Long-Term Care Insurance: How do you determine what the max benefit should be while considering your assets?

Factual Questions
1

For Long-Term Care Insurance, how do you determine what the maximum benefit amount should be while considering your assets? I’m asking because I read an article perhaps 15 years ago which stated that if you had a net worth less than X, you should have LTC insurance. If you had a net worth of Y or greater, you don’t need to carry Long-Term Care insurance. The purpose of the LTC insurance is in the event you are in need of Long-Term Care, that your out-of-pocket cost wouldn’t be financially devastating. I recently read that 70% of those aged 65 will need LTC at some point in their life.

The resources I have found online so far, are from those selling policies and I’m looking for a factual answer, not an explanation of their policies.

Please refrain from discussions that it depends on how long you expect to live, because this is a question about how to protect financial assets in the event you may need expective long-term care.

2

That’s inherently a very tough question. I have both a relative lot of assets and a lot of LTC insurance. I also bought that insurance back when premiums were a LOT more affordable than they are today.

Although it may well be that 70% of over 65s will need LTC services at some point, their individual consumption of LTC services can vary from a couple months to a decade. At prices from $1K per month to $15K per month. Tough to decide how much insurance to buy when the variability is so large. Do you insure for the best case or worst case? If you insure for less than worst case and the worst case happens, what then?

As an example my late first wife was a long term cancer patient. It was a slow downhill slog and she might well have needed to be in a home for years had the disease progress trashed her mind or her mobility before it finished her off.

Instead, despite an LTC policy with a $1M lifetime benefit, we ended up using 6 days of in-home services at about $150/day just before she died at home after an abrupt turn for the worse. A hair shy of $1K return on the policy I’d been paying on for 20 years by then. OTOH, as was common for policies issued back in the day, they did return my total premiums less what they’d paid out. So I’d given them an interest-free installment loan for 20 years. And I’d absorbed the inflation over that time too.

The other question is what you’re insuring. We had LTC on my late aged MIL. She complained that she didn’t need it. I said “we’re insuring your inheritance for your kids”. She got that idea and suddenly it was OK for us to pay for that policy for her. My wife and I had no kids. We were insuring each other not being impoverished if the worst case occurred to one of us.

MIL ended up doing quite well out of her policy because she lived a long time needing some, but not much, help per week for most of those years. And, once again because the policy was from long ago, it had a feature that premiums stopped when benefits were being paid. We/She ended up paying just $10-$12K in premiums over just the first couple years then received $180K of benefits paid out at a couple hundred per month most months over ~20 years. And had she/we had to pay OOP for the same $180K of services over ~20 years that would have simply been one more expense of daily living, not a gut-buster.

Despite those two wildly different experiences I’m still paying on my own policy with the same features as my late wife. Admittedly partly due to sunk cost thinking / fallacy. Cancelling now would mean the total loss of premiums paid to date, whereas continuing to pay more premiums holds out the perverse hope of getting a payoff.


Ultimately every insurance question comes down to three issues:

  1. Can you afford to self insure the risk?
  2. Can you afford the premiums to commercially insure what you can’t self-insure?
  3. What is your attitude to risk?

As to #1, the worst case risk is probably $1M now, but goes up at well above the general rate of inflation. I can self-insure that. Can you? If you’re married that’s $2M, since you both might need it.

As to #2, the premiums for new policies are eye-watering. If you can’t pay them, it doesn’t matter whether you “should” or “shouldn’t” insure the risk. We don’t have LTC on my new wife, nor do we view it as cost-effective / affordable to start here in 2023 when she’s already 65.

As to #3, lotta people with a paid-off house don’t have homeowners / fire insurance. They save a lot on useless premiums they’re not paying because not that many houses get destroyed. But for the folks who’re unlucky and whose house is destroyed, they also get financially destroyed. Is that smart planning or foolish all-in gambling?


I guess my bottom line is that the “70% of oldsters need some LTC” may be / probably is factually accurate, but the percentage that need expensive or ruinous amounts of LTC services is a much much, MUCH smaller percentage. On which percentages I have no reliable statistics. The nature of this distribution is that medians, averages, etc., are uninformative. You / we would really need to see the full distribution curve of consumption from None to Ginormous. Then comes the gut-check: “Do ya feel lucky? Well … do ya … punk?”

Final thought.

There was no investment I could have made in lieu of paying MIL’s premiums that would have out-performed her LTC insurance. That was a great investment. Which we bought when she was about age 75. Conversely, had I skipped LTC for my late first wife and instead invested those premiums in a 60/40 stock bond mix for the 20 years we had the policy I’d have ended out with vastly more money than she needed. And far more than I got back in premium refund from the insurance company. That was a shitty investment.

As always with insurance, “yo pays yo money and yo takes yo chances.” Most people pay lots and get little or nothing. A few people pay little and get lots.

If you’re well short of retirement age and have the discipline and free cashflow to save money for this risk, you can probably self-insure more cheaply.

I’m sorry this adds up to a lot of FQ info, but no FQ answer.

3

Thanks for your thoughts on this.

I know some people think self-insuring is just foolish. But it depends on what it is. With dental insurance having a cap of allowable expenses to $1500.00 a year, this is not catastrophic dental insurance protection. If you needed $20K of implants, this isn’t going to matter much if you have this dental insurance or not. If the employer pays for most or all of the premiums on this, then it seems a rationale thing to do.

Home Owners insurance covering a $500K rebuilt cost on a house for only a premium of $1K a year sounds like a bargain. Then we have LTC where you can pay thousands a dollars a year to protect a maximum benefit of only $200K. But considering there is a 70% chance you will need LTC after age 65, that can justify the high premium costs.

The more I think about this, I think perhaps the right thing to do is, look at the max benefits being offered and then look at your retirement investments and see if having to pay out of pocket a max benefit would severely limit enjoying retirement financially speaking. If you have retirement investments valued at $5M, and you don’t feel spending $300K out-of-pocket on LTC is going to be a concern, then you don’t really need LTC. But if you think it’s going to limit your financial spending on whatever you had planned to do, then you need to look at getting LTC coverage.

I can fully appreciate people don’t want to consider the entire LTC issue. But no matter how good we take care of ourselves, how good our family health history has been, we can have an accident and be in need of LTC.

4

That’s the primary reason we bought LTC policies for both me and my wife when we were young. At that time it was a new benefit offered by my company and it was really cheap, and still isn’t too expensive for us. Like @LSLGuy said, it can be a real gamble but even though we’ve already have 30+ years of premiums, I hope to never collect on it.

5

You keep quoting the 70% number. I’m not trying to disagree with the stat itself, but rather with the shape of the thought process that stat triggers.

I used to run a condo with many elder residents. Lots of them spent a month or two in a rehab center following a surgery or a heart problem or an injury. That constituted “LTC”. But was not a lifelong sentence. They got done, came home, and went back to their lives. The LTC policies I had / have a 90 day “elimination period”. IOW, once your actual spending on LTC services begins, they cover zero of the first 90 days, but will pick up their coverage on day 91. IMO the vast vast majority of LTC cases spend less than 90 days in care. They either get better and stop using LTC services within that time, or they die in that time.

In my late first wife’s case, as her decline continued we had begun getting in-home help part time so I could more easily go to work and she wasn’t trapped alone at home. She wasn’t helpless, but she was pretty listless and having somebody else to heat the soup or make tea was well worth it.

We had just barely completed the 90 day elimination period and begun to collect on the policy when she unexpectedly crashed as I described above. At that time if I or her docs had tried to estimate her life expectancy it was probably 6-12 months. IOW, her situation was inherently going to limit the total duration of her care. And hence the total outlay, insured or otherwise. She had been doomed for years by that point, it was just a matter of when the ever-accelerating pace of decline would run out her clock.

So overall, I don’t think you or anyone should conflate “70% of people use LTC services in their life” with “70% of people would receive an LTC insurance payout if only they had LTC insurance.” Nor should that be conflated with “70% of people would be financially devastated by actual long-term expensive care they could have been protected against if only they had LTC insurance.”

At times your musings about this point suggest to me that maybe you’re mixing those 3 ideas.

Agree with your logic here about 99%.

Agree that if you can self-insure the policy payout max you don’t need LTC insurance. But don’t forget there are two choices at the margin: pay the premiums and get the insurance, or save / invest the premiums. Said another way, choosing to buy the insurance is choosing to have less principle added to your investment pool, and have less assets in the out years.

Like with most insurances, the ideal is to buy the policy, pay one month premiums and collect. The longer you pay premiums before collecting, the worse the investment. Once you can self-insure, IMO it’s time to consider the insurance as an investment / annuity. If you can’t self-insure, then just consider the “what if I need it and don’t have it?” risk".

However good an investment my own LTC policy was at age 40ish when I got it, it becomes a worse investment every day while meanwhile my wealth grows. What started out as a protecting a large fraction of my then-net worth is not so much true now.

6

This is the key. Not only were the premiums lower, the benefits weren’t capped like they are now. My mother bought good LTC insurance years ago, and used to pay for years of assisted living and then memory care. I was recently shopping for policies and even the “good” ones had daily and lifetime caps that meant it would “help” if I needed it, but not that much. I decided to self insure.

Washington State passed a good intentioned, but stupid law, requiring universal LTC insurance, either privately or through payroll deductions. The public plan was next to worthless. You could opt out forever by buying one year of a private plan, which is what I did.