2021:  Long Term Care Insurance 

[Tonster521]

@NancyV227386 About 8 years ago, I reviewed various approaches to LTC . I developed a cost vs benefit analysis based on my situation. So, it may not be doable for everyone. Initially, I thought that I could simply invest a certain dollar amount annually and accumulate a substantial amount to pay for LTC expenses. With this approach, I would not lose the premiums paid over the years if I did not need long term care .However, a friend who was in the insurance business at the time pointed out that I would need to have started investing years ago to accumulate enough money (i.e., $250,000 or more.) to cover long term care expenses especially nursing home costs. For example, at $4,000 per year earning 5% (average return of a Balanced Mutual Fund) it would take about 29 years to accumulate $250,000. Because I was already in my 60s, this was not a viable solution. It was suggested that I buy life insurance with Living Benefits that could pay for long term care expenses. In effect, if I met certain requirements (ADLs, Nursing Home, etc.) I could draw money from the policy to pay for such expenses. Of course, the value of the death benefit would decrease by the amount of withdrawal. However, if I did not need long term care or just used some of the policy, the remaining value of the policy would be paid to my beneficiaries upon death. So, in my opinion, I was covering two events with one premium.  I am in the middle category that somarco has indicated in his post. I am not sure if insurance companies still sell life insurance with Living Benefits. Perhaps somarco can help with that question and provide pros and cons. Of course, you need to pass a physical to obtain life insurance coverage and receive a reasonable rate/premium. 

[somarco]

@Tonster521  thank you for the vote of confidence but I personally find number crunching "what if" scenarios to be tedious and eventually fruitless for both of us.

Some life insurance plans offer nursing home riders but the folks who work the LTC market for a living tell me that using life insurance, annuities, investment portfolios, etc fall short of the benefits of a solid LTCi policy.

The possible benefit of using life insurance to fund LTC expenses falls on the underwriting of such plans.

LTCi underwriting is quite onerous and getting approved is a steep curve especially after age 55 or so.

Life insurance is a bit more flexible even with a LTC rider.

[Tonster521]

@somarco Thanks for your prompt reply. I agree that crunching numbers are a challenging task, but sometimes a mathematical answer is a sound solution and  appropriate. I did not want to imply that Life Insurance with Living Benefits (aka Accelerated Death Benefits) was the same as a Long Term Care policy. As you indicated, Life Insurance as well as other approaches such as Annuities and Investments/Savings fall short of a LTC policy on an apples to apples comparison. However, some folks may want the flexibility of the non-LTC approaches that simply offer cash out provisions wherein such cash may be used for health care expenses or other needs and/or wants. As I understand the LTC policy provisions, the insurance company may cover more LTC expenses since they control who to employ and how much they will pay the providers. I hope Nancy gained some insight and value from our postings as well as Gail1 who is an excellent resource with Medicare and health insurance issues. LTC is a complicated issue that more folks need to address sooner than later, well before they need such care and coverage. 

[somarco]

@Tonster521 I wasn't picking on you with my number crunching remark. To me, insurance is more of an emotional decision than it is pure CBA (cost benefit analysis).

Bean counters and engineer types like to reduce things down to an equation.

If A =$X and B=$XX then how long will it take me to reach Chicago? In other words, you can crunch all day long and maybe eventually reach a decision that makes you feel good but all the variables that go into determining if things will work out as planned/hoped rarely come together.

ADB (accelerated death benefits) usually come with strings. You can basically borrow against the face amount of your life plan but only if your condition is terminal and expected to result in death within 18 months or so.

If your policy builds cash value it may not accumulate quick enough to be useful if your need occurs in the first 10 years or so of taking out the policy.

Other non-insurance options include a home refi or reverse mortgage.

According to folks I know who work this market the best time to buy is before age 50. Most folks aren't even thinking about nursing homes at that age.

The decision process for LTCi is a long one. Most agents work with clients for 6 months to a year before the sale is completed. Underwriting can take 3 months or sometimes longer.

This is not a get rich quick business.

For me, if LTCi is not an option (any number of reasons including cost, underwriting, etc.) my next choice would be life insurance. I would borrow or take the ADB (if available) and hang on to my liquid assets as long as possible.

Hard assets like real estate can be leveraged and then allow the life insurance proceeds to "replenish" the estate if I had heirs or charities to fund on my death.

Perhaps this thread WILL provide some insight as well as offering non-conventional approaches to consider.

[Tonster521]

@somarco the Accelerated Death Benefit  provision in the policy I purchased provides benefits in three (3) situations; namely, Critical, Chronic and Terminal. The Critical situation addresses heart attacks, cancer, strokes, etc.The Chronic situation addresses folks who need assistance with at least two (2) ADLs. The Terminal situation addresses folks who have 24 or less months. All require physician certification and benefit payments are developed using actuarial calculations based on average life expectancy.  In other words, younger folks will receive a lesser payment and older folks will receive a greater payment. There are no additional premiums for these Living Benefits. Moreover, filing a claim for these Living Benefits is voluntary. As I recall, I reviewed several policies and the provisions were essentially the same from all insurance companies. This was 8 years ago and insurance companies were adding features such as Living Benefits to their policies to make them more attractive to the consumer. Once again, the Living Benefit provisions in a Life Insurance policy are not the same as a LTC policy. However, large face value policies can provide substantial payments when one is alive. And, that payment can be used for health care expenses or any other need or want. The downside is your death benefit is reduced.

[somarco]

@Tonster521 the plans you reviewed with critical illness, cancer, etc are considered a "Swiss Army Knife" approach to financial planning.

Some of the benefits baked into the plan, or added as riders, are decent, some are window dressing.

Basic life insurance benefits are straight forward. If you are dead they pay, if not they don't.

When the policy moves into the health insurance benefits is when the payout isn't so cut and dried. This applies not only to life insurance "Plus" plans but any health insurance policy.

The devil is in the details. 

In other words, claims against the policy may or may not be paid depending on the policy language. When is a claim not a claim? When it does not meet the definition of a payable claim in the policy.

Life insurance policies typically have a two year contestable period where a death claim can be investigated to determine if the health of the individual was misstated on the application. Claims can also be investigated depending on the COD. Did the insured have a medical condition that produced symptoms whereby a prudent man would have sought a medical consult? Did that condition result in the death of the individual?

When the policy goes beyond the basic death benefit and becomes a health related claim (that did not result in death) the carrier may apply a different standard before approving the claim. Insurance policies are often filled with "weasel language" inserted by lawyers to allow the carrier to deny gray area claims.

Critical illness policies have areas whereby a claim can be denied. Heart attack coverage is one example. Unless the medical event caused damage to the heart (that can be proven by a scan) the claim can be denied.

Cancer claims are sometimes defined by staging. A stage 0 claim (cancer in situ) may not be paid, or could be paid at a reduced amount. Higher staging numbers result in paying the full benefit.

LTC related claims suffer the same kind of debate. It doesn't matter if the LTC benefit is stand alone or a rider to a life insurance policy. Does the claim meet the definition contained in the policy or not?

The real merit of an insurance policy of any kind is, will it pay the claim?

My market focus is Medicare. It is not uncommon to hear folks say their Medicare Advantage plan is great. No premiums. All my doctors are in network. Low copays and "free dental", blah, blah, blah.

My response is, "Have you ever tested the plan? Have you had a serious claim? If not you don't know if your policy is good or not. Until it is "battle tested" you won't know if you have a good policy or not."

All policies suffer the same affliction. They are only as good as the next claim.

My neighbor sells LTC insurance and has for years. Several years ago he bought a policy for his mother. He THOUGHT he got a good plan but when she actually needed the benefits the claim was denied. He eventually got the claims paid but not without a fight.

YMMV

[somarco]

@NancyV227386 no one can predict the future. You probably have no idea what you can or cannot afford (premium) once you retire.

LTCi premiums can be "quick pay" (paid up in 10 years or less) or payable for the life of the plan. Shorter waiting periods (deductibles) and more benefits (such as an inflation rider or in home care) impact the premiums you pay.

If you have a large nest egg you don't need LTCi. If you have a smaller nest you also may not need it if you qualify for Medicaid.

It's the folks in the middle that should consider LTCi.

Beyond that it's a question of will you die quickly or take some time on the way out. Another factor is having a family member who can take care of you if you lose the ability to perform ADL's.

If you rely on Medicaid keep in mind that several states have Medicaid Estate Recovery provisions. (Google it).

So is it worth the cost?

That is a question that can only be answered if/when you need care.

[retiredtraveler]

There has been endless debate on this forever. You would have to research articles that talk about the pros and cons and you still won't be able to make a sure-fire decision.

"....In 2018, 21% of adults who were 65 years or older required long-term care for 2 and 4.9 years. 13%: Percentage of adults who are 65 years or older required long-term care for more than 5 years in 2018. 1.5 million people. About 30% (1.5 million people) have substantial long-term care needs (multiple ADL limitations)....".

[Gorm50]

Rule of thumb is HALF of elders will require LTC. The post above says 21% >65 required LTC.  Those folks are divided into 3 groups, ie wealthy enough to cover expense, so poor they immediately qualify for Medicaid so government picks up the cost, leaving beneficiary a very small monthly stipend to cover wants, electives.  

The middle group is the tough one. Government penalizes those who saved as often attorneys, nursing homes recommend spending down your assets to allowable levels to qualify for Medicaid.

If you have assets, wealth to protect the surviving spouse or heirs or safeguard assets for your use above a Medicaid stipend, you'll want to consider a protection trust to shield assets to avoid a Medicaid spenddown. 

You'll need counsel specific to your state as some automatically place a lien on your primary residence when you enter Medicaid while others do NOT file the lien.  It gets complex and someone, if no lien is placed, must maintain the property, ie upkeep, insurance, property taxes, insurance. 

It is fairly common for law firms to offer asset protection trusts to shield your assets while qualifying you for Medicaid.  Offer they offer programs to entice people to subscribe.  .   

[lc3507]

My experience  was a lien against the property for $331k for 1.5 years for nursing home care.

[GailL1]

@lc3507 

WOW - that's a lot for nursing home care - per day.  

[somarco]

@GailL1 nursing home (inpatient) care IS expensive.

Without Medicaid, long-term care like nursing homes, assisted living facilities, and home health care is unaffordable for most people. In 2018, the average daily cost of a private room in a nursing home in Georgia was approximately $223, or over $81,000 per year.

https://www.nolo.com/legal-encyclopedia/when-medicaid-georgia-will-pay-nursing-home-assisted-living-...

The link above also addresses Medicaid issues.

FWIW while LTCi premiums can be steep they are almost always less than paying OOP for your care. Even if family members help you with the premiums there is still usually considerable savings vs pay the cost of care.

[GailL1]

@somarco 

Sure it is expensive, if a person is paying for it out of pocket - whether institutional care or home care.  But @lc3507 said 331K for 1.5 years - that's over the top at least right now - but it could get there. That's over $600 per day.

Personally I think it is gonna be a failed business model, more than it is now.  As pay goes UP for hired caregivers, liability insurance coverage increases, more and more and more baby boomers get to the age and condition where they will begin to need help with ADL (or do it for them completely) - it is only gonna get higher and higher in cost.  

Personally, if I can no longer care for myself at least for the most part - my life, at least what I consider actually living, is over.  We need to be able to determine what that time is for ourselves and be able to make plans accordingly, legal and otherwise.  That "right to chose" should go in an added direction.  Coherent and sane adults should be able to make decision about their own life - including when and how it ends and make plans in advance as to their wishes.