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Were you aware that 41 states have new regulations regarding premium increases? What state are you a resident of?...
The problem with premium increases is they're required by law to be granted if the company can show that it will become impaired/insolvent if the increase isn't granted. Which is why so many large ones are being okayed these days when it comes to long term care insurance. It's just a lousy unprofitable line of business for most of the few remaining companies that sell it. If there's anything a state insurance commissioner needs less than constituents who are angry about premium increases - it's insurance companies that go "belly up". Robyn
so ask yourself why if so few people actually utilize and need long term care why are the insurers paying out more dollars then they are taking in ?
the way it is shaking out 2/3's of men will never see the inside of a nursing home , but 2/3's of women will .
More than half of all nursing facility stays last six months or less. The average stay of those who enter a custodial care facility is about 18 to 20 months. but that is the average stay . the other half of the stays are longer and can be a lot longer . which statistic are you AND your spouse ?
Last edited by mathjak107; 12-31-2015 at 04:13 PM..
so ask yourself why if so few people actually utilize and need long term care why are the insurers paying out more dollars then they are taking in ?
I think the quick answer is their unfunded actuarial liabilities and that would be the reason for rate hikes. You can exist with growing unfunded actuarial liabilities provided there's growth in new participants but once that levels off or head southbound, then the unfunded liabilities are financial beasts that need to be dealt with, unless you're able to print your own money.
I could only find a few cases where annuity owners ended up with less than their insurer promised.
One resulted from the 1983 bankruptcy of Baldwin-United, which involved a takeover by MetLife and a court-ordered reduction in benefits.
Another involved the 1991 failure of Executive Life, which continued to pay annuity benefits in state-managed rehabilitation mode until this year, when balance sheet deterioration led to liquidation. Going forward, owners of Executive Life annuities that exceed state guaranty caps will suffer losses.
but that is about it . you stood a better chance getting hit by lightning then losing a dime in an insurance product .
...spia's have no interest rate they have a draw that you can't match on your own since a draw at that level is not considered safe...
There is an interest rate implied in the monthly payment based on one's life expectancy and the % of principal that is returned during the early years of the annuity. Most of your return during the first 13 years or so is a return of principal. After about 13 years or so - you've gotten all your principal back - and you're getting back 100% fully taxable interest. I don't know if all SPIAs work this way. But my father has 6 from different companies - and they all work that way.
The longer you live - the higher your total return will be on your initial investment. When my father first started his immediate annuities - when he was about 80 - the implied interest rate was about 2%. At age 97 - it is now about 4%. The longer he lives - the better the total interest rate over the life of the investment will be.
Having watched these annuities (and dealt with their tax implications) for a long time now - I can see that they have some advantages. Some disadvantages too. Over the almost 18 years my father has owned them - he would have been much better off in a good municipal bond portfolio (which is what I advised him to do 18 years ago).
One problem with annuities is if you buy too many with too much of your money - you won't have a pile of cash to pay for any care you might need near the end of your life. My father may well need end of life care in the next couple of years (not only is he 97 - he's been diagnosed with pancreatic cancer!) - and his annuity income wouldn't cover it.
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the other issue and a big issue is while many of us MAKE INVESTING A HOBBY AND INTEREST MANY OF OUR SPOUSES DO NOT.
My husband isn't particularly interested. We have a close friend who's a RIA who we would go to first if we couldn't/didn't care to manage our money ourselves.
I think when it comes to drawing down principal - I wouldn't dare do it in my 60's - or even in my early 70's (not that I need to to have a nice lifestyle). Unless I had some disease that I thought might shorten my life span a lot. Our parent who died the earliest was my late MIL - a heavy smoker who died at 80. Two parents died in their mid-80's. My father is still alive at age 97. Guess if one must spend more than what one is earning in one's 60's - a single premium immediate annuity is a way to do it. Keeping in mind that what you're getting in return for spending down principal is a meager 2% return (if that these days). Robyn
that is an irs mandated "phantom " interest rate based on a chart of life expectancy for tax purposes . it is NOT an actual interest rate
there is no roi until many years later when you get all your money back and then go on their dime . there is no more an interest rate then a pension would have ..
on the day you or your spouse dies your estate can then compute an roi but until then all bets are off as to what it might be
no one should ever just buy an annuity with all their money , that would be poor investor behavior and not a flaw in the product . the big advantage of the spia is the much larger cash flow coupled with your opwn investing .
immediate annuity's have no sequence risk and as such allow for greater initial cash flows . you are buying a pension , not an investment .
even if roi was zero it allows you to draw more of your own money back from the insurer at a greater rate then you can pull it from yourself .
drawing my own money out at a 6% draw rate would be a risky thing to do if the sequences of gains and losses were not to favorable or markets were poor . but that is what a 65 year old gets as a draw rate today .
those mortality credits really beef up the cash flow as those who die pay for those who live . .
Last edited by mathjak107; 12-31-2015 at 04:15 PM..
...for most folks self insuring ends up being a disaster...
Don't know about most folks. Just people in my family. My late FIL had a net worth of about $1 million when he moved to a SNF here after a stoke. He did just fine money-wise in the SNF.
Mind you - he never earned more than $25k/year (working in New York and in New Jersey). Lived somewhat frugally before retirement and after retirement in North Carolina.
My father has a net worth of about $2 million. He lived the same kind of financial life my late FIL did (but sold his waterfront house in Florida at a really good price in 2006 after my mother died - which accounts for a large part of the difference).
This is pretty much the "millionaire next door" kind of stuff. Earn some - live below your means in terms of what you're earning (whatever it is) - save a fair amount/a lot. We have more money than our parents. But - like them - we have always lived on a fraction of what we're earning. I think that's the key - always living on less than what you're earning. Learning to be content with it. Whatever it happens to be. It's like the old Charles Dickens writing:
Mr Micawber's famous, and oft-quoted, recipe for happiness: Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
The people who probably get into the deepest dodo when it comes to long term care stuff are those who aren't poor - but have relatively modest savings - like on the order of $500k or less. If I was in a position like that when I got older - I would probably look into various planning techniques/options Robyn
I can think of two client experiences who ended up needing long-term care and neither had a LTC policy.
The first was a widow. She was a retired government employee and earned a small pension plus social security. This was many years ago. Her son placed her in a long-term care home (not a SNF). The cost was $3,500 per month. Again, this was a long time ago.
What I noticed about her is that she no longer paid any income taxes because the long-term care expense (medical expense deduction) brought her taxable income below a taxpaying amount.
What I also noticed in reviewing her check register is that besides the $3,500 per month, the only regular expenses were some prescription co-pays and diapers. In other words, she was for the most part, her annual cost of living wasn't that much higher than before because she was no longer spending money like she had before. And for the most part, her new costs were pretty much covered by her small pension and social security. I don't recall the actual numbers but I don't think she dug very deep into her savings accounts and she didn't have to sell her home. Son inherited it.
Case number two was another widow and she had a investment portfolio about $1.2 million I vaguely recall. She collected social security and a very small pension from her husband. She ended up in memory care SNF and lived for probably over 5 years. Her daughter sold her home so that added maybe $200,00 to her investment account. That account was bigger than it was when her LTC started and daughter inherited a nice sum.
So there you go, two real life cases. The lesson here is that your expenses go down once you become a LTC ward because you're not out running around spending money for vacations, clothes, giving money to deadbeat adult children and relatives, making charitable donations, etc. etc. So what I learned from these two elderly ladies is that their marginal cost of being in LTC-land wasn't that significantly more than what they were spending before. This is important and should be understood.
And this thing about losing your home, there comes a point in time when the home has to go anyway and Momma or Daddy no longer has the gumption to take care of it.
Just to clarify - this is almost certainly an assisted living facility - not a skilled nursing facility - not at that price. Some LTC policies cover ALFs or certain kinds of care in ALFs - some don't. You have to read the "fine print". Robyn
Sort of yes and sort of no. Level 1 is the Assisted level. Level 2 is predominately dementia residents and/or those with flight risk, as it is a secured area. Little momma can't perform any of the ADLS without significant assistance and qualified. Last year she was still able to do tasks, albeit with some assistance and did not meet the needs level. Sadly she did this year.
Skilled nursing is done in Level 3, but don't know what the rates are tho.
The facility my dad was in was approx. 4300/mo for assisted and about 5000/mo for the dementia side. They did not have SNF there, but this goes back to 2011.
If she lives as long as her dad did, little momma is going to be getting her monies worth.
Don't know about most folks. Just people in my family. My late FIL had a net worth of about $1 million when he moved to a SNF here after a stoke. He did just fine money-wise in the SNF.
Mind you - he never earned more than $25k/year (working in New York and in New Jersey). Lived somewhat frugally before retirement and after retirement in North Carolina.
My father has a net worth of about $2 million. He lived the same kind of financial life my late FIL did (but sold his waterfront house in Florida at a really good price in 2006 after my mother died - which accounts for a large part of the difference).
This is pretty much the "millionaire next door" kind of stuff. Earn some - live below your means in terms of what you're earning (whatever it is) - save a fair amount/a lot. We have more money than our parents. But - like them - we have always lived on a fraction of what we're earning. I think that's the key - always living on less than what you're earning. Learning to be content with it. Whatever it happens to be. It's like the old Charles Dickens writing:
Mr Micawber's famous, and oft-quoted, recipe for happiness: Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
The people who probably get into the deepest dodo when it comes to long term care stuff are those who aren't poor - but have relatively modest savings - like on the order of $500k or less. If I was in a position like that when I got older - I would probably look into various planning techniques/options Robyn
The red nails it for Jim and I.
We should be in pretty good shape as we have CSRS pension for him, SS and a very small pension at the PBGC and about 600K in financial stuff. While many retirees would like to have our finances, we have to consider those other options. A very long illness, requiring extensive medical care during a repeat of the 2008 could knock the crap out of a modest but comfortable position.
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