Long-Term Care Funding Strategies Part I
Reality: Talk to someone who has dealt with the costs associated with long-term care (LTC), and they will likely tell you that it is expensive. Talk to someone who has seen insurance in place to counter those costs, and they will likely say, “Thank God!” The following are a few options to consider when planning ahead for long-term care.
Option #1- Do Nothing: Even though recent statistics suggest that two out of every three Americans over 65 will need some form of LTC during their lifetimes, LTC insurance isn’t for everyone. Many will not qualify due to their medical history. Others don’t have the resources to buy even the cheapest of policies. (State administered Medicaid helps to serve as a safety net for the poor.) Others may choose to “self-insure” and pay for LTC out-of-pocket. How much do you need to go that route? Generally, I would say at least $2 million in liquid assets. For those with between $100,000 and $2 million, and who don’t want to bet against that two out of three statistic, insurance might be a good idea.
Option #2 – Traditional Insurance: Depending on your age and the type of policy, monthly premiums can vary greatly. Buy a modest policy at a younger age and the monthly premium might only be $100; wait until you are older and choose a “richer” policy with more benefits and features, and you could spend $500 a month. The biggest advantage of the LTC insurance is its leverage. Assume you buy a policy with a $150 daily benefit, a 90-day waiting period, and a three-year benefit period. The monthly premium is $300. Assume two years later, you need LTC at a cost of $4,500 a month. You paid a total of $7,200 in premium before needing to use your policy. You also paid $13,500 for your own care the first three months. That puts your outlay at about $20,700. If your need for care is long enough, you would have received $162,000 in benefits from the insurance company. Although no one ever hopes to use their insurance, it can be a good return on money spent. Of course, there are shortcomings: the insurance company can raise your premiums and you may be paying for something that you will never need (there’s no residual value for you or your family).
David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show at 9AM on AM1380 Ormond Beach, AM1230 New Smyrna Beach and AM1490 Deland. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.