Trying to determine the value of long term care insurance for my situation

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Workinprogress
Posts: 92
Joined: Wed Mar 06, 2019 9:25 pm

Trying to determine the value of long term care insurance for my situation

Post by Workinprogress »

I think my basic question is; Given the cost of the insurance vs the potential payout, does it make financial sense to self insure or buy insurance against the potential risk.

There is no "peace of mind" factor for me, as I feel sure I will forever see the premium as a negative. Like nearly every person currently receiving LTC, we doubt we will ever need LTC. The eternal optimists.

I would like to look at this purely from a financial point of view.

I have a quote for LTCI that goes as follows:

$4571 Annual premium
$140/day-4200/month benefit, 3% inflation rider
153K, or three year max benefit for both, with a rider that supplies three more years for one of the couple.

One way to look at it is; The premium is close to a break even point if either of us receives benefits for one month for every year we pay into the insurance. For example; 20 years of premiums will pay for nearly 20 months of care benefits. In fact, after four years of the 3% inflation protection, the annual premium is equal to one month of benefit.
If neither of us receives care the money is gone.

On the other hand; If we self insure, we keep that money in the bank earning its own 3% inflation protection. If it is not needed for LTC, it stays in the estate.

If we ever do need care then we have to battle with the insurance company for reimbursement vs just writing the check and being done with it. My experience with insurance companies paying has not been positive, so I am a bit jaded.

Both of us are blessed with families with long lives, 95-100.
Maybe living a long time increases the risk of needing LTC, but her parents and aunt are still living on their own and driving at 90 and 96, sans LTC.

So, I could see us paying 160K over 35 years and never receiving anything in return. Keep in mind that the 35th year premium is still probably $4571, which will be pretty insignificant in 2056 dollars.

Both active, healthy, fit, inside normal BMI range.
However, wife has recently been diagnosed and is being treated for very early stages of RA.
Neither of us has any likelihood of extended family assistance, so we are on our own as far as care.

Financials, if it makes a difference.
Husband 60, Wife 55, both working
Husband retirement 1.1M + 12K COLA pension at 65
Wife retirement 500K
Joint home 600K

Just typing this all out has added a bit of light to the question, but I would still like to hear other opinions if you are so inclined.

Thank you.
chassis
Posts: 441
Joined: Tue Mar 24, 2020 4:28 pm

Re: Trying to determine the value of long term care insurance for my situation

Post by chassis »

If you are considering self insuring, I would self insure.

Insurance always benefits the issuer. It sometimes benefits the policy holder, sometimes not. The benefit to the policy holder can be to a large extent, or to a lesser extent. The benefit to the policyholder is nearly never to the extent that premia have been paid in. I'm sure you are aware of this.

Self insuring gives you control over the "premium" amount and timing. It gives you control over how the premia are invested. You have total flexibility, and liquidity, if you structure the investments in a particular way.

I would do a back of the napkin underwriting calculation that estimates the likelihood of needing long term care, the expected cost of such care, and construct a portfolio to make everything work for you.

You seem to be financially savvy and street smart, so all of this you have probably already done.
TravelforFun
Posts: 2354
Joined: Tue Dec 04, 2012 11:05 pm

Re: Trying to determine the value of long term care insurance for my situation

Post by TravelforFun »

Workinprogress wrote: Thu May 06, 2021 1:32 pm I think my basic question is; Given the cost of the insurance vs the potential payout, does it make financial sense to self insure or buy insurance against the potential risk.

There is no "peace of mind" factor for me, as I feel sure I will forever see the premium as a negative. Like nearly every person currently receiving LTC, we doubt we will ever need LTC. The eternal optimists.

I would like to look at this purely from a financial point of view.

I have a quote for LTCI that goes as follows:

$4571 Annual premium
$140/day-4200/month benefit, 3% inflation rider
153K, or three year max benefit for both, with a rider that supplies three more years for one of the couple.

One way to look at it is; The premium is close to a break even point if either of us receives benefits for one month for every year we pay into the insurance. For example; 20 years of premiums will pay for nearly 20 months of care benefits. In fact, after four years of the 3% inflation protection, the annual premium is equal to one month of benefit.
If neither of us receives care the money is gone.

On the other hand; If we self insure, we keep that money in the bank earning its own 3% inflation protection. If it is not needed for LTC, it stays in the estate.

If we ever do need care then we have to battle with the insurance company for reimbursement vs just writing the check and being done with it. My experience with insurance companies paying has not been positive, so I am a bit jaded.

Both of us are blessed with families with long lives, 95-100.
Maybe living a long time increases the risk of needing LTC, but her parents and aunt are still living on their own and driving at 90 and 96, sans LTC.

So, I could see us paying 160K over 35 years and never receiving anything in return. Keep in mind that the 35th year premium is still probably $4571, which will be pretty insignificant in 2056 dollars.

Both active, healthy, fit, inside normal BMI range.
However, wife has recently been diagnosed and is being treated for very early stages of RA.
Neither of us has any likelihood of extended family assistance, so we are on our own as far as care.

Financials, if it makes a difference.
Husband 60, Wife 55, both working
Husband retirement 1.1M + 12K COLA pension at 65
Wife retirement 500K
Joint home 600K

Just typing this all out has added a bit of light to the question, but I would still like to hear other opinions if you are so inclined.

Thank you.
I have LTC insurance and wanted to point out a few things.

1. You can't compare an insurance policy to an investment. They do their own things. I've paid for my LTC policy for quite a few years now and would be very happy if I never need it.

2. I am glad I have lost money to insurance companies on every insurance I have ever purchased in my life (home, car, life, medical, disabilities, LTC) except one: my annuity or longevity insurance.

3. It's easy to say we can and will self insure our LTC but reality can be very cruel. I know a couple who decided to self insure and when the time came, the husband needed help but they didn't want to spend the money to send him to a nursing home or hire home care help. The wife slaved over the husband and that brought her down quickly.

TravelforFun
dbr
Posts: 35978
Joined: Sun Mar 04, 2007 9:50 am

Re: Trying to determine the value of long term care insurance for my situation

Post by dbr »

It seems that with LTC insurance the situation is that those who can afford it won't need it and vice versa.

For us the possible payback if we use the policy will be large compared to the cost of premiums accumulated over time. On the other hand we probably don't really need it.

I would rather be where we are than looking at needing the insurance and not being able to afford it.
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