9 July 2013 0 Comments

Long Term Care Insurance (LTCI)

long term care insuranceThe odds of having a house fire cause financial loss are much less than the odds of needing Long Term Care after the age of 65.  And yet, so few people purchase LTCI and just about everyone has fire insurance on their home.  Mostly, the reason for this is simply procrastination.  It’s easy to avoid the cost of insurance waiting until you need it, but you can’t get it after you need it.  If you have aging parents, who will take care of them?  Should you be considering coverage for them?

LTCI can be expensive and its options confusing.  However, the longer you wait to buy, the more expensive it becomes and the greater chance you have of not being eligible for a policy.  LTCI is available from a handful of insurance companies.  In the past few years several companies have exited the field having discovered that they mispriced the coverage, or they just didn’t sell enough to create a critical mass.

Still, LTCI is available and typically once you have been accepted, pre-existing conditions are covered as long as you have revealed information about those conditions on your application.

The cost of a policy will depend on the options selected:

  • Daily or monthly maximum benefit.
  • Is the benefit selected level, or does it increase?   Increases can be compound or simple interest.  Compound increases might result in a higher premium for younger applicants since the potential time for increases is longer.  Annual increases might be 3% or 5%.
  • Benefit period.  This is often referred to as a “pool of money.”  Thus, a $200 per day benefit payable for 5 years would create a pool of money of $365,000 (5 X 365 = 1,825 X $200 = $365,000).
  • Waiting period.  This is like a deductible and is stated in number of days such as 30, 60, 90 or 180 days).   You could select a waiting period for facility confinement, but waive the waiting period for home care.

Illustrations prepared by the insurance company will easily allow you to see how changing the options affect your price.  There is no absolute best answer to building a policy to fit your budget, but I would suggest starting with a daily benefit of $200-$250 with a 3% compound increase; a 5 year benefit period and a 90 day waiting period waived for home care.  If this produces a premium out of your range then cut back on the benefit period.

LTCI might also be available as a rider on a life insurance policy, but this would only be an option if you also needed life insurance, or had a sizeable sum of money you planned to pass on to heirs that could be transferred to a single payment policy.

If you would like straight answers to this complex need, I recommend calling Rick Lavis at (818) 854-3034.  He has specialized in LTCI for 20+ years.

Coming up…preparing for your life insurance exam.

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