- An Issue Close to Home
- Trends Pushing Against Us
- A Downside of a Long Life
- Fewer to Provide Help
- I’m Out of Here Mom
- Reasons to Buy Long-term Care Insurance
- No Empty Nursing Homes
- Uncle Sam Won’t Help
- Stuck in The Middle
- Consider This Cost Before FIRE
- Did You Provide Well Enough?
- Reasons to NOT Buy Long-term Care Insurance
- You May Need Some Help
- Stays are Short
- Our Biggest Fear
- Insurance is Expensive
- You May Stop Paying
- Insurance is Complicated
- Costs Are Unclear
- Payouts Depend on the Company
- You Won’t End Up on The Street
- Medicaid Saved My Dad
- Insurance is Hard to Get
- Insurance May Not Pay
- Not a Good ROI
- Any Return is Delayed
- Build Wealth and Self-Insure
- Things to Know When Buying Long-Term Care Insurance
- Pick the Insurer Carefully
- Is Long-Term Care Insurance Right for You?
Are you considering buying long-term care insurance? Think again. It would likely be a waste of your money.
Insurance decisions are often clear.
Do you need health insurance coverage? Yes!
Do you need disability insurance? Yes, if you depend on your work income.
Do you need life insurance? Yes, if you have children or other dependents.
Long-term care insurance may or may not make sense for you.
An Issue Close to Home
My father went into a nursing home a couple of years ago. I was confronted with the stark reality of human frailty. In my mind at least, my Dad was always a large, strong, independent man. His progressive neurologic disease ravaged his life and forced him into institutional living.
Unfortunately, this isn’t a rare story. About two-thirds of us will need long-term care. This can contribute to our fears of running out of money.
It is common enough that many of us should insure against this catastrophe.
Trends Pushing Against Us
The need for help with long-term care is common and expensive. Several factors converge to make this a fearful proposition. Diseases are shifting from acute to chronic. We are less likely to die during childbirth or from smallpox. Bigger threats are cancer, diabetes, and hypertension.
A Downside of a Long Life
Longevity continues to increase. We live longer, but may not physically be able to do what we would like.
Fewer to Provide Help
Family sizes have decreased. My grandmother had a dozen siblings to help share the burden of caring for aging parents. She had only three children. That pattern is consistent through time and across the country. Fewer helpful children mean more institutional and professional caregivers.
I’m Out of Here Mom
We are a more mobile society. My relatives were all concentrated in and around New England two generations ago. Now we are across the country. How many children even live in the same state as an aging parent, let alone the same town? Who has time to take out of their own work and life let alone become an elder caregiver?
If your children are plentiful and nearby and able to help, you are in the fortunate few. But still, do you want to place that burden on them? What are your other options?
We buy insurance to help limit financial losses from catastrophes. That is the whole point of insurance. So maybe we should insure against this likely outcome.
Reasons to Buy Long-term Care Insurance
We insure against less common and less costly events. Here are some examples, based on figures quoted by Sue Stevens.
Risk: House fire
Average cost: $3,400
Frequency 5 out of 1,000
Risk: Car accident
Average cost: $3,000
Frequency 70 out of 1,000
Risk: Nursing home stay
Average cost: $270,000 (90K x 3 years)
Risk: 600 out of 1,000
No Empty Nursing Homes
Statistics show 70% of those over 65 will need long-term care. Odds are high for a married couple over 65 that one or both will need help at some point. Currently, 1.4 M Americans are in nursing homes. This isn’t a tiny issue.
At annual costs approaching 100K per year, you can be wiped out in short order. Plus, costs are rising.
“Be nice to your children. After all, they are going to choose your nursing home.”
-Steven Wright
Uncle Sam Won’t Help
Don’t look to the federal government to help you out. Medicare covers up to 100 days of a hospital stay. Beyond that, forget it. You are on your own. It is your tough luck if you can’t go home and take care of yourself anymore.
Stuck in The Middle
It is easy to argue that the middle class needs this insurance. If you are late-middle age and approaching retirement, you may want to consider it.
If you are in the middle and can afford it, go for it. Be sure to understand what you are buying. Also realize, costs and denial rates go up as you get older.
Consider This Cost Before FIRE
Let’s say you are 60 years old and in good health with $1M in assets. Your portfolio will likely produce enough income to cover basic living expenses. You may feel you are in a good financial situation.
You may even consider jumping on the FIRE (Financial Independence, Retire Early) bandwagon. But remember, paying $93K per year for a nursing home could wipe out your decades of savings.
Did You Provide Well Enough?
And what will happen to your spouse after you spent the family fortune on your long-term care? This could happen and often does. Especially when the breadwinner is male.
He may feel they have plenty of resources, but after long-term care expenses, there may not be much left. Women tend to outlive men. And they are three times more likely to end up in a nursing home. How will the surviving spouse pay?
I bet you are terrified. Ready to buy?
Hold your horses! You may want to reconsider!
Reasons to NOT Buy Long-term Care Insurance
Disability is measured in how many Activities of Daily Living (ADL) a person cannot do. ADLs are the activities we do daily without even thinking. Things like brushing teeth, showering, or getting dressed.
A lot of nursing home residents need help with much of their self-care. Those are the examples in our mind when fearing the dependence of life in a nursing home. Of paid care, less than 20% is for nursing homes.
Although 2/3 of us may need help with long-term care at some point, many of us will need help with only 1 ADL. Those folks get thrown into the mix of long-term care statistics.
You May Need Some Help
Having trouble with one ADL doesn’t have to spell doom or life in an institution. Often a family member could help with that one activity. They can do so at home and for free. This is done every day throughout this country. Estimates are that 80% of care is informal and unpaid home care.
Stays are Short
On those needing help with ADLs, 37% will need assisted living or nursing home. The majority of nursing home stays are 90 days or less. You would be in and out before your long-term care insurance even kicks in. 90-day elimination periods are common.
The longer stays in nursing homes are the most expensive. Fortunately, 95% of nursing home stays are less than 2 years. Three-fourths are less than 1 year, especially for those who enter over age 75.
Our Biggest Fear
The worst and most devastating scenario would be a prolonged nursing home stay. That fear drives the entire long-term care insurance industry. It is likely the only reason you are reading this.
Take solace in this beautiful fact: Only 8% will incur a nursing home stay of five years or more.
Insurance is Expensive
Good policies are expensive and need to be in place before age 60. Somewhere around age 60 may be a sweet spot for purchasing long-term care insurance. You will pay for decades and there are exclusions galore.
Affordable insurance can be purchased in your 50s. Just realize you likely won’t use it until your 80s. Or your 70s, at the earliest. That becomes a multi-decade expensive gamble.
You May Stop Paying
Do you want to pay in for years or decades? Furthermore, premiums are likely to rise by 10% to 25% during the life of the policy. Many buyers call it quits. Because of cost, 10% of policyholders drop their long-term care insurance plan in the first year.
Insurance is Complicated
Be informed. Understand exactly what you are buying and what you are not. Don’t rely on the brochure or salesperson. Take a deep dive and know your stuff. Understand terms like benefit triggers, advanced death benefits, elimination periods, and daily benefits.
Review the conditions for non-cancellation, inflation protections, benefit payment periods, and disease exclusions. Special riders may apply for home care, Alzheimer’s, or adult daycare.
Costs Are Unclear
The pricing is complicated. The cost of term life insurance is driven by only age and health. Not so with long-term care insurance premiums. They depend on many factors. Some of these are, according to the book, “The 7 Secrets of Extraordinary Investors”:
- Your age and health
- The state you live in
- Benefit triggers
- Daily benefit
- Length of benefit
- Length of waiting before benefits start
- Whether you buy inflation protection for the daily benefit
- Whether you buy a waiver of premium which allows you to stop paying premiums when the benefits begin
Payouts Depend on the Company
The insurance company will likely raise rates and may be out of business by the time you need it. Even some highly-rated financially-solid institutions got wiped out in 2008. That could happen to your insurer right when you need the payments.
You Won’t End Up on The Street
You won’t be on the street without long-term care insurance. If you are poor or become poor, you will qualify for Medicaid. Medicaid is the safety net. Medicaid is funded by state funds and covers basic nursing home costs.
Unlike Medicare, it covers housing costs. And there is no limit on the duration of coverage. Those costs will be covered for life. This is not a small program. Medicaid covers half of all nursing home residents in the U.S.
Medicaid Saved My Dad
If you are poor -as my aging father was- long-term care insurance makes little sense. He qualified for Medicare and Medicaid coverage. He had no assets to lose and never could afford a private insurance plan.
Insurance is Hard to Get
Depending on your age and health, you may not qualify. 10% of applicants in their 50s are denied. Those rates double with each decade (20% in their 60s, 40% in their 70s).
Insurance May Not Pay
The average total payout of long-term care insurance claims was $48K. Hardly the devastating figure you have been told. And that doesn’t count all the zeros out there. Nor the denials. 25% of claims are denied.
Not a Good ROI
Long-term care insurance can provide some security, but it is not an investment. Long-term care insurance money will be gone if you don’t use it, unlike life insurance which is guaranteed to pay. Odds are high you will never collect much if anything from a long-term care insurance policy. Most never need a long-term intensive high-cost stay.
Any Return is Delayed
Even if you do get some money back, it won’t be for decades. You may pay premiums for 20-30 years. Two-thirds of claimants are in their 80s and 25% in their 70s.
The cost of insurance makes financial sense in very few scenarios. Chances are you won’t live through one of those scenarios.
Build Wealth and Self-Insure
If you are rich you have the option of being “self-funded.” That is, you could cover the costs without being devastated. You will have more control over how much you spend, when, and why.
Physicians who earn, save, and invest over a lifetime will have millions by age 65. They may not need this insurance.
If you have $3-$5M you likely won’t need to insure against this risk. Spending 2-3 years in a nursing home would not break the bank. Besides, you likely would want to pay for more comfortable arrangements.
Things to Know When Buying Long-Term Care Insurance
There may be other ways to get some insurance protection. Coverage can be combined with annuities or life insurance. You may be able to add an Advanced Death Benefit (ADB) rider to an existing life insurance policy.
The benefit period is the length of time there is coverage. Unlimited is very expensive. Reducing it to 3 – 5 years lowers costs without adding much risk since few will exceed that length of stay.
Pick the Insurer Carefully
It may be worth working through a reputable insurance agent. If not, you should at least do some due diligence online. Check out the insurance company’s financial strength. Companies rated ‘A’ by AM Best are recommended.
www.ambest.com
www.insure.com
www.insurance.com
www.quickquote.com
Is Long-Term Care Insurance Right for You?
Near the end of your career as a member of the “mass affluent” consider buying long-term care insurance. If you think you won’t be destitute and you won’t have several million bucks, then get long-term care insurance.
Do your homework, understand the policy options, and see what works for you.
References
The Boglehead’s Guide to Investing.
You are right there is a sweet spot for Long Term Care Insurance. If you don’t have very much, then plan on medicaid. If you have a lot, self-insure. If you have 1-3 million, it may be time to consider LTCI, especially a Partnership-qualified policy. This give you “dollar-for-dollar” “spend down” protection. Folks with a partnership policy ‘earn’ one dollar of Medicaid asset disregard for every dollar of insurance coverage paid. This can be important if you have a living spouse or want to leave something for you children.
See for details: http://www.aaltci.org/long-term-care-insurance/learning-center/long-term-care-insurance-partnership-plans.php#explain
FiPhysician recently posted…Dome Mirrors in the Ceiling
FiPhysician,
Thanks for the comment. Yes, it is important to think the scenarios through to understand any impact on your spouse or estate.
I think $1-3M is actually beyond the point where buying LTCI is a good idea. If you’ve got $1.5M, certainly $3M, I think you can self-insure that risk. Just look at what it costs in your state, look at your expenses, and decide if you can cover it. If you can, great. If you can’t, buy the insurance. Not that complicated.
Not surprised to see so many hate mail posts from LTCI salesmen on this post. As Upton Sinclair said, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
These guys really believe that LTCI is awesome, even when all evidence points to the contrary. It’s a product that is best avoided if you possibly can. Some will avoid it by spending down to Medicaid. Others (and hopefully most docs) will self-insure. Those in the middle unfortunately will have to do the best they can. Hopefully as the industry matures, the product will become better so this is less of a concern.
If you do decide to get Long Term Care Insurance, think about getting a qualified partnership plan. See reference below for info. This will allow you to “hold back” some assets for a spouse or heirs.
http://www.aaltci.org/long-term-care-insurance/learning-center/long-term-care-insurance-partnership-plans.php#explain
FiPhysician recently posted…Investor, Know What You Control
This is an excellent topic Wealthy Doc.
You are right that these insurance companies prey on public fear and thus a lot of policies get unnecessarily bought. The big point you mentioned was that typically to get in on it you have to buy very early in life and thus it will be several decades before you need it. A lot of complicating factors: insurance company goes out of business (not unheard of) and the premiums start rising dramatically.
Insurance companies do all sorts of analysis and would not be offering a product if they did not come out ahead the majority of the time. Thus the majority of the time the individual is better off not getting it.
Xrayvsn,
Yes, that is unfortunately how most insurance policies work. The companies have deep pockets, deep data, and advanced statistical analysis. They know how much you are likely to spend. They then offer the premium at a price that is profitable to them. If your risk is too high, they simply deny you on the front end.
Very timely article. I’m turning 60 this year and have been thinking about long- term care insurance. Thanks for giving a full look at the issue—the pros and cons. The article helped me to make my decision.
Dr. Webb,
I’m so glad this was helpful to you. That kind of comment really keeps me plugging away at this online work. It is motivational because that is exactly my purpose here.
And age 60 is the perfect time to give the LTCI option a serious look.
Learn the facts. Make a decision. Then move on to the rest of your life. No regrets either way.
This might be the worst researched article I’ve ever come across on LTCi. You throw out facts and statistics that simply aren’t true – “25% of claims are denied” , “The insurance company will likely raise rates and be out of business by the time you need it” – what hogwash. I don’t know where you are getting your information from, but it is one step removed from utter B.S. If you’re going to give advice on such an important topic, please speak to a professional or do some actual “research” before putting it in print as “fact”.
“I don’t know where you are getting your information from.”
Actually, my references are listed in the post.
My 86 year old mother has paid for over 30 years for a Colonial Penn unlimited LTC policy.
Guess what? They won’t be fulfilling the original agreement. There was some kind of bankruptcy for CP and now she will only get maybe 2 years of nursing care instead of the unlimited policy she’s paid extra for all this time.
That’s why I am going to self-insure. I can count on myself far better than an insurance company who collects the money but bails out when the bills come due.
Lynne,
I’m so sorry to hear that happened to your mother.
I think the previous generation had more faith (and maybe good reason) in pensions and insurance plans.
I’m sure some pay off still and this can be a good choice. Especially for those in the “middle” of the financial, socioeconomic ladder.
But the delay between when one needs to start paying premiums and when the payments are due for long-term care is so long, that a lot can change or go wrong during those intervening decades.
Thanks for sharing a personal story that highlights one of the risks of these policies.
Hi Mark,
May I ask, what and how did you decide?
This article is filled with misinformation! 25% of claims are denied? That’s absurd. Do you have a source for that? The most recent study showed that only 2.4% of claims are denied. Here’s an article that addresses most of your misconceptions:
https://www.nextavenue.org/insurance-agents-case-buying-long-term-care-insurance/
sao
My references were listed.
You may disagree with them, but they are written by experts, edited, and published.
Since your website is the “LTC Shop” I guess you find opposing opinions threatening.
What is your reference for 25% of claims being denied? No reference is listed.
Mr. Olson,
I didn’t reference every line or fact the way I would for a thesis or peer-reviewed journal article. This is an opinion piece in an effort to help my peers think about the issues involved. It isn’t meant to be an authoritarian final reference on all things long term care. My sources are listed at the bottom.
I pulled the number from one of those sources. I will see if I can dig up more detail. Honestly, that number seemed quite high to me too. Still, some percent of claims are denied and that is the true point. I’m sure other sources have different percents.
You read three books. One of them said that 25% of LTCi claims were denied. And you believed it without verifying it from a reputable source.
This is merely a blog post, not a dissertation. I don’t think any numbers are 100% gospel. They are intended to highlight the concepts to look into when a physician is considering LTCI. That particular # came from page 235 of the 12th edition of long-term care: how to plan and pay for it. Many consider NOLO press reputable since their livelihood is based on dispensing legal advice.
The 2.4% figure was from 2008, how can it be the most recent study ? What’s the % in 2020 ?
This might be the worst researched article I’ve ever come across on LTCi. You throw out facts and statistics that simply aren’t true – “25% of claims are denied” , “The insurance company will likely raise rates and be out of business by the time you need it” – what hogwash. I don’t know where you are getting your information from, but it is one step removed from utter B.S. If you’re going to give advice on such an important topic, please speak to a professional or do some actual “research” before putting it in print as “fact”.
Yes, I think you mentioned that.
My sources are actually listed under “references.”
I’m just glad you said it is “one step removed” from the B.S. I was afraid you were going to say I already stepped in it.
Sorry, but I need to call “foul” on a few points here. I’m one of those evil insurance agents who sells long term care insurance. I’m also apparently stupid, because I have two of these policies myself.
First, you did a very good job of laying out the realities in many cases. The first half of your article is spot on. And you’re absolutely right, the vast majority of nursing home stays are shorter in duration. But you don’t buy LTC insurance for nursing home stays, you buy it to stay out of the nursing home as long as possible. Only about 30% of LTC insurance benefits are paid for nursing home care, the vast majority – roughly 51% – are paid for home care, and 18% for assisted living. For every person receiving care in a nursing home home, there are four or five others receiving care in a community setting.
Yes, Medicaid is by far the larges public funding source for nursing home care, but that’s only because those people have already spent down their assets. They’ve been forced to impoverish themselves before they can qualify for Medicaid, and many of them had money when the LTC need started. They weren’t all poor the day the care began, but it doesn’t take long to get there for most middle-class families. Medicaid is a wonderful program, if you’re already broke. If you have a few hundred thousand in savings, Medicaid’s expensive.
There are very few “exclusions” on long term care insurance policies, so I don’t know where you found this one. Happy to discuss with you in detail if you’d like.
80% of home care is informal and unpaid. True. But “unpaid” doesn’t mean it doesn’t have an impact on the caregiver. Do you have any idea how many “informal” caregivers retire early, reduce hours, turn down promotions, etc., because they’ve been forced into a caregiver role? Do you know how many caregivers – usually elderly spouses – ruin their own health doing this? “Unpaid” doesn’t mean it doesn’t have an economic, emotional and physical impact on the family. As a health care professional, I’m sure you understand that.
Additionally, if you’re “wealthy,” and you’re determined to stay in your own home, if you need 24/7 care, it’s going to cost double what a nursing home would cost.
ADLs don’t include brushing your teeth. The ADLs in ALL of today’s LTC policies, including the life & LTC plans and LTC annuities, are bathing, dressing, feeding, toileting, transferring and continence. Yes, you might need help with only 1 ADL, and if that’s the case, you won’t qualify for benefits. But a study by the National Center for Health Statistics – certainly not an insurance group – in 2016 said that 97% of people receiving home care needed help with bathing and 92% with dressing. Those are the two ADLs that lead to MOST long term care insurance claims. The other trigger – and this is the one that’s most often tied to lengthy claims – is cognitive impairment.
Don’t know where you came up with 25% of claims are denied? If you can provide your source for that, I’d love to know it, and the I’m betting that, if it’s true, when we dig into it we’ll find that many of those were completely valid denials – the client simply wasn’t yet eligible YET because they hadn’t met their ADL triggers or satisfied their elimination period. If that’s the case, I’d bet a dollar that many of those went on to collect benefits at a later date.
The average payout was $48K. Okay, let’s say that’s the case. The average homeowners claim is $8,793, so you really shouldn’t waste your money on homeowners insurance, right? But let’s face it, doc, you don’t insurance against averages… you buy homeowners insurance for when you come home and find a smoking hole where your house used to be. You yourself quoted the stat that you only have a 5-in-1000 chance of a major house fire. Thus, homeowners insurance must be an utter and complete waste of money. Like I said, I have two LTC insurance policies, and my wife has one. My mother-in-law had two, and she used both of them, to the tune of over $11,000 a month in benefits, for the last 2 1/2 years of her life. Without them, she’d have been on of those lucky Medicaid beneficiaries. We’re not insurance against averages, we’re insuring against that smoking hole.
I could go on an and on, about the far higher cost of hybrid products, about the statement that the insurance company might not be there, etc.
I get clients primarily from two sources – first, they’re referred to me by their fee-only financial planners or attorneys, who know how much an LTC event can impact a retirement plan. These professionals have NO financial incentive to send their clients my way, I’m not giving them any sort of referral fee, etc. They send them to me because they understand the risk. The other folks have sought me out because they’re in the middle of going through this with a family member, or they just watched their parent chew up a lifetime of savings over the course of a few years, and they don’t want it to happen to them. They don’t want to be a burden on THEIR kids or spouses, or to spend down their assets to get to Medicaid.
LTC insurance certainly isn’t for everyone. If you’re lucky enough to retire with a few million dollars, good for you – you earned it. But if you’re retiring at 60, you’re most likely to need care in your mid-to-late 80s. At that point, you’ll have been living off your retirement savings for 20-25 years, and you won’t have “a few million” any longer. And 25 years from now, that nursing home’s going to cost $20-25K per month. If you are that poor guy or gal who needs 3-4 years of nursing home care, the money you’ve spent on LTC insurance is going to look like small potatoes. And the nuclear scenario for LTC, doc, is when you spend down your retirement savings for LTC, use up your assets, and leave your healthy spouse with 8-10 years to live, and far less money to do it with.
FINALLY – I promise – do this for me, just for the hell of it. Pick up the phone, and call a few local home care agencies and assisted living facilities. Ask them “Do you have clients who are using Long Term Care insurance?” I’m betting you’ll be surprised at the answers you get.
Thanks.
Kerry,
Thanks for taking the time to leave a comment. And for making it more civil than some I get on social media.
You raise a few good points. Since your comment is over 1,100 words (longer than an average blog post), I don’t have time to respond point by point.
I think for the most part we agree to disagree. My sources are listed in the reference section. Those authors are published, edited, and considered experts.
I don’t think you are either stupid or evil. I just think you are more than a little biased.
Wealthy Doc,
Wow! I think you’ve experienced an equivalent of the WCI vs the whole life insurance sales lobby comment bonanza!
For physicians it makes more sense to self insure, as your article indicates. Or be fruitful and multiply. Favorite old article showed that as the number of daughters+ daughters in law increased, the likelihood of nursing home placement decreased significantly, reflecting the unpaid in home work you referenced.
Be kind to the fruit of your loins!
Fondly,
CD
P.S. Enjoyed reading your replies which reveal you to be the consummate gentleman.
Crispy Doc recently posted…A User’s Guide To Anger
How consider it of you to give your daughters/daughters-in-law the privilege of feeding you and bathing you.
Thanks, Crispy Doc.
As WCI messaged me earlier: “Welcome to my life for the last 8 years.”
What a well-researched and comprehensive article on a subject that is a bit complex for most people. I’ve long resolved that I would have to self-insure for this. Even though I was a late starter (I saved my first dollar in a 401K at age 36), I still intend to get to FI before age 60 with enough to self-insure for this. So help me God.
So sorry for all the bad comments you’ve received. You are certainly more graceful than I can muster. Something to learn from you too
ImmigrantFinances,
Thank you. I appreciate the moral support.
They way I see it my blog post on this topic wasn’t an amateur, arbitrary, misrepresentative pile of B.S. as it has been described. But nor do I think it is particularly well-researched or comprehensive. I do appreciate that compliment though. There is a lot more to know about this field and readers shouldn’t view my writing as the only source on this complex topic.
I did read a lot of articles and books and spoke with patients and professionals (despite all the accusations otherwise). I sited the three best references I found and quoted from them since they are the ones my fellow physicians would find most useful. The facts and figures I quoted can also be disputed, but I presented them as examples of the issues to understand when considering purchasing a policy, not as the incontrovertible gospel from above.
This is a labor of love. I have a day job. I have not made a profit from all my work on this website/blog. This is a creative outlet and a hobby for me. My fellow doctors tell me there is a need and they encourage me to continue sharing information as I learn it. I don’t pretend to be an expert in everything. I’m sure I’m wrong about a lot of things too. But I read as much as I can, think deeply on it, and share my thoughts such as they are. I don’t expect my thoughts to resonate with everyone or be the only source of information. But nor do I enjoy personal attacks on my methods, motives, or integrity. Such is the nature of this arena I suppose. It shows I’m doing enough to get some attention. “They don’t kick a dead dog.”
The federal gov’t has commissioned two studies on long-term care insurance claims practices. The most recent one was ordered by the Senate Committee on Aging. You can read about that here, including a link to the actual report:
[Edited the link to LTCI sales. It is not a federal government site. -WD]
Here’s a summary of their findings:
As part of a broader longitudinal study funded by the U.S.
Department of Health and Human Services, roughly 1,400
LTC claimants were asked a series of questions. Those
who reported in a baseline interview that they had filed a
claim or intended to do so were interviewed at four-month
intervals over one year. Almost all of those who filed a claim
at baseline were either approved (89 percent) or awaiting a
final decision (7 percent); only 4 percent had been denied.
When claims were denied, it was usually (as was to be
expected) because the claimant did not meet policy benefit
eligibility criteria. Because individuals were interviewed
repeatedly, it could be learned whether those who were
initially denied benefits ultimately received them over the
course of the year. Figure 7 shows that the claims denial
rate declines to 2.4 percent after one year.
[Deleted another link to a for-profit LTCI sales site. -WD]
Mr. Olson,
Your information is welcome. Trying to sell your insurance to my readers under the guise of information, is not. Especially after attacking me personally.
When did I attack you personally? I did not attack you personally. I attacked your work, particularly your poor research skills.
I’m pretty much of the opinion LTCI is a waste of time and money. If your “need” fits the insurance “good deal”. If your “need” doesn’t, pound sand. If you’re denied POUND SAND. Sorry to screw with the “insurance professionals with the fancy letters” narrative but I ain’t buying that soap. Neither do I believe in annuities with “special” payouts or SPIA.
I decided to self insure with a couple strategies. One is to separate my retirement into risk pools, one available for WR and one available for catastrophe. The portfolio is divided across Social Security TIRA Brokerage and Roth. WR is generally handled by TIRA, SS and little bits of brokerage as needed. The TIRA was cleaned out to $600K and the rest deposited in the Roth. The Roth grows unmolested with no withdrawals. The second is a spend down strategy. In case of disaster I will tap TIRA first along with SS to fill the need. Once a medical need surpasses 7.5% AGI the money can be extracted from TIRA tax free so I have a 600K buffer of largely tax free money available as a first line of defense. Once that is spent down, Brokerage is on the chopping block along with SS. Once that is spent down along comes the Roth which has been growing tax free likely for decades. By then I’ll be dead. Taxes are optimized and some of that optimized tax money will go to paying the medical bills. What this means instead of paying an insurance company you pay yourself and allow asset growth to fill the coffers and exercise a plan of well controlled portfolio spend down. It also means you have to work long enough to make the plan a viable alternative and to fill up both WR and catastrophic pools with adequate funding, a completely do-able task if you start planning early enough and let growth carry the water. You are wise to include your spouse in the planning scenario since there is a high likelihood of both spouses needing some kind of extended care. If you don’t use the catastrophe pool, buy a yacht in your geezerdom. If you die from the widow maker what’s left will take care of YOUR wife and kids instead of Warren Buffet and his boys.
Gasem,
Thanks for taking the time to share your input.
Your independent thinking and detail-laden posts are always enjoyed by me and this blog’s readers.
Wealthy Doc thanks for the great article. I covered this with the same conclusion in my book The Doctors Guide to Smart Career Alternatives and Retirement. Long term care insurance has a maximum payout in the $200,000 – $300,000 range. If you need more than 90 days care, and would, therefore, trigger the insurance, you are likely near the end of your life. Almost all physicians will have more than enough assets to cover the cost of the long term care they need. This insurance is a waste of money. If you have over a million saved at the end of your life, this cost won’t matter much, and that is the max they would cover.
In my book, I gave the examples of my grandparents who needed to be in a memory care facility at the end of their lives. Their spouses were long gone. Selling their house more than covered all the costs of their long term care. They would never need the house again. That left all their other assets untouched at the time of their deaths. They were not from high-income families and each had less than a million in assets. But even for them, they were able to cover the cost of long term care without having paid years of premiums.
I second your belief that there is a very small segment of the population that might benefit from long term care insurance, and physicians are not one of them. Sorry you are taking so many bullets from the long term care salesmen who don’t like your position. You’re cutting in on their profits. But you are also saving the rest of us a lot of money with your advice. Keep up the good work.
I’m putting this one in Fawcett’s Favorites on Monday.
Dr. Cory S. Fawcett
Prescription for Financial Success
Dr. Cory S. Fawcett recently posted…Is it OK to take money out of my retirement account to buy a house?
Dr. Fawcett,
Thank you for your comment and support.
I always value your input so it is validating when you think I’m on the right track. The salespeople aren’t the people I’m trying to help with this blog. I don’t expect them to enjoy or agree with everything.
“Long term care insurance has a maximum payout in the $200,000 – $300,000 range.”
Really? Why does my policy have almost $900,000 of benefits in it? Why was the largest long-term care insurance claim $2.6 million?
Mr. Olson,
You asked a good question there. I don’t think those numbers were in my original post. They were from a reader comment. I think he either didn’t see your question or chose to not answer.
Listen to the fools’ reproach, it is a kingly title.
– William Blake
What an excellent article. The flack and derision from the LTCI sales charlatans confirms that you speak the truth.
Well done!
VagabondMD,
Thanks for stopping by, the comment, and the support.
Yes, the degree of anger and derision lobbied my way after my honest sharing of information I learned was quite telling.
I hear what you are saying. I personally don’t think they are necessarily sales charlatans. I think many are good people who are doing their best to sell a product they believe in. They provide for their own family in the process. Many truly believe their product is essential and helpful. Their company’s training and peers all support that “filter bubble.”
And LTCI may have a role in the planning for some people. I just think it is fewer than the entire population – especially in the high net worth groups.
Despite a comment from one guy in the industry, I don’t think they are “stupid” or “evil.” Just extremely biased. I’m sharing some of what I learned so that any LTCI buyers at least understand the risks and know what they are buying.
Really enjoyed the breakdown of LTCI and discussion (albeit with some hostility from LTCI brokers in the comments) because I have considered the costs that my spouse and I may be helping to cover for our parents in the near future. I am still very early in my career and currently have opted to plan on self-insuring (with standard WCI financial philosophy–index investing, term life, etc) as well but came across and insurance product that is similar to some of the life/LTC hybrids mentioned and couldn’t really nail down whether it was truly beneficial vs just throwing money away. Link below (not advertising, just curious on your take) advertising a whole life policy with guaranteed refund of premiums and a LTC option–is there ever a time this type of policy would make sense or is it better off to leave alone and self-insure against everything? The guaranteed return on premium (would probably have to deep dive into the policy to determine if its truly a guarantee) was the only thing that made me even consider looking at. Thanks for taking the time out of your busy schedule to share this information!
https://www.navymutual.org/Life-Insurance/Whole-Life-Flagship-Whole-Life/Chronic-Terminal-Illness-Option.aspx
Navy Doc,
I think such insurance can have a role. It should be considered within the context of a complete financial plan. Risk tolerance, longevity, and taxes all become big factors.
Whenever I have taken a deep dive into the specific finances of individuals I have found they would be better off without any LTCI or whole-life insurance.
I have chosen not to buy either of those myself. That isn’t to say they never make sense for anyone. Just know the expenses, risks, and the commissions involved.
The author of this post definitely doesn’t know that there are newer types of long-term care insurance now. The issues you mentiond in this article only apply to the old long-term care insurance plans. The premium can be guaranteed life-time (no premium increase later if life). Cash indeminity (no bills and receipts needed. ) Huge death benefit to the family if no long-term care needed or only short long-term care needed. Please educate yourself before misleading other people.
“Aprildeng”
So am I to assume that you agree with me on all of the problems with the traditional LTCI? Only newer and more complex renamed policies carry all of the benefits and none of the risks? I’m so glad to be “educated” that the “issues” don’t apply to “newer types”
Even though you know what I ‘definitely don’t know’ somehow I disagree that none of these “issues” apply. I’m intending to give physicians an overview of the issues, risks, costs, and potential benefits of LTCI. This is not intended to be a compendium on every variety of insurance sales ever promoted.
Great article. I prefer to self insure.
Forbes described how LTC denies benefits. https://www.forbes.com/sites/nextavenue/2014/03/21/how-long-term-care-insurers-deny-benefits/#18eb92535e5a
Also some stats regarding LTC published by Morningstar. The last two lines state the following:
“17%: Percentage of applicants ages 50-59 denied long-term care coverage due to health issues. ”
“45%: Percentage of applicants ages 70-79 denied long-term care insurance due to health issues. ”
https://www.morningstar.com/articles/823957/75-mustknow-statistics-about-longterm-care.html
AlexV,
I’m glad you liked the article.
Thanks for the additional info and references.
It makes sense that having insurance for long-term care would be a good idea. That way, you can ensure that you can afford it if it’s something you need. The last thing you want is to be worried about money if you’re in long-term care.
Mr. Bills,
I agree with that theory. The devil is in the details though. Which type of policy will you buy, when, and for how much?
Is it guaranteed to cover all scenarios you fear? If you amass a pile of cash you will have a lot of options. The insurance covers only a few scenarios and for many, it won’t be worth the cost.
Just as an aside my recent experiences with insurance haven’t reduced my worry, in fact, they have added to it. Life insurance companies consider me “uninsurable.” New disability policies cover less and less at higher costs. My eyeglasses would be $300 if I use my vision insurance at the eyeglass store. Less than $100 online without insurance. My pet insurance is refusing to refund my recent vet bills because they want yet more reports and forms even though I sent them everything. I have a patient who likely has cancer and the insurance won’t approve an MRI. My patient with new-onset Afib didn’t get his travel insurance money back. My insurances for HO and umbrella got canceled and no one told me. My “gold” level health insurance that I pay thousands for refused all costs for a necessary outpatient procedure for me. I had to pay out of pocket. My MRI with insurance at the hospital would cost me $2,200. Without insurance (paying cash) I got one for $700 at a free-standing private company. They gave me more time options, a pleasant environment, a quick read, and put the images on a disc for me to take with me. Is any insurance worth it? Sometimes I wonder.
My husband bought LTCI for both of us from GE Financial in 2003 when he was 60. Flat premium, discount for spouse, slowly increasing benefit, covering in-home and institutional care. 16 years later, he has dementia and we’re about to start intermittent in-home care (which also waives premiums and counts towards the waiting period for nursing home coverage) . It’s not a huge benefit, but will help. My biggest concern is the viability of the current insurer, Genworth. I’m 10 years younger, and hope it will still be around if/when I need it!
LSK,
Thank you for sharing.
I’m so sorry to hear of the onset of dementia. It can be a horrible disorder. I hope your financial preparedness will lighten that burdensome.
Generous insurance policies seem less available every year (disability, health, LTCI, etc.). The offerings were better 16 years ago, so you likely have a good one.
Viability of the insurance companies is a real concern. We saw after the debacle of 2008 many strong institutions crumble. It isn’t something we can control. All we can do is be informed and make the best decisions available to us now. Best wishes to you and yours.
My dad is getting older and I think he’ll need home care soon, so I wanted to make sure he has the right insurance to do so. I didn’t know 70% of people over the age of 65 will need long-term care. I’ll have to keep that in mind as my dad becomes less mobile, so he has the right insurance and care in his old age, thanks to this post!
Sarah Packer,
I’m glad you found the information helpful.
I’m always amazed at how unaware people are of the risks of aging and of health care expenses.
Even those who are affiliated with nursing homes or home health, as you apparently are.
That’s a good idea to get coverage for a long time, but not unlimited. I would think that you would not live long enough to not be covered and could save some money that way. I’ll have to consider doing that if I ever become disabled.
Long Term Care/Life Insurance “Hybrid” plans negate a lot of the negatives you dwell on.
There’s a Plan available by Nationwide that is a cash indemnity plan that pays the policyholder the chosen monthly benefit directly into his/her checking account. The insured can pay for whatever care he/she desires in cash. And it opens the door for care from all types of informal caregivers…friends, relatives, members of your church/synagogue…because you can pay them out of pocket.
It’s more like a disability income policy in that respect because you can spend your benefit on non-medical items as well. Vacations, lottery tickets, Gummi Bears…it doesn’t matter because the funds are yours to do with as you please.
And you can even use the policy outside of the USA for up to two years. So go live in Mexico or India if that suits you where the cost of care is a fraction of what it is in the US.
There’s also another version of this type of policy offered by OneAmerica that has an available lifetime/unlimited benefit period. The policy is a reimbursement policy but will last as long as you do.
And the best feature common to all of these hybrids? They have a death benefit! So when you die, if you haven’t used the policy benefits for LTC, your heir(s) get the death benefit upon your passing. And the death benefit is typically larger than the premium paid for the policy, meaning the policy will reimburse your estate the cost of the insurance. (The Natiuonwide policy will guarantee you a 20% minimum death benefit return if you’ve used all of your benefits for LTC.)
And they all offer a variety of premium modals from which to choose from a sing;le premium to annual pay. Plus,. the policy contracts guarantee premiums cannot increase…ever!
There are additional Tax problems with the hybrid products as well. See https://wealthydoc.org/ltci-yes-no/
Sounds like a sales pitch!
Hi,
I appreciate your comments here WealthyDoc. I find them all relevant. That so many insurance ‘professionals’ are objecting to one point or another means nothing to me as they all have clearly vested interests. (Note I think professionals are sometimes just those well-versed in how to sell insurance only.)
It has been my experience that those involved in selling insurance are simply not honest, or, at least not fully transparent about their product. Clearly this is so that they position things in the most favorable light in order to get the sale. In fairness, this can be said about virtually everyone selling something.
I think your blog is balanced – there are a number of factors you point out that weigh in favor of serious consideration about getting LTCi. Not surprisingly, most of the professional commenters did not thank you on those points.
In any case, I do think insurance in general (and LTCi specifically) needs to considered from a strong risk management perspective for the real value and real need. From my perspective, looking at the premiums alone and considering what 25 years (an estimate in my case, of course) of that means as opposed to my investing it and a reasonable return, I clearly will not buy LTCi. I am wealthy now and generally think all things considered, it’s a bad bet for me. I absolutely can see why others might still need it.
Many thanks, it’s always a pleasure to see someone who is only trying to provide information and perspective with no other agenda.
Many thanks
Vito Corleone,
Thanks so much for stopping by and for the comment. I’m glad someone noticed that I actually did point out the argument for and potential benefits of LTCI.
The message got distorted into that I think no one should buy LTCI. That absolutely was not what I was trying to say.
I just think most doctors who save and invest well should be able to adequately “self-insure.”
And for those who want to buy LTCI that is quite fine. But they need to fully understand all of the risks and costs which are often glossed over in the pamphlet or sales pitch. I have nothing against salesman. My father spent much of his career in sales. But it is important to know when we are dealing with a salesperson versus an independent financial advisor.
I appreciate your comment about my lack of agenda. I think that separates me from a lot of bloggers and authors out there. I truly want to teach and help. Comments like yours give me renewed energy to keep at this.
This has been an interesting discussion, but no one is looking at the big picture. First of all Medicaid is being fiscally starved, in part, by so-called Medicaid planners that are able to artificially impoverish claimants due to poorly written legislation. And, don’t forget that Medicaid is financed by taxpayers. When they need more they will tax more. And, it’s coming.
Secondly, there are 28 states, down from 45, who have Filial Responsibility laws in place. They have been dormant for years, but may soon get traction. These laws look to the children to repay the expenses of their elderly parents if the parents become unable to pay. In 2012 the PA Superior Court ruled in a case that the son was liable under the filial -support law for nearly $93,000 in nursing-home costs incurred by his mother. And this same court found in favor of the nursing facility based on these filial responsibility laws. Due to the Omnibus Budget Reconciliation Act of 93 and the Deficit Reduction Act of 05 states have the authority and the obligation to recover money within a family for Medicaid dollars spent on a family members care. With the growing elderly population needing more care along with budget pressures I suspect more states will be more aggressive in recovering their costs from Medicaid recipients who, not necessarily due to a low income situation, but due to poor planning or no planning for LTC. Especially if you are able to artificially impoverish your parents. States will follow the money.
I really like that you talked about all the pros and cons of getting long term care insurance. My parents are trying to plan for the future and they want to start getting the proper insurance. I think it’s interesting to learn about how some people will have a much harder time getting covered than others.
Hey great post! Well written and you did do research. I do sell LTC Insurance and I am an agent. I used to be a regional with Genworth LTC back in the day. I have had 2 family member that I have had to personally help take care of while they had chronic health issues.
I will sum it up by just saying LTC can tremendously help the family, friends, relatives and etc. when caring for a loved one. It’s insurance… It has to make sense to all parties involved and in my experience the people who buy this product usually have had experience somewhere in their life with an LTC issue.
Thanks for sharing your comment and perspective.
LTCI has definitely helped some people. I think there are pros and cons and a lot of details and costs to understand.
Despite the misperception of many, I’m not “anti-LTCI.” I just recommend people do a lot of homework to make sure it makes sense. Understand the details, not just the glossy brochure.