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Why is Long Term Care insurance so complicated?

July 28, 2017

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How should I think about Long Term Care insurance?

May 12, 2017

Approaching Long Term Care insurance, or many insurance products, from a perspective of Return on Investment (ROI) is very difficult.  That being said, many reviewers of LTCi policies tend to approach Long Term Care insurance from that traditional financial analysis perspective.  They say something like "if you look at your odds of needing care and how much that care might cost, you can calculate the return on a policy based on the average."  However, especially with Long Term Care insurance, this is a real challenge.  Term life insurance is something that no one would buy if they only looked at the odds of it being used.  The reason someone buys it is that they can't afford the alternative.  

 

For some people, LTCi may be the same thing.  Let's look at my favorite option, which is a Single Premium Life insurance policy that is combined with Long Term Care benefits.  I happen to like the OneAmerica product because it offers a lifetime rider.  

 

So, let's say that you have a million to two million dollars saved for retirement.  That's a pretty good nest egg.  Depending on how much you plan to spend in retirement, that could last your whole life.  So, why should you consider Long Term Care insurance?  

 

Again, let's just look at a possibility.  What if you or your spouse when into care at a relatively young age, say around age 80.  Let's further hypothesize that the care was home care at first and cost $40,000 a year above an beyond your planned retirement spending.  After about ten years, your spouse went into a skilled nursing facility for the remaining three years of his or her life at about an additional $90,000 per year.  This situation isn't likely, but it's not out of the question.  It isn't the average or typical situation, but we've all known people who have experienced similar situations.  

 

The question is what kind of a dent would that put into your retirement savings?  How much might you have to adjust your retirement living to account for that and what if you needed Long Term Care assistance later in life?  Would you have enough left to cover it?

 

Now, let's say that for $100,000 today, you could ensure for life that a good portion of those costs would be covered no matter how long the care was needed.  Would you do it?  How much would that $100,000 now affect your retirement, especially if you knew that if you didn't use the benefits of the policy, you would only lose the potential income on that money?  

 

For those of you who think that way and believe that the assurance that almost any case imaginable would be taken care of by putting a portion of your retirement dollars into a hybrid LTCi policy, you can see that the ROI calculation goes out the window because if you do end up in that case, the policy's ROI i incredible.  Even more, the policy gives you the peace of mind that you don't have to worry about the worst case, even if the premium takes a small dent out of your retirement.  

 

This still doesn't mean that an LTCi policy is a no-brainer.  Certainly, you need to put a lot of thought behind such a big decision.  It does mean that there is a way of thinking about hybrid Long Term Care insurance that isn't bound by traditional ROI thinking, but still makes a lot of sense for some people.

 

The question is "If you could ensure that your retirement dollars would be safe, but taking just a small portion of them and setting them aside into a asset-based Long Term Care insurance policy, would you?"

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