Long Term Care Insurance
I remember the last time I recommended long term care insurance…and my advice was not taken. My clients had $250,000 in investments, and their home & car were paid off. I gave them sound advice to purchase long term care. I went over the probability that one or both of them needing long term care in their lifetimes. They both decided it was too costly, and decided to go on a two week vacation in Brazil. I guess I just overwhelmed them with sound advice. They stayed at the plush resort, and they went swimming in the hotels pool. The husband got an ear infection, and two weeks later he was comatose in the hospital. The wife just could not believe this could happen to them. Her $250,000 retirement account was eaten up in just 3 years with medical bills. She eventually had to sell the house to pay the bills, and went to live her son. The bottom line, long term care insurance is not just an insurance policy that cost money…it’s a hedge against future liabilities (that will likely happen)!
Let’s look at another way. The chance of you being in a serious car accident is 1 in 4,200. The chance of you needing long term care in your life time is only 3 in 5!
What does it cost to self insure at age 65? Let’s look at the following problem mathematically:
- Age 65
- Current cost of long term care per year = $75,000
- Average stay in a custodial care facility = 4 years
- Total cost = $75,000 x 4 = $300,00
If you are contemplating self insuring for long term care (to avoid paying LTC premiums) you should reconsider! $300,000 is a lot of money to set aside for an emergency…which can be avoided by paying a small annual long term care premium.
For those who like to live on the edge, who contemplate needing long term care when they become 90 years old (as an example). Let’s look at the variables:
- Age 65
- $180 a Day in Custodial Care Costs
- Inflation Rate = 3%
- Tax Rate = 15%
- Length of LTC Stay = 4 years
- Age to Begin LTC stay = Age 90
- Investment = Deferred Annuity Earning 5% Static Return
- You Need To Invest = $144,044.33 Today
- Future LTC Cost = $487,785.24
Do you have $144,044.33 to invest right now…that you don’t need? If you cannot afford to invest and not touch $144,044.33, then I would reconsider and invest in a long term care policy. It’s only pennies on the dollar. A very wise investment to hedge a long term care liability, when you have a 3 in 5 chance of going to a custodial care facility. So, we looked at $300,000 short term investment liability and a $144,044 long term investment liability to pay for custodial care. Let’s say you choose a company that has not raised rates, and let’s say you don’t go to custodial care facility for 29 years. Would you rather spend $58,000 (29 yrs x $2,000 per year for LTC premiums)…or would you rather spend $144,044 (or $300,000) to self insure?
Call a long term care agent with experience or call a financial planner and buy a long term care policy for yourself and your spouse. Don’t take the risk!
Sincerely,
John Bagwell
The Truth About Financial Products.com
www.thetruthaboutfinancialproducts.com
