As you may have guessed, the answer is – it depends. It depends on your individual situation and will this purchase of a policy help you or your family. Not everyone needs Long Term Care insurance (LTCi). You can probably do without Long Term Care insurance if you have substantial assets and paying $71,687 a year on a care facility won’t impact you greatly1. If you would rather maximize the use of your investment dollars, then LTCi still might be a good buy (keep reading). If you have substantial pension income that can be used for long term care insurance, then you may not want or need LTCi coverage.
For everyone else, somewhere near or between the ages of 60 and 80, the normal answer is you should probably at least consider this type of insurance coverage. The average cost nationally of a semi-private room in a skilled-care facility is about $71,687 per year ($200/day) and this cost is not likely to go down. There are a number of ways to purchase LTC coverage so this article is simply a quick attempt to summarize those. The options here are by no means all inclusive. There are a lot of choices.
First, you have what I call traditional plans (individual, group and association), where you pay an annual premium. These have been around for some time and are still useful. Some traditional plans, however, can become cost prohibitive as time passes on, and I have seen people refuse to renew these LTCi policies due to increased cost, at a time when the benefits are most needed.
Asset based LTCi policies are used quite a bit. This is where you leverage the amount of money you will be spending towards your long term care needs. The leverage can be around 2 ½ times the money you set aside. In other words, the $100,000 you have set aside can spend like $250,000 for long term care needs. Generally, with these types of contracts if you do not use the benefit you may cash it in or pass the money on to a beneficiary in the event of death. The real benefit to these types of LTCi is the leverage employed, so even if you can afford to pay for a care facility, you might want to maximize your funds.
Another option is a hybrid insurance policy. Here you take out a permanent life insurance policy that allows you to spend down your death benefit if the need for long term care coverage arises or if you lose at least two of your six activities of daily living (ADLs – a litmus test for Long Term Care). These life insurance policies are a bit newer, but will probably catch on as time passes. They are a way to provide liquidity in the event of death, but hedge your bets for Long Term Care coverage.
This short primer is simply an introduction and a taste as to what’s available in the marketplace. No matter what is decided. It is a good idea to check LTCi out.
Mark Nabell, Managing Partner
Nabell Winslow Investments and Wealth Management
The author, Mark Nabell, is a managing partner at Nabell Winslow Investments a regional investment advisory firm. He can be reached at [email protected] Investment Advisor Representative. Securities and advisory services offered through Cetera Advisors LLC, member FINRA, SIPC. Cetera is under separate ownership from any other named entity.
1AARP LTC calculator