Self-insure LTC?

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spammagnet
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Self-insure LTC?

Post by spammagnet »

As it should be, LTC is part of our retirement planning. I'm very aware of the benefits of LTC as a result of my involvement in my Mom's financial affairs. She's in an ALF and has been for several years. She has an unlimited State Farm policy with a COLA rider.

You can't buy that today. All I've found is a pool of money. There are variations like carry-over of unused funds to a surviving spouse. And, they continuously increase premiums. My Mom's immune from that because she's in residential care but it's enlightening.

With that background, I've concluded that self-insurance is the more predictable approach. I used Genworth's cost of care report projected forward to my end of life, increasing by the excess of LTC inflation over regular inflation. I'm estimating 3 years of ALF and 2 years of SNF. Incorporating those figures into my projected expenses, we have enough for a nice retirement (at our current standard of living) and the LTC.

Am I missing something about LTCi that I can incorporate into these plans that would help defray expenses, without an uncontrolled increase in premiums?

With respect to our personal history, we both are in good health, have no family history of debilitating disease and have long-lived relatives.
NMJack
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Re: Self-insure LTC?

Post by NMJack »

spammagnet wrote:I'm estimating 3 years of ALF and 2 years of SNF.
I'm new here, so forgive my ignorance. What is "ALF" and "SNF?"
MathWizard
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Re: Self-insure LTC?

Post by MathWizard »

My guess:
ALF: Assisted Living Facility
SNF: Skilled Nursing Facility
amphora
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Re: Self-insure LTC?

Post by amphora »

In almost all situations, self insuring probably makes the most sense unless you already have an unlimited policy like your mother. It's telling that insurers no longer offer those types of policies. Now it seems like most policies cap benefits at three years, which seems to defeat the point of getting LTC insurance.

It would be nice to be able to insure against the possibility of spending more than a decade in ALF. Instead LTC insurance insures against spending three years in ALF, which one can hopefully self-insure. My feeling is that those who could benefit from LTC insurance as sold are in a very narrow group — those who can afford decades of high LTC premiums but can't afford to self-insure. It reminds me of whole life insurance. :mrgreen:
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Miriam2
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Re: Self-insure LTC?

Post by Miriam2 »

Here are some other threads that may be helpful on self insuring for LTC:

LTC insurance AGGHH!!! Can I self-insure?
Do Bogleheads buy Long Term Care Insurance?
Should Long Term Care Insurance be part of my portfolio?

And another thread may also be helpful on assisted living facilities, with some discussion of LTC insurance:

Do Bogleheads plan to utilize Independent Living facilities?
Last edited by Miriam2 on Mon Jun 06, 2016 8:23 pm, edited 1 time in total.
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spammagnet
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Re: Self-insure LTC?

Post by spammagnet »

MathWizard wrote:My guess:
ALF: Assisted Living Facility
SNF: Skilled Nursing Facility
Yes. Sorry if that wasn't clear, in context.
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spammagnet
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Re: Self-insure LTC?

Post by spammagnet »

Miriam2 wrote:Here are some other threads that may be helpful on self insuring for LTC:
Thanks. Succinct lists are more efficient than random search results. (I did try.)
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Watty
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Re: Self-insure LTC?

Post by Watty »

spammagnet wrote:Am I missing something about LTCi that I can incorporate into these plans that would help defray expenses, without an uncontrolled increase in premiums?
My Mom always said that her LTC policy was her paid off house and made sure that we had the paperwork and instructions to sell off the house if she went into LTC and to put her in the best facility available.

She had a pretty average house in a medium cost of living area and her numbers were pretty sound since many of her ordinary expenses would stop if she was in LTC. Her normal budget could cover a large percentage the LTC costs in a medium cost of living area so the home equity would have been enough to cover the extra costs for many years if it was needed.

She had survived my dad so this worked for her but for a couple the risk is that LTC will be needed when both of them are still alive and the other expenses will not go down when LTC is needed.
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spammagnet
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Re: Self-insure LTC?

Post by spammagnet »

Watty wrote:She had survived my dad so this worked for her but for a couple the risk is that LTC will be needed when both of them are still alive and the other expenses will not go down when LTC is needed.
An individual may be in LTC for periodic intervals and need a home to return to before the inevitable change of housing. More likely, those intervals would be covered by Medicare as Rehab after an episode of hospitalization.

A reverse mortgage would be a useful financial tool to help pay for LTC at end of life. I have not evaluated that formally, primarily because ESPlanner doesn't do that very easily without kludging it.

Just knowing that's an option in addition to my self-insurance plan is good enough for me, but we'll have downsized to modest housing (cheap condo in Floridaj by that point. We wouldn't be able to count on much.
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Re: Self-insure LTC?

Post by IowaFarmBoy »

I bought LTC insurance about 10 years ago when the market was much better and it was still one of the hardest financial issues to sort through that I have ever encountered. I felt like we could self insure if we didn't need care until we were 80 but if one of us needed it at 60, it could shipwreck our retirement plan. Our default mindset is that we won't need it till we are really old but that may not be true, particularly if Alzheimer's is involved. This is an issue that I don't see discussed much in regards to LTC insurance.

I'm not sure what the solution to this problem is now given the state of the LTC insurance market. The product we bought is no longer available at anywhere the terms that we got. Fortunately, ours hasn't had the dreaded premium increase. Yet.
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spammagnet
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Re: Self-insure LTC?

Post by spammagnet »

IowaFarmBoy wrote:I felt like we could self insure if we didn't need care until we were 80 but if one of us needed it at 60, it could shipwreck our retirement plan. Our default mindset is that we won't need it till we are really old but that may not be true, particularly if Alzheimer's is involved.
Is it financially reasonable to purchase LTCi to cover the early years, with intent to drop it when assets have grown enough to self-insure? That gets you past the risky period while limiting the duration of payments and exposure to premium hikes. Kind of like term insurance while you have dependents.
Katietsu
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Re: Self-insure LTC?

Post by Katietsu »

I have only lightly investigated this issue, but have come to the same conclusion. The policy my MIL purchased almost 20 years ago, has an unlimited benefit and includes an inflation rider. The potential value of that policy is clear to me, especially at a premium of only about $1000 a year.

However, the policies I have looked for myself are either traditional insurance with a cap, usually $350,000, or horrible universal life policies with essentially an accelerated benefit for LTC. I would be more interested in a castrophic coverage policy that kicked in after I had spent $350,000 but was unlimited.
mrc
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Re: Self-insure LTC?

Post by mrc »

spammagnet wrote:Is it financially reasonable to purchase LTCi to cover the early years, with intent to drop it when assets have grown enough to self-insure? That gets you past the risky period while limiting the duration of payments and exposure to premium hikes. Kind of like term insurance while you have dependents.
I'm leaning this way. We purchased a great policy (unlimited coverage, 5% annual increase, premium waver, spousal benefits, yada yada) in early 2003. Last premium was ~$2K for each of us, after rising 15% a year for two years running. Before that, no increases. But they are Genworth policies, and I'm wondering whether Genworth will be around in a decade or two? It was the last decade we really needed to insure. Past premiums are a sunk cost -- glad we didn't need benefits. So, if the premiums continue to rise perhaps dropping coverage and self-insuring isn't such a bad thing. Or at least renegotiating the terms to limit premiums. There is still the possibility of a debilitating stroke: a fate worse than death.
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Re: Self-insure LTC?

Post by ourbrooks »

Nursing home care is the largest cost component in long term care and the most common diagnoses for long term stays are mental health diagnoses - Alzheimer's Type dementia and other dementias and depression. Things like strokes generally don't result in long stays; someone who is paralyzed by a stroke is at risk for another stroke or for a fatal infection. In contrast, someone can suffer from a mental health diagnosis and still be otherwise physically healthy.

According to the Alzheimer's Society:
Above the age of 65, a person's risk of developing Alzheimer's disease or vascular dementia doubles roughly every 5 years. It is estimated that dementia affects one in 14 people over 65 and one in six over 80.
Note that just because someone is affected doesn't mean that they need nursing care; with additional care, they may do fine at home or in assisted living.

As Katietsu points out, the real problem is in the few cases in which stays are very long , 5 years or more. The caps on most current LTCi policies are lower than what you'll need to spend.

LTCi is like car insurance or term life insurance; there's no accumulated value and coverage stops when you stop paying the premium. I've read the advice to buy LTCi as young as possible because payments are lower; this is bad advice because the younger you buy it the longer you will pay before you're likely to need it. A better bet would be to wait until the oldest age at which insurers will write new policies.

One option to consider if someone is going to require long term nursing care is to buy a single premium immediate annuity (SPIA). Even though someone may live quite a long time with an Alzheimer's or vascular dementia diagnosis, their life expectancy is still lower than someone in better health and insurance companies may be willing to do medical underwriting and increase the amount of the payout.
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spammagnet
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Re: Self-insure LTC?

Post by spammagnet »

ourbrooks wrote:One option to consider if someone is going to require long term nursing care is to buy a single premium immediate annuity (SPIA). Even though someone may live quite a long time with an Alzheimer's or vascular dementia diagnosis, their life expectancy is still lower than someone in better health and insurance companies may be willing to do medical underwriting and increase the amount of the payout.
I'm unclear on the benefits of that approach. Are you suggesting the insurance company would adjust the payout upwards on an existing policy, after a new diagnosis?
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Re: Self-insure LTC?

Post by littlebird »

ourbrooks wrote:LTCi is like car insurance or term life insurance; there's no accumulated value and coverage stops when you stop paying the premium. I've read the advice to buy LTCi as young as possible because payments are lower; this is bad advice because the younger you buy it the longer you will pay before you're likely to need it. A better bet would be to wait until the oldest age at which insurers will write new policies.
The problem with that is while the insurer might be generally willing to write policies until age x, they might not be willing to write one on you, since there is underwriting involved and you may have a warning sign in your medical records, let alone having already developed a full-blown disease while you're waiting.

There's no really good solution now. We have no LTCI, but we are managing 1 spouse in an assisted living group home and 1 at home, both comfortably, on a modest income. It, obviously. can be done.
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Re: Self-insure LTC?

Post by ourbrooks »

spammagnet wrote:
ourbrooks wrote:One option to consider if someone is going to require long term nursing care is to buy a single premium immediate annuity (SPIA). Even though someone may live quite a long time with an Alzheimer's or vascular dementia diagnosis, their life expectancy is still lower than someone in better health and insurance companies may be willing to do medical underwriting and increase the amount of the payout.
I'm unclear on the benefits of that approach. Are you suggesting the insurance company would adjust the payout upwards on an existing policy, after a new diagnosis?
What I had in mind was buying the SPIA at the point it was clear that the nursing home stay was probably forever. This is also probably the time at which house sale decisions get made so a combination would be to sell the house and use the money to buy the SPIA.
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Re: Self-insure LTC?

Post by MathWizard »

I don't see the current LTCi options as viable.

LTCi is an unusual insurance product. I don;t think that the ins. companies are bad guys, it's just that
old age is unavoidable, our bodies falter, and risk pooling will not mitigate that.


My idea of insurance is that it takes the costs of relatively rare, extremely expensive events
and spreads them among a group of people for whom the odd of this happening to them are about the same.
(Basically it hits randomly within that risk pool.) Underwriting is used to define risk pools, and spread prices appropriately.

The average cost to each member of the pool must exceed the average cost of the events among that pool, to cover
administrative costs and obtain a profit for the company. This is offset though by the investment of the "float", premiums
paid in excess of policy outflow. To avoid liquidity risk, high quality long-term bonds are used for investment.
You have probably seen what the current low bond yields have done to premiums for all insurance agencies.

LTCi is unique though in that the risk pool is closely correlated with age, and LTC is not so random once you reach certain ages.
At that point, premiums must rise, and rise dramatically.

So you pay for LTCi for years, thinking it is for when you get old, but it is really just insuring for
some freak accident at a relatively young age, which is fairly inexpensive.
Once you get old, when you think you will need it, premiums skyrocket, perhaps beyond your ability to keep up
with the premiums.

You also need to fight with the insurance company to get claims paid, and with their restrictions.

These are the reasons I believe that I must self-insure. The insurance company cannot protect me from what will
inevitably happen. Families have dealt with old age for as long as humankind has existed, drawing upon whatever
resources they have. My parents took care of my grandfather, my wife's parents parent's took care of their grandfather
until he had to go to Skilled Nursing Care (1 year). We and my wife's sister took care of my MIL until she needed 6 month's
SNK. It is not easy, but that is what you do for family.

Some negative views on LTCi are at:

http://www.forbes.com/sites/howardgleck ... e642869bf

https://www.consumeraffairs.com/insuran ... h_ltc.html
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Miriam2
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Re: Self-insure LTC?

Post by Miriam2 »

ourbrooks wrote:What I had in mind was buying the SPIA at the point it was clear that the nursing home stay was probably forever. This is also probably the time at which house sale decisions get made so a combination would be to sell the house and use the money to buy the SPIA.
I don't know much about SPIAs - can one buy a SPIA without a medical questionnaire?

Can a person who has, for example, MS or Parkinsons that is likely to deteriorate, buy a SPIA without problem? How about a person with dementia setting in? And if dementia is setting in, can a person buy a SPIA if all their faculties are not all there? Sorry for all the Qs, but it's an interesting idea for LTC planning :happy
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Watty
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Re: Self-insure LTC?

Post by Watty »

Miriam2 wrote:
ourbrooks wrote:What I had in mind was buying the SPIA at the point it was clear that the nursing home stay was probably forever. This is also probably the time at which house sale decisions get made so a combination would be to sell the house and use the money to buy the SPIA.
I don't know much about SPIAs - can one buy a SPIA without a medical questionnaire?

Can a person who has, for example, MS or Parkinsons that is likely to deteriorate, buy a SPIA without problem? How about a person with dementia setting in? And if dementia is setting in, can a person buy a SPIA if all their faculties are not all there? Sorry for all the Qs, but it's an interesting idea for LTC planning :happy
You likely could but that would be a poor choice since the SPIA is based in a large part on the average life expectancy of the people buying it. Since few people that are in poor health would want to buy a SPIA the average life expectancy of the people buying it is likely much higher than average for the people that age.

There are medically underwritten SPIAs where you have a physical and they payout is based more on your specific life expectancy. I know little about these other than that they exist.
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Re: Self-insure LTC?

Post by ourbrooks »

To elaborate slightly on what Watty wrote, for an insurance company, an SPIA is the opposite of life insurance; the sooner you die the more money they make, so poor health alone is probably not a reason for an insurance company to deny you a policy.

The issue about mental competence is a more subtle one; if you are clearly not competent to make financial decisions on your own, I doubt whether the agent will want to do the deal any more than they'd want to sell you any other kind of insurance. On the other hand, if someone has a financial power of attorney for you, I'd guess that the insurance company would sell a policy for you, since it would be regarded as a prudent thing to do to conserve your assets. Before making a commitment to this approach, it would be worth calling some agents and checking.

(The issue of mental competence affects many areas; a nursing home may not admit you if they don't think you are mentally competent so plans for financial powers of attorney ought to be part of everyone's retirement planning.)
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Re: Self-insure LTC?

Post by IowaFarmBoy »

I agree with the posts about the need for a product that covers the catastrophic risk. As I mentioned earlier, we bought about 10 years ago at about age 47. Most policies that were being sold were basically a way of covering the first few years of loss, almost from day one. I tended to think of them as prepaid plans. Generally, three years of benefits with a 90 day elimination period for about $350 a month each for policies on my spouse and I. If we didn't use it till age 80, it would have been very expensive coverage for something that we each had something like a 40% chance of using, if I remember the research I did correctly.

We ended up buying a joint policy from Genworth that provides 6 years of coverage that either of us can use with a 1 year elimination period. I would have gone for a longer elimination period if one was available. Benefit was $150/day with 5% annual increase. We were able to buy this for about $150/mth total. I looked at it as it provided a little over $300k in coverage if something happened early on.

So far, no premium increases. If it happens in the future, we'll have to see if we keep it, cancel it or adjust the benefit. It's done part of its job of protection in the early years and if we have to walk away from it, we can. We're in a much better position to weather out problems now.

One other observation: paying for a nursing home is not such a big issue if you are the only left. Most of your other expenses are gone. The problem is paying for one person in a nursing home while the other person maintains a normal lifestyle.
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Hayden
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Re: Self-insure LTC?

Post by Hayden »

I have LTC insurance. The agent told me that there is value to the policy in facilitating things with the nursing home. He made a big deal about how important this benefit is. He told me that Bill Gates has LTC insurance, for just this resson.

Any truth to this?

I am single with no children, so having someone to facilitate things is of value to me.
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Re: Self-insure LTC?

Post by ourbrooks »

Hayden wrote:I have LTC insurance. The agent told me that there is value to the policy in facilitating things with the nursing home. He made a big deal about how important this benefit is. He told me that Bill Gates has LTC insurance, for just this resson.

Any truth to this?

I am single with no children, so having someone to facilitate things is of value to me.
Yes, there's truth to this, but, perhaps, not in the way you thought. A private nursing home wants to be sure that you can pay as long as you live because once they give you a bed it may be very difficult to get you out. Clearly, LTCi is proof that you'll be able to pay at least part of what's owed. Social security, pensions, life annuities, and owning a valuable home also help. Social security, pensions and life annuities are particularly valuable since they don't have coverage limits.

I'd be somewhat cautious about life insurance staff "facilitating" your entry into a nursing home unless you'd give them a financial power of attorney to do so. The business about Bill Gates sounds like pure fiction to me since he could easily hire round the clock nursing and medical staff in his own home or buy a nursing home if he decided he wanted to stay in one for the great social environment.
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Re: Self-insure LTC?

Post by littlebird »

ourbrooks wrote:To elaborate slightly on what Watty wrote, for an insurance company, an SPIA is the opposite of life insurance; the sooner you die the more money they make, so poor health alone is probably not a reason for an insurance company to deny you a policy.

The issue about mental competence is a more subtle one; if you are clearly not competent to make financial decisions on your own, I doubt whether the agent will want to do the deal any more than they'd want to sell you any other kind of insurance. On the other hand, if someone has a financial power of attorney for you, I'd guess that the insurance company would sell a policy for you, since it would be regarded as a prudent thing to do to conserve your assets. Before making a commitment to this approach, it would be worth calling some agents and checking.

(The issue of mental competence affects many areas; a nursing home may not admit you if they don't think you are mentally competent so plans for financial powers of attorney ought to be part of everyone's retirement planning.)
One of the ways we are financing my spouse's terminal, though possibly extended, stay in an assisted living group home is through an annuity on my life. I was fortunate enough to have a Vanguard Variable Annuity from many years ago when the guaranteed interest rates were higher than they are now, but even if I didn't already have it to annuitize when needed, I would have bought an immediate annuity. This will be my "pension" also for when my spouse's pension dies with him. The annuity needn't be on the life of the person going into institutional care; it can be on the spouse who is expected to survive.
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Re: Self-insure LTC?

Post by MathWizard »

Hayden wrote:I have LTC insurance. The agent told me that there is value to the policy in facilitating things with the nursing home. He made a big deal about how important this benefit is. He told me that Bill Gates has LTC insurance, for just this resson.

Any truth to this?

I am single with no children, so having someone to facilitate things is of value to me.
Bill Gates has LTCi ? Doubtful.

He could buy a nursing home and an insurance company and hire someone to manage it just for him.

If an agent told me this, I would figure he was lying, and that would drive me away from him.

The insurance company is only interested in financial matters, and making sure they do not get billed for something that they
do not want to play for. Insurance companies can force health care facilities to take less than charges because they have
more economic power than a normal person, but I think that only benefits the ins. company, not you.
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Watty
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Re: Self-insure LTC?

Post by Watty »

MathWizard wrote:Bill Gates has LTCi ? Doubtful.
+1

His living expenses would likely go down significantly if he moved into a long term care facility.

Even for home care he would no longer be doing things like flying around the world.
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spammagnet
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Re: Self-insure LTC?

Post by spammagnet »

Hayden wrote:Bill Gates has LTC insurance
Bill Gates might be described as a LTC policy for many in the developing world. At least, he's supporting the possibility of them having a longer life.
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Re: Self-insure LTC?

Post by itstoomuch »

OP:
You may not have a choice if you can't pay the LTCi company's premium.

We have cared for 3 of our parents plus 1 sibling at home. Two parents would have qualified for LTC for 2+ years. We didn't have a choice in the decision to care for our loved ones. The money or assets just wasn't there or enough. I spent months without a day off and towards the end I realized I needed to take 10 hours for myself once a week. That 1-10 hours/wk went through $$ I had planned for 2 weeks of Mom's care supplies, food, and household budget.

We bought LTCi, which makes the retirement assets richer. I expect that if we use up the LTCi either in time or exceeding the daily expenses, the retirement assets will make up the difference. We placed the LTCi as the first line funding, and deferred annuities as 2nd line (annuities have a nursing home/LTCi benefit of 2x), and other assets as the 3rd line of funding.

YMMV.
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Bill M
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Re: Self-insure LTC?

Post by Bill M »

spammagnet wrote:estimating 3 years of ALF and 2 years of SNF
You don't buy insurance for a stubbed toe.

But how about long stays? For someone in their 60s, 10 years of SNF is about the 90-th percentile. That's something to insure and not self-insure.
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spammagnet
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Re: Self-insure LTC?

Post by spammagnet »

Bill M wrote:But how about long stays? For someone in their 60s, 10 years of SNF is about the 90-th percentile. That's something to insure and not self-insure.
As others have observed, plans having a long qualification period, essentially a high deductible, do not exist. In Florida, the maximum allowed by law is 6 months qualification. Having a low qualification threshold and an upper limit they are, in effect, a prepaid LTC account.

I'd rather it be the opposite, i.e., unlimited funds with a longer qualification period. As with most insurance policies I'd get little our nothing. That way I could afford to insure against disaster with some degree of confidence that the insurance company would still be there when I needed it. I would prepare myself financially for the more likely event of paying for a shorter stay.

I see nothing wrong with allowing a longer qualification period if disclosed. Perhaps keep the regs as is for standard plans and create a standard for a "catastrophic" class of LTCi, clearly distinguished as such?

Perhaps the current design is intended by legislators to mitigate demand on Medicaid in a state with a large population of seniors. I suspect the majority of them can't afford to pay for the early days of LTC, even if they had a catastrophic plan in place.
gretah
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Re: Self-insure LTC?

Post by gretah »

Take a look at a Life Insurance Retirement Plan.

It's a whole life policy with special rider(s) wherein you can access funds for long term care.

(btw - I don't sell insurance. This is just a tool I am considering.)

I learned about LIFP in McKnights book The Power of Zero.
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