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It's from today's WSJ -
https://www.wsj.com/articles/long-term-care-insurance-isnt-d...

If you can't see it from the link(because I subscribe), google the title - Long term care isn't dead it's now an estate planning tool - and you may be able to find a free copy.

Just a little different take.
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Here's something from Kiplinger's on the same topic of "hybrid universal life insurance with long-term care riders".

The Impossible Reality of Long-Term Care Planning
https://www.kiplinger.com/article/retirement/T027-C032-S014-...

</snip>


I continue to believe that avoiding these expensive insurance schemes and keeping the insurance company's skim rate in your own pocket is the best way to plan.

intercst
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I continue to believe that avoiding these expensive insurance schemes and keeping the insurance company's skim rate in your own pocket is the best way to plan.

I am really not pro or con. I was heartened by the stats in the WSJ article since others try to indicate everyone will end up in a nursing home.

IMHO, it's a very different view depending on your marital status.
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What happens to the price of LTC and other health commodities when the baby boomer numbers decline and the much smaller genx needs similar care? Will there be an oversupply and resulting lower costs? A lot of investment is being made in healthcare right now that is unlikely to be needed to the same degree in 25-30 years.
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ToddTruby writes,

What happens to the price of LTC and other health commodities when the baby boomer numbers decline and the much smaller genx needs similar care? Will there be an oversupply and resulting lower costs? A lot of investment is being made in healthcare right now that is unlikely to be needed to the same degree in 25-30 years.

</snip>



Not only that, but technology is being developed (robots for personal care, GPS trackers to find dementia patients who wander off , etc.) that makes it easier for people to remain in their home -- which is what most people want anyway.

intercst
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So then, I apologize for posting anything.
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WSJ has a paywall, so can't read the article. But I'll offer this from my working experience with LTCi

When qualified LTCi was first offered in 1998, it was priced WAAAAAAY under what it should have been priced at. Insurers claim they didn't know about longevity, prolonged interest rate suppression and the low lapse rates until after the fact. Right! Insurance actuaries are arguably the smartest guys in the room....they have to be for what they must do to keep an insurer profitable, and you don't see many insurers going out of business. They know what they are doing and insurance exec knew EXACTLY what there were doing in selling so many policies at about 60% of what they should have sold them for. Sales commission were high and bonuses were paid. All was well in the insurer's board room.

So now we've got a situation where policies are priced where they should be (very expensive for the LTC risks they insure), few insurers are still offering them and premiums continue to climb, most at double digit rates where states will allow them.

But pricing you, the policy holder, to such a high level that you let the policy lapse and all those past premiums go down the toilet, is not the greatest risk. A greater risk is the insurer will deny the future claim. These policies all must be triggered by the inability to perform at least 2 of the 6 ADLs or have a 'substantial' cognitive disorder. But the actual definition of the ability to do an ADL is subjective and is determined by agents of the insurer, not medical authority as was the case with pre-qualified policies (referred to as medical necessity). Then there's the 'gotchyas' of requiring care be given only in a licensed facility and that all caregivers must have a state certification or the facility must be JCAHO approved, and so on. The risk of claim denial will be based on the insurer's capital reserves. If these get low, you can count on an increase in denial of claims.

Keep in mind, when the insured files a claim, S/he will be in no mental or physical condition to take on the insurers with a claim denial...that will be up to the adult children. So the kids need to be part of that LTCi policy from the get-go....or they'll just shrug their shoulders with the claim denial letter...and the insurer knows this.

Preserve investment capital and self pay if needed at end of life

BruceM
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I bought a dividend paying permanent whole life insurance policy for my wife at 42 years old that accumulates cash value of $650,000 and a larger death penalty when she is 90. That should be enough for long term care for her. I pay $14,900 for six annual instalments and the IRR based on the forecast of dividends is a tax free 4.5% return. If we don't use the cash value for long term care, the estate has a large asset.

Then we bought a second to die permanent dividend paying whole life insurance policy for both of us that has a 20 year monthly premium and we will have $360,000 of cash value when I am 89. The IRR is 2.8% tax free.

We are covered for long term care and have an asset for beneficiaries and dividend income in our nineties.

I cannot recommend LTC insurance as you are relying on a clerical telephone operator to approve your insurance claims.

Whole life insurance is an asset and it is there for you.
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RedondoBeachMike: "I bought a dividend paying permanent whole life insurance policy for my wife at 42 years old that accumulates cash value of $650,000 and a larger death penalty when she is 90."

What is a death penalty in this context?

"That should be enough for long term care for her. I pay $14,900 for six annual instalments and the IRR based on the forecast of dividends is a tax free 4.5% return. If we don't use the cash value for long term care, the estate has a large asset."

And if the dividends are less than forecast?

What asset will the estate have if you do not use the cash value for LTC? Unless you named the estate as beneficiary, which negates one of the typical benefits of insurance, that it passes outside the estate and when it does so, there is no risk of estate tax.

Upon death the policy will pay the beneficiary.

"Then we bought a second to die permanent dividend paying whole life insurance policy for both of us that has a 20 year monthly premium and we will have $360,000 of cash value when I am 89. The IRR is 2.8% tax free.

We are covered for long term care and have an asset for beneficiaries and dividend income in our nineties."


Do the dividends come to you are they used to pay for policy premiums?

"Whole life insurance is an asset and it is there for you."

It is there as long as you paying the premiums, and it is mostly there for the beneficiary, any withdrawal or loan against the cash value effectively reduces the net death benefit.

Regards, JAFO
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Thank you for your response, JAFO. Policy A is for my wife who was 42 years old at origination. Policy B was a joint survivorship policy for my wife and I when she was 46 and I am 64. Policy A is from a $1 Trillion Mutual insurance company rated AA. Policy B is from a Captive mutual insurance company of a Fraternal society also rated AA. Both policies are dividend paying whole life insurance.


Death penalty of A: Death penalty of A is $400,000. I make 6 annual premium payments of $14,900 and the policy is paid up with no more premiums. At the end of year 13, the death penalty increases to $404,494, the dividend is $5,239, the Cash surrender value is projected to be $142K and the Guaranteed Cash Surrender value is $110K. At year 48 when my wife is 90, the death benefit is $777K, the dividend is $16,939, the projected CSV is $654K and the Guaranteed CSV is $271K. If the projected CSV is actual, the IRR is 4.5% tax free for 48 years.


Death penalty of B: Death penalty of B is $550,000. I pay a monthly premium of $973.50 for 20 years (240 payments) and then the policy is paid up. At the end of year 25 when I am 89 and ready for a nursing home, the Death Benefit is $550,000 and the guaranteed CSV is $309K but the non-guaranteed amounts are Dividend of $4,578, cumulative paid up additions of $71K, net CSV of $349K and net death benefit of $621K.

What if the dividends are less than forecast? I have tables in both that I can track on a yearly basis. If they drastically fall off plan or if the ratings of the insurance companies deteriorate, I can draw the cash value. Another option is to manage to the CSV which is the asset the children will receive at our death so use a reverse mortgage, social security, 401K and IRA's, small empoyer annuities, purchased annuities, etc. and other assets first with the CSV being the last asset in the estate. Policy B's guaranteed CSV of $309K is very attractive as a man I would normally only live three years in a nursing home on average which costs around $10K per month on average. Policy A needs to perform.

It looks like the dividends come to my account. They may be suppressed in the early years to pay the policy in full.

Policy A will be paid on time in full in 28 months. Policy B will be paid by the time I am 84. Beneficiaries will need to decide to pay up B in the event of my untimely death. My dad passed at 95 and ten months and the estate had to pay $140,000 memory unit costs in the final years. My mother is still doing ok at 92. I expect to pay policy B. The cash basis can be withdrawn tax free. Policy loans are tax free. A charges 8% fixed or a lower variable rate. B charges 4%. Also, since nursing expenses are tax deductible after 10% of AGI, taxable withdrawals may make sense.

Policy A explains why wealthy people buy dividend paying whole life insurance as if the premiums are the maximum the IRS allows, the tax free IRR is excellent

These two investments are justified by behavioral finance as the beneficiaries are not financially sophisticated. I may buy an annuity for the wife in the future for the same reason.
Redondo Beach Mike
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Death penalty of B: Death penalty of B is $550,000. I pay a monthly premium of $973.50 for 20 years (240 payments) and then the policy is paid up. At the end of year 25 when I am 89 and ready for a nursing home, the Death Benefit is $550,000 and the guaranteed CSV is $309K but the non-guaranteed amounts are Dividend of $4,578, cumulative paid up additions of $71K, net CSV of $349K and net death benefit of $621K.

One article I read said the worst 20 year rolling average since 1979 was an average return of 6.4%. If I calculate the total amount for investing $973.50 monthly for 20 years at an average return of 6.5%, the total is $477,428. If I then stop the monthly investments for another 5 years, the total becomes $660,196. It seems you are giving up quite a bit of return for some insurance.

PSU
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Thanks for the response, PSU.


You have stated the reason why I only owned term life insurance until my 60's. Up until then I received about a 7% return in my deferred tax accounts. At 60 years old, I had to drop the corporate term life insurance as it went up 300% in price. I have a $500K term life insurance on me that expires in two years but is too expensive to renew.


Here are a few rationalizations of my purchases.

I have no fixed income investments. I am 100% equities. Buying bonds in this rising interest rate market looks difficult. You are using equity returns to reject the returns of a dividend paying whole life insurance policy from a Mutual Insurance company (owned by policyholders). I have maxed out my deferred tax options i.e. 401K. So the 6.4% return would have to be after-tax versus tax deferred in whole life.

I compared the 2.8% tax free IRR on Policy B to my fixed income investment options. Since cash surrender value is a guarantied payment from a AA insurance company, it is a fixed income investment that exceeded CD's, bonds etc. at the time. Policy B is a winner on a Behavioral Finance analysis as its purpose was to have $360K available for my spouse when I am 90 years old and need LTC. The guaranty from a AA insurance company is $309K at 89 years old with dividend income to make it larger. My spouse does not have the financial expertise to manage an equity or bond portfolio so CSV will be available to pay LTC for both of us.

When my wife can get an 8% return on immediate annuities, I will buy an immediate annuity for her (and me)for the same Behavioral Finance reasons.
RedondoBeachMike
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