Long Term Care Insurance

[Like2Plan]

I'll admit I haven't done any detailed planning for it at this point in my life... But considering LTC is basically an end-of-life expense, it really shouldn't need to be outrageous. Sure, the remaining spouse would still need sufficient money to live off of, depending on what other streams of income are available (SS, pension, etc.). But strictly for LTC self-insurance, I'd call $600k dedicated to that end game a pretty safe bet.

Would that be in addition to what you plan to cover your expenses? Say, you decide you need 1 million (at retirement) for your retire expenses plus 600k? (Or, would the 600k be included in the 1million?) Would that be sufficient to cover both spouses?

DH and I both have LTC ins. I am assuming our potential need for LTC will not occur until more years down the road and inflation will take a toll on our coverage amount. (Also, it would only be partial coverage right now). We will have to fund any shortfalls out of savings. It is one element of retirement planning that still leaves me a little uneasy.

[kork13]

How much would you save in order to be comfortable with self-insuring for LTC?

I'm sorta of the opinion that if you start building wealth young enough (and/or heavily enough), it's totally feasible to self-insure for LTC. In general terms, insurance is there for life events that you are not otherwise prepared to cover yourself. If you must purchase a LTC policy as a tax avoidance measure, then so be it -- get the cheapest minimum coverage required. Otherwise, invest & build up the funds to cover the care. I don't remember the source, but I read at one point that most LTC policies are only used for <3 years of care, covering an average of $300k in care, almost always as end of life care. If you have $600k+ in accessible money, I'd say you're pretty well covered.

I'll admit I haven't done any detailed planning for it at this point in my life... But considering LTC is basically an end-of-life expense, it really shouldn't need to be outrageous. Sure, the remaining spouse would still need sufficient money to live off of, depending on what other streams of income are available (SS, pension, etc.). But strictly for LTC self-insurance, I'd call $600k dedicated to that end game a pretty safe bet.

[Like2Plan]

There are people who just go into a hospital and die. That is the gamble you take.

Talking with my mom they didn't and they gambled with savings. It's looking more and more for my dad the wise thing. He probably will end up not needing LTC. That means the premiums would have been wasted.

I think what WA state is offering is pretty expensive (especially if you end up retiring elsewhere), but I found an article on the subject:

"52%: Percentage of people turning age 65 who will need some type of long-term care services in their lifetimes."

Must-Know Statistics About Long-Term Care: 2019 Edition
Christine Benz
Nov 25, 2019

https://www.morningstar.com/articles/957487/must-know-statistics-about-long-term-care-2019-edition

I'm sorta of the opinion that if you start building wealth young enough (and/or heavily enough), it's totally feasible to self-insure for LTC. In general terms, insurance is there for life events that you are not otherwise prepared to cover yourself..

How much would you save in order to be comfortable with self-insuring for LTC?

[QuarterMillionMan]

LAL, I beg to differ with your math. For simplicity sake let's say $1500 a year times 30 years equals $45,000, does not equate to $126,000 as in your computation. Granted I'm not factoring any gains or 6% or any inflation. Again for simplicity $1500 a year x 30 years is $45,000 total.

In comparison with LTC coverage at $1500 a year for 30 years (age 77 in my chart) the lifetime benefit is $427,000. Big difference from self insured covering $45,000 (again not factoring inflation or any gains or 6%, etc).

[kork13]

The correct measurement would be how much would you have investing the $1500/year for say 30 years? It's only $126k if you assume $125/month for 30 years compounded at 6%. So it's less than needing the benefit. BUT we aren't paying $1500 and we may not live in state (very likely) and what if we don't need LTC at all? There are people who just go into a hospital and die. That is the gamble you take.

Talking with my mom they didn't and they gambled with savings. It's looking more and more for my dad the wise thing. He probably will end up not needing LTC. That means the premiums would have been wasted.

That's exactly my point -- you don't really seem interested in a LTC policy, and I expect that you'll easily have the funds to self-insure. If you have plenty of money, it's not really gambling. But given the new law, if your options are either (A) pay into the state's $1200/mo LTC plan that's not a good deal for you; or (B) purchase a token LTC policy at $500/yr that meets the requirement & exempts you from paying into the state's plan... Going with option B is a $700/yr win for you. The $500 LTC policy is an unavoidable sunk cost of living in the state. Buy the token policy, then once you leave the state, you can cancel it & move on with your life.

ETA: To answer your point about the long term "best outcome".... It will almost ALWAYS be in your favor to invest in your own. How can I say so with such certainty? Insurance companies are driven by their number crunchers. Unless you use the policy early on, the insurance company calculates your rate based on precise calculations to ensure that THEY MAKE A PROFIT. Instead, why don't you make the profit for yourself, and just invest the money yourself? Like the casinos, insurance policies will always ensure that the house wins. The company would be unprofitable & unsustainable otherwise.

[LivingAlmostLarge]

I'm sorta of the opinion that if you start building wealth young enough (and/or heavily enough), it's totally feasible to self-insure for LTC. In general terms, insurance is there for life events that you are not otherwise prepared to cover yourself. If you must purchase a LTC policy as a tax avoidance measure, then so be it -- get the cheapest minimum coverage required. Otherwise, invest & build up the funds to cover the care. I don't remember the source, but I read at one point that most LTC policies are only used for <3 years of care, covering an average of $300k in care, almost always as end of life care. If you have $600k+ in accessible money, I'd say you're pretty well covered.

The correct measurement would be how much would you have investing the $1500/year for say 30 years? It's only $126k if you assume $125/month for 30 years compounded at 6%. So it's less than needing the benefit. BUT we aren't paying $1500 and we may not live in state (very likely) and what if we don't need LTC at all? There are people who just go into a hospital and die. That is the gamble you take.

Talking with my mom they didn't and they gambled with savings. It's looking more and more for my dad the wise thing. He probably will end up not needing LTC. That means the premiums would have been wasted.

[kork13]

I think we're planning on maybe just buying the matching minimum. I have my serious doubts about staying in retirement. So I think it's a good hedge. I could buy more for $1500 or $1700 but I feel like it might be better to self-insure and invest the money than to go ahead and buy the higher coverage and premium.

I'm sorta of the opinion that if you start building wealth young enough (and/or heavily enough), it's totally feasible to self-insure for LTC. In general terms, insurance is there for life events that you are not otherwise prepared to cover yourself. If you must purchase a LTC policy as a tax avoidance measure, then so be it -- get the cheapest minimum coverage required. Otherwise, invest & build up the funds to cover the care. I don't remember the source, but I read at one point that most LTC policies are only used for <3 years of care, covering an average of $300k in care, almost always as end of life care. If you have $600k+ in accessible money, I'd say you're pretty well covered.

[QuarterMillionMan]

In 2011, this was my policy.

[LivingAlmostLarge]

It seems like you could get both spouses covered for less than the price of similar coverage for the state program (at your income level) and it would be portable.

But, there are no guarantees with the private policies (except that you could cancel the policy if you moved away and decided you didn't want the coverage anymore). I guess there are really no guarantees with the state, either, as they could raise the tax if they ran into shortfalls.

Another factor--even if you decided to opt in (and also retire in WA) is your DH (and you) would have another 10 years of work ahead of you to qualify and that might come into conflict with your FIRE goals.

The main reason we decided to get LTC insurance was because as Snicks mentioned above--we didn't want the surviving spouse to be impoverished after covering the cost of LTC for the 1st spouse.

I think we're planning on maybe just buying the matching minimum. I have my serious doubts about staying in retirement. So I think it's a good hedge. I could buy more for $1500 or $1700 but I feel like it might be better to self-insure and invest the money than to go ahead and buy the higher coverage and premium.

[Like2Plan]

No the non-employed spouse does not qualify. You have to work and pay in for 10 years to qualify. You must retire in the state. And you must need care for it to qualify. If you don't need $36k of care then you don't get it. It's uncapped so if you make $200k you pay $1160/year for $36k and that's much more expensive than just buying it yourself.

The tax will be mandatory in 2022. We have until July 1st 2021 to buy a plan an opt out. Will be calling about it today.

It seems like you could get both spouses covered for less than the price of similar coverage for the state program (at your income level) and it would be portable.

But, there are no guarantees with the private policies (except that you could cancel the policy if you moved away and decided you didn't want the coverage anymore). I guess there are really no guarantees with the state, either, as they could raise the tax if they ran into shortfalls.

Another factor--even if you decided to opt in (and also retire in WA) is your DH (and you) would have another 10 years of work ahead of you to qualify and that might come into conflict with your FIRE goals.

The main reason we decided to get LTC insurance was because as Snicks mentioned above--we didn't want the surviving spouse to be impoverished after covering the cost of LTC for the 1st spouse.

[LivingAlmostLarge]

No the non-employed spouse does not qualify. You have to work and pay in for 10 years to qualify. You must retire in the state. And you must need care for it to qualify. If you don't need $36k of care then you don't get it. It's uncapped so if you make $200k you pay $1160/year for $36k and that's much more expensive than just buying it yourself.

The tax will be mandatory in 2022. We have until July 1st 2021 to buy a plan an opt out. Will be calling about it today.

[Like2Plan]

Oh! I just thought of another question: is it optional or mandatory?

[Like2Plan]

And, does the non employed spouse also qualify for the LTC benefit based on the employed spouse's record?

[LivingAlmostLarge]

Nope you have to pay in for like 10 years before you get it and you have to retire in WA state or else it's void. So if you leave you leave everything you pay in. And yes if you earn $50k you do get $36k back out. It isn't a good deal for anyone who doesn't plan on staying or anyone who is a high wage earner.

[Like2Plan]

The maximum is $36k paid per person. You are taxed 0.58% on uncapped salary. It is $580 per 100k and break even is $120k salary

If you only have one employed spouse in the family, does the non employed spouse receive any coverage?

If you earn 50k per year and pay $290 per year for LTC ins for 10 years (and retire in WA state), do you receive 36k in benefits?