This is the second of a two-part series on long-term care insurance. In the first part we
provided an overview of the need for long-term care insurance and the costs of long-
term care. In this article we discuss who should buy long-term care insurance and what
they should look for in a policy.
So who should buy long-term care insurance?
Some advisors recommend that those with assets under $50,000 to $ 75,000 (not
counting the house and car) should probably not acquire long-term care insurance, as
they will probably deplete their assets even if they acquire a long-term care policy.
Those with more than that should give long-term care insurance serious consideration.
To self insure (i.e., forego long-term care insurance and assume financial responsibility
for the costs of long-term care), one guideline sets a $ 2,000,000 net worth as the
minimum one should have. But even if you have enough assets, you may not qualify if
your health is poor.
What features should you look for in a long-term care policy?
Below are the five policy features that have the most affect on the cost of premiums:
(1) The amount of benefit: This is the daily or monthly benefit (e.g. $ 150 per day).
Obviously, the higher the benefit the higher the premium. Many people try to provide for
80% of the anticipated need, paying the remainder out of personal funds.
(2) Coverage: If you include home-care coverage, adult-day care, assisted living,
etc, the cost will be more. Those without a support system (e.g. a single person with no
nearby relatives) should probably not acquire home-health care, since 24 hour-a-day
coverage is extremely expensive. If there is a support system, home-health care
benefits equal to the nursing-home care benefits are highly recommended.
(3) Inflation Protection: While this adds to the cost, at least 5% compound annual
inflation protection is highly recommended.
(4) Benefit Period: Can be from one year to lifetime. A study of those who turned 65
in 1990 showed that only one in three will spend more than three months in a nursing
home, about one in four will spend a year or more, and only about one in eleven will
spend five or more years in a nursing home. The chance of needing home-health care
is much greater than needing nursing-home care.
(5) Waiting Period: This is basically the deductible, or time one must wait before
benefits start. In some policies it can be as long as one year. Generally it is for 30, 90,
100 or 180 days. Some policies have shorter waiting periods for home health care. You
should choose the longest period you can afford, giving careful consideration to how
quickly these costs are growing. Ninety days seems to be a reasonable choice. The
longer the waiting period the lower the premium.
If you decide to purchase a policy and need some help, you may want to find an
independent advisor who doesn’t sell insurance. That way you’ll know the advice you
receive is unbiased.
Our third and final part of this series will focus on the cost of long-term care insurance
and the factors to consider in selecting an insurance provider.
David C. Patterson, CFP® and Erin Patterson-Preston, CFP® are the owners of
Patterson Advisors, LLC, a fee-for-service-only financial advisory firm. Patterson
Advisors, LLC is a Registered Investment Advisor, registered with the State of Michigan,
helping clients in Waterford, Clarkston and Royal Oak, Michigan as well as other
Oakland County, Michigan communities . Visit www.pattersonadvisorsllc.com for more
information or call 248-674-2108.
Published in the Oakland Insider, July, 2008, Renamed: "Long-Term Care Insurance
Offers Variety of Benefit Options"
All About Long-Term Care Insurance Part II
By David Patterson and Erin Preston (formerly Patterson)