This is the last of a three-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 the second article we discussed who should buy long-term care insurance
and what features you should look for in a policy. In this article, we discuss how to pick
a long-term care insurance provider and review the current premium costs of long-term
care insurance.
What should you consider in choosing a company?
Size is very important. You should select a company with billions of dollars of assets
rather than millions, since long-term care costs will grow astronomically. It is important
to be sure their company will still be doing business when the benefits are needed. Only
companies rated A minus or better by A.M. Best Company, the insurance company
rating organization, should be considered. You can get these ratings at your local
library. Also, contact your state’s insurance department to verify that the company is
licensed to do business in your state. Don’t shop for the cheapest prices. Those with
extremely low rates will likely have significant rate increases in the future. Ask about
their history of rate increases.
The National Association of Insurance Commissioners (NAIC) has written a guide to
help you understand long-term care and the insurance options that can help you pay for
long-term care services. The decision to buy long-term care insurance is very important
and one you shouldn’t make in a hurry. By state law, insurance companies or agents
must give you this guide to help you better understand long-term care insurance and
decide which, if any, policy to buy.
To obtain a copy of the guide, go to
http://www.michigan.gov/documents/FIS-PUB_0270_Long_term_care_1_04_88662_7.
pdf
If you do decide to purchase a policy, review the contract carefully. The company is
required to send you your policy. Make sure you understand your contract and ask
your agent questions if you are unclear.
How much does long-term care insurance cost?
Keep in mind that there are many different options available, so it’s important to make
sure you compare apples to apples. We were recently provided the premium costs of
two policies offered in Michigan by two large well-known insurance companies for
policies with the following features: (1) $ 2,000 monthly benefit (2) standard health
assumed for policy holder (3) 5% compound cost of living adjustments (4) 0 day
elimination period for home health care (5) 90 day elimination period for nursing home
care. The annual premiums quoted for a married couple (per person) with a three-year
benefit period were:
Age 50 $500
Age 55 $630
Age 60 $763
Age 65 $1,033
Age 70 $1,463
(isn’t the cost of LTC potentially deductible under sched. A 7.5% of AGI) should this be
mentioned here? ) Most people plan to supplement the insurance policy benefits with
their own funds. With the current cost of a nursing home facility at $ 65,700 a year in
Michigan, for the quoted policies, an additional $ 41,700 will be required, out-of-pocket
to pay the expenses of a nursing home for one year. The out-of-pocket amount required
can be reduced, of course by increasing the monthly benefit and paying a higher
premium.
This concludes our series on long-term care insurance. We hope you have found our
overview to be helpful.
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: "Final Look at Long-Term Care
Insurance Says Size Matters"
All About Long-Term Care Insurance Part III
By David Patterson and Erin Preston (formerly Patterson)