Do you really need Long Term Care insurance?
How much does it cost? What if I purchase it and don’t need it? Long term care is not something that any of us want to think about. Unfortunately, it is a reality that many of us will encounter whether it be personally or with a family member. The worst thing someone could do is NOT consider the consequences of having to go into a nursing home.
Long term care insurance is not a necessity for everyone. Some people can self-insure. Nursing home costs can range from 4,000 to over 12,000 per month depending upon the facility and the level of care needed. If you have enough income to cover the costs of care, obviously long term care insurance might not make sense unless you are wanting to leverage your protection and leave the income for a spouse.
We work with our clients to understand what exactly they want to have covered, what is reasonable, and what is necessary
Knowing this, we can start to weed through the policies that have the best potential for success. Ultimately we want to help clients make sure they completely understand the different options and find solutions that make the most financial sense.
At the highest level, you have three different ways to hedge yourself against potential costs of long term care:
The first long term care insurance option is called asset based
This type of long term care policy uses a multiplier (depending upon age & health) to determine how much coverage can be purchased. For example, you deposit $50,000 into this type of long term care policy and it generates a $120,000 worth of coverage in the event of needing long term care. This type of policy can work for those with idle assets in which they want the coverage but complete liquidity at the same time.
The second type of long term care insurance is life insurance based
This type of policy is in fact a life insurance policy with a long term care rider. The insured of the policy can use a percentage of the benefit base for the expense of long term care or a certain payment for long term expenses is guaranteed. An example would be to purchase a $500,000 policy which would guarantee a monthly payment of $5,000 per month for two years for the purpose of long term care.
The third type of coverage would be the outright purchase of a strictly long term care policy
A periodic premium is associated with the policy that covers a certain payment if need be for the long term care. These are probably the types of policies that most people think of when they think of long term care insurance. An example would be that you pay $3,000 per annum for a policy that would generate $6,000 of income for the cost of long term care expenses if need be.
Each of the above ways have advantages and disadvantages. Each of them can make sense depending upon objectives and circumstances. Furthermore, each of them (and all policies) have different qualification requirements so it is important to know how you would actually qualify to receive the benefit. Some policy qualifications are very lax while others dictate what type of facility is required.