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Why is Long Term Care insurance so complicated?

July 28, 2017

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Is Long Term Care Insurance Expensive?

July 5, 2018

 

 

This is a question I'm asked a lot.  No one wants to get a quote until they know if Long Term Care insurance is expensive.  I always answer as honestly as possible.  Yes.  It is expensive, but, I quickly add, so is long term care.  In other words, the question is not whether or not Long Term Care insurance (LTCi) is expensive. The real question is "Is it worth it?"  

 

Let's say that you have parents who went into an assisted living facility or a nursing home around age 80.  Let's also say that you are in about the same health as your parents.  Let's also presume that you don't want to spend all your money and end up on Medicaid.  If all of those assumptions are true, then Long Term Care insurance is probably a decent deal.  All insurance purchases involve risk.  For example, term life insurance is risky.  Almost no one uses it.  Why do they buy it?  The reason is that it's cheap compared to the financial catastrophe that a family would experience if they don't have life insurance.  

 

The reason LTCi isn't purchased as often is that it's more expensive and people can't see the value or can't see it clearly.  As I've noted in other blogs, this is why I'm a fan of the asset based forms of Long Term Care.  At least your investment is defined and you at least get your money back.  It's also not that much more expensive.  

 

The other issue people have is that they look at the pricing of an asset based policy and they say, "Well, I can make more than that in the market."  Maybe they can and maybe they can't.  With a policy, your return is guaranteed.  If you want to take a risk in the market, that may be a viable solution.  There are two points here.  First, you have to invest the extra money necessary to make sure you can actually provide for your long term care needs.  Almost no one does this.  Second, there is a risk that the market will not perform as well as you'd like or that it could tank just about the time you need care. 

 

One other thing to think about is what are the odds that you'll need care young versus never needing care or not needing it until you are 90 or older.  An LTCi policy protects you against getting and unforeseen illness or accident at a younger than average age.  If you are unhealthy, overweight or have a history of early dementia in your family, this is a risk you may want to protect against.  It would be very difficult to save for a case of early onset dementia in your late 70s.  

 

Of course, LTCi is expensive.  It's expensive because the care that it pays for is expensive.  No one is going to sell you anything for pennies on the dollar.  The key is to find the right policy for you and not purchase more coverage than you need or can afford.  The only way to know is to look at real quotes developed for your situation.

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