Tackling the Beast that is Long-Term Care Insurance

July 18, 2022

If you haven’t had direct experience with a long-term care policy, then you’ve probably at least heard about this type of insurance. The feedback we hear most often when we broach this topic with clients is that it’s too expensive and they’ll probably never use it anyway. Perhaps you share this sentiment yourself.

While long-term care coverage is on the pricey side, if you do end up needing it, your policy could pay out hundreds of thousands of dollars that you might otherwise cover by depleting your assets. Plus, just like any insurance, you don’t purchase it with the intention of using it. It’s a risk management tool.

That being said, there are different ways to fund long-term care, and insurance is just one of them.

Key elements of a long-term care insurance policy include:

  • The daily benefit (e.g., $200 per day) which means that regardless of what you actually are spending each day for care whether it is higher or lower than $200 a day, you will only receive a maximum of $200 per day. If you are using less than $200, then your pot of money is going to last longer than the benefit that you originally signed up for (for example, 3 years). So if you only spend $100 per day your three-year policy might last for six years.
  • The benefit period, coupled with your daily benefit, determines how big your “pot of money” is once you activate your policy. Using the $200/day example from above, if your benefit period is three years then when you activate your policy your pot of money would be $219,000 ($200 per day X 365 days per year X 3 years).
  • Inflation protection can be very important because long-term care costs, as with healthcare costs, have been increasing at about 5.5% per year, an average of 3% per year greater than the consumer price index. Cost inflation over the 20 or so years before you might even use your policy could seriously erode your benefit if you don’t obtain at least 4% inflation protection. I chose 5% inflation protection when I purchased my policy at age 48.

In general, a “short fat” benefit (high daily benefit over a short time frame such as $250/day for two years) is more advantageous than a long skinny benefit (a five-year policy at $150/day, for example). The reason being is that regardless of how expensive your care is, you cannot exceed the daily maximum. And yet if you don’t use the daily maximum, it rolls over for future use. Because insurers have figured this out, the short fat benefits do tend to be slightly more expensive than the long skinny benefits.

Some considerations when choosing how much long-term care insurance to purchase include your ability to self-fund from your own assets, the cost of living in the area which you plan to retire, your ability for you to age in place, support from family and friends to allow you to stay in your home longer, and possibly if you were going to buy into a continuing care retirement community.

We work with a broker out of Tampa, Florida called LLIS and you can request a quote from their website. If you list Debbie as your advisor, they'll loop her in on the quote information once they put it together. They don't share any of your medical information with us.

You can also check out this informational brochure from LLIS, as well as this checklist for what to consider when purchasing a long-term care policy.

And of course you can always schedule a call with Debbie to dive deeper into this important topic.