Should I buy group LTC coverage?

Happy New Year everyone!

Although this topic may have been previously discussed, it's always worth revisiting -- given the importance of the need. My employer is providing us with a basic LTC benefit -- $50/day and a lifetime max of $36,500 or so -- with the option to buy more. I am age 47 and always viewed this as something I would obtain in my mid-fifties. However this "opportunity" gives me some issues to think about. Here are some details:

A monthly premium of $39.91 for a $250/day benefit, either at a facility or in-home.
Lifetime max of approximately $487,000.
No medical screening required for limited enrollment period.
With an automatic inflation adjustment rider, the premium jumps to $60.55 per month.
Coverage is portable.
For an employee age 55, the premium would be $67.08/month ($101.75 with inflation rider) for the same benefits.


I've done some preliminary number crunching, and am not sold that I would benefit by obtaining this coverage at the lower rate now. It appears that I would have to be in my late 60s before "breaking even" in terms of total premiums paid. And that does not take into account the investment return I could earn on the money saved by waiting until age 55. This coverage is being offered to all employees regardless of age. It seems absurd to me that someone in their 20s or 30s would benefit from buying this now.

Anyway, any other thoughts or perspectives on this are certainly welcome.

My only observation is that the basic benefit of $50/day and lifetime max of $36k is woefully insufficient. In the late 90s, my G-ma was in a private home that cost $150/day -- she had an LTC policy that paid $75/day, and the sale of her home made up the rest for four years and 9 months she lived there. It was a five-year policy, and she had only two months' more money in the bank when she died. Imagine if she had outlived both her cash and her policy!

The greater benefit of $250/day is better.

$50/$36,500 is exactly two years' worth of coverage. The $250/$487,000 covers 5 1/3 years of coverage. Have you compared with outside insurance groups' rates yet?


Of course, premiums of $39.91 x 12 months x 30 years (age 77 as this example) is still only $14,467.60 in today's dollars. Not bad for $487k in benefits.

I've run the numbers and I agree. In my case, being older, I compared costs at 55, 60 and 65. Breakeven point get pushed out to 78 comparing premiums paid at 55 and 65. Including potential investment return on the difference saved, it isn't even close. The main problems I see are needing it before 65 and not having it, or not qualifying later due to some unforseen future illness. Also, since this is a relatively new product, there could be some unanticipated changes in rate structures, I guess.

my only comment would be to ensure the carrier is ROCK solid. as you point out, the LTCi is a fairly new product (as sold to consumers). while even a rock solid company may have the numbers screwed up, a solid company can make payments to you if they screw up ... a lesser company may simply default.

It's Prudential offering the coverage. I know that they have been at the center of a number of sales and marketing scandals in recent years, but my assumption is that their financial condition is petty solid. IMO, you may have more insights on that than me, and I would appreciate your thoughts.

Also, my understanding is that even though indivdual policyholders' rates are "guaranteed", most insurance companies offering LTC do reserve the right to raise rates for entire classes of customers. I have read some horror stories of customers being forced to drop their coverage becuase of this happening, after paying in many years worth of premiums. Has anyone had or heard of similar experiences?

Thanks,
Gaken

Yes, however, there are some companies that have never raised their rates, and some that have only raised them slightly.

Additionally, if I'm not planning my death for quite a number of years from now, so I think I will defer a purchase of life insurance until time to die. You know, I just wouldn't want to pay too much.

Guys, the point of insurance is to purchase it BEFORE you need it. Break even points besides, you don't know when you are going to need this stuff. If you are in your late 40's or 50's and can afford it, you can't afford to not purchase it. Do you think Michael J. Fox knew that he was going to need long term care? It happens to younger people too. I know a guy in his twenties planning a purchase of LTC. Extreme? Maybe. Will he regret it? Never. Here's the thing, if you don't purchase this and need it, or you delay your purchase and then you are unable to get it, you are going to be cursing all of your break-even calculations.

-Joe

Guys, the point of insurance is to purchase it BEFORE you need it. Break even points besides, you don't know when you are going to need this stuff. If you are in your late 40's or 50's and can afford it, you can't afford to not purchase it. Do you think Michael J. Fox knew that he was going to need long term care? It happens to younger people too. I know a guy in his twenties planning a purchase of LTC. Extreme? Maybe. Will he regret it? Never. Here's the thing, if you don't purchase this and need it, or you delay your purchase and then you are unable to get it, you are going to be cursing all of your break-even calculations.

-Joe
But, insurance is still to some degree an investment. You should weigh your options and ensure you neither overinsure nor underinsure by too much.

It's like the salesperson from Best Buy trying to sell you 3 years' coverage for your $100 DVD player for "only $50" when you can buy a better unit for less than that cost in three years. Granted, life insurance and a DVD players couldn't be more "apples and oranges" of an example, but it still shows the value of thinking before diving into any policy.

dingo, i might catch a little wrath here (from you or others) but i cant help myself.

when i was in the army i was very very leery about life insurance. i looked at it from an "investor" point of view. always try to have enough, but not more than i needed as that would just be stupid.

i admit my bias now that i am "in the biz" but my wife told me a little diddy once upon a time and it has stuck with me.

in regards to life and health insurance, you simply cannot have too much. in delivering death claims, we have never ever had a loved-one look at the check then look into our eyes and say, "Oh my! This is too much!" Conversely, there have been plenty of spouses and loved ones who have said, "Is this all there is?"

clearly you can be spending too much on life (or health) and at times in my past i probably have. someone who sends in 100% of their pay is likely spending too much. you can also be spending the right amount monthly for the proper amount of coverage but still have the wrong type of coverage. or horrors: the wrong company.

i understand your analogy and you even caveat it that it might not be right, but a vcr has a "shelf life". your life, not so much. and you certainly want your life (or health) insurance to outlive you.

Also, you have to take into consideration that a DVD player can ALWAYS be bought and replaced, they do not require a medical exam--insurance does.

-Joe

I completely agree with what you are saying. I don't like this scenario, though:

"Now that my loved one has passed and I now have (X-amount) in insurance money, and I can finally pay off that mountain of debt we accrued because we were spending an extra (X-amount) a month that put us over our monthly budget and we had late payments and poor credit and couldn't do what we wanted to do in our day-to-day lives."

That could easily happen and it is not much better than a loved one passing and leaving a huge insurance settlement.

That is what I meant by weighing your options. You can sometimes have too much insurance. Some middle-class families who have seen fuel and electric rates double in the time their income has increased less than 20% are feeling the paycheck-to-paycheck crunch and don't have enough financial leeway to buy a lot of (or enough) insurance.

Here's the thing, if you don't purchase this and need it, or you delay your purchase and then you are unable to get it, you are going to be cursing all of your break-even calculations.

-Joe

Yeah, when I was an insurance agent I came accross the great paradox of the insurance world... The people who need insurance the most, cannot get it. While to a certain degree you should be doing break-even type calculations, the longer you wait the closer you can be to a scenario where you need the insurance and will regret it later that you can't get it.

One other important thing to consider in LTC policies is inflation protection... Especially if you expect to live a long time. $50 today is not the same thing as $50 20 years from now. And $50 by the way is absolutely nothing for LTC.