Lapsing means you lose everything. Some rate increases come with options to convert the policy to paid-up, with benefits equal to accumulated premiums. If a company fails, guarantee associations will pay much or all of the benefits.
In the late 1980s, NAIC regulators proposed that LTC policies have nonforfeiture benefits, like whole life. But industry folks persuaded them that any worthwhile nonforfeiture options would make an already-expensive product unaffordable.
Some blame the actuaries for the LTC mess. But there were no well-developed tables, just some public studies; economists (and many actuaries) were declaring that we would never again see single-digit interest rates; and there was public demand as well as marketing pressure for an affordable product.
Some might remember that the original ACA included a LTC benefit. It only took the Federal Government about a year to realize that such benefits would be far more expensive than any coalition of consumers and Congress would pay for.
I’m pretty certain that this policy is immune to rate changes. It’s a one-and-done premium in full policy. The coverage inflates over time but everything is set in tables from the outset.
Yeah the worst that could happen is declare bankruptcy and adjust the benefit. Seems unlikely for a mutual company the size of nationwide tho
I guess the worst financial outcome is they never see the inside of a nursing home but I think it’s better to go quickly than to have it drag on for years
Social care only really works as a public option really (everybody pays into the ring-fenced risk pool). I do recognise that in the US this would likely be political suicide as it would have made the ACA more expensive.
Few private insurers want to take on the risk now (I am also looking at an LTC policy for my FIL but down in Brazil so only tangentially following US LTC areas).
I remember that! I remember the actuary explaining it saying that it was very underpriced and that we should buy as much as we could before they figured out how underpriced it was, but it never went to market.
Bumping this thread with a new question probably not worth a whole thread. (I could have made this “Financially Adulting Your Parents is Hard”… and we could change it should the thread keep momentum.)
Turns out my parents have some kind of universal life insurance. I don’t have any details on amount or fees. My expectation is that it’s a sub-ideal product.
Does anybody have experience cashing these policies out? I’m finding that surrender charges eat 10-40% of your total value, but at my parent’s age, premiums paid-in can be withdrawn without income tax and earnings are taxed at 10%.
I’m debating the worth of following up on that thread and potentially encouraging them to surrender it.
As noted above, they don’t have dependents, only each other to provide for. I don’t need their life insurance benefits - one sibling really could use it, but they’ve designed their life by their own decisions.
I don’t know specifics of us ul, but often these products are sub optimal initially and then become reasonable after long periods of time. So if they’ve had it for a while, might not make sense to cancel it.
In terms of the insurance itself, your utility on leaving a death benefit for your sibling may be quite different than your parents.
I believe my parents are on the same page of “dying as we hit exactly $0.00 to our name would be ideal”, while obviously in reality that’s terrible planning.
They basically funded that sibling through a decade of his adult life and helped him get a house and still support him. I’m sure they’d love to leave some cash but they seem focused more on making sure they don’t burden us unreasonably.
Perhaps it is worthwhile to keep it as an emergency source of borrowing if needed, otherwise the death payout comes into play.
Yeah if the UL policy ends up supplementing Social Security for their post-life-expectancy retirement years then that’s not a terrible outcome even if it’s not the most financially optimal way to accomplish that.
Instead of starting a new topic I’ll just revive this one from a little over a year ago.
Does anyone here know how LTC policies are priced? My wife and I have had LTC policies for many years. This year there was another large rate increase that pushed me to look into reducing benefits. I really don’t understand the relationships between the various quotes. All of the quotes are for the same policyholders (me and wife) with the same term (5 years):
Maximum monthly benefit of $X - quote of $Y (lowest benefits for lowest premium)
Maximum monthly benefit of 120% of $X (20% higher) - quote of 126% of $Y (26% higher)
Maximum monthly benefit of 150% of $X (50% higher) - quote of 200% of $Y (100% higher so double)
Current policies are at 150% of $X, but I thought working off of the lowest quote was easiest.
I don’t see how this can make sense unless policyholders behave very differently if they have larger maximum monthly benefits. I don’t see any situation where the highest benefit policy pays out more than 50% of the lowest quote. It only pays out 50% higher in the worst case situations, otherwise it pays out more than the lowest benefit policy but by less than 50%.
Is this just telling me that the insurer really doesn’t want people buying the higher benefit policies? We see things like that sometimes in P&C where a company will quote a policy with a low retention/deductible for a crazy high price that no one should take. It seems to me like they are really pushing me towards lower benefits.
The lowest benefit quote feels a bit low to me so I’m leaning towards the middle one (120% of $X in my example).
Apparently, the cost of a Long-Term Care policy or actual Long -Term Care can be subject to tax deductibility, subject to significant limitations. Consult your tax advisor or study IRS publication 502 for full details.
I think they are protecting against anti selection by loading the plans with higher benefits (due to info asymmetry - sicker people are more likely to go with the richer plans, regardless of price)
As for which plan to go with, I wouldn’t just go with the Goldie locks plan just because it is priced “just right”.
I’d consider the cheapest plan and just be ready to switch plans again when the next insane rate increase shows up at the door
The problem with going with the cheapest plan is that you can only decrease limits in the future, not increase them. At least without going through underwriting again. The limits on the cheapest plan feel a little low to me. If/when there is another huge rate increase it may seem fine.
Pretty much this. We decided long ago to self insure.
If you are in the window where assets/income are too high to qualify for Medicaid but too low to self insure I think it can make sense. However as you said even in these cases there are risks of extreme rate changes after you’ve already sunk a bunch of money into the product.
I priced LTC in the 1980s (before most of the tables existed). When the project manager talked to me about marketing, I told him that nobody would believe what this stuff should really cost. They held off while I was there.
1990s actuaries were still assuming double-digit investment yields, so early premiums would accumulate at high rates before the claims started coming in. Their competitors were pricing LTC lower due to expected early lapses as well as many early durations with no claims, and were including better benefits with inflation features.
When yields dropped, and lapses persisted at <1%, most of the LTC was seen to have been badly underpriced. The inflation riders and better benefits (e.g., shorter waiting periods) made things worse. Rate increases can’t begin to keep up with the deficiencies, but they are likely to keep coming.
when my dad was looking at asst living, the manager guy asked “what does he have for assets?” we answered “none!” and the guy was relieved. it’s the people in the middle with a nice nestegg who get shocked by how fast it can be consumed by AL as it escalates.
estate planning to make yourself poor (on paper) years in advance is the key. Maybe leave enough in your own name to get in the door at a nicer place that prefers private payers but will let you stick around if you are already there and switch to medicaid.