DESIGNING A LONG TERM CARE INSURANCE POLICY

Long Term Care Insurance is thought of as a complicated product. While this may be true, our goal is to simplify the process and help you design a plan that is suitable for your individual needs. There are many different options and riders that are part of most Long Term Care policies.

When all is said and done, however, there are really only 4 decisions to be made:

  • Monthly Benefit. $1,500 – $15,000 a month. Most people own between $3,000 and $6,000 a month of coverage. Depending on the area you live in, $3,000 will shift some of the risk and $6,000 will shift most of the risk. Your decision here is, how much risk do you want to keep on yourself, and how much do you want to shift to the insurance company?

  • Inflation Protection. 5% Simple or 5% Compound interest. This rider increases your monthly benefit by 5% each year. Based on 5% Compound interest, your monthly benefit will double in roughly 14 years. Your premiums, however, do not go up just because your benefit has gone up.

     

  • Elimination Period. (Your Deductible). 30, 60, 90, 180, 365 days. This is the period of time that must go by, from the start of your illness, before benefits will be paid. The longer the period that you select, the lower your premium.

  • Benefit Period. 2, 3, 4, 5, 6, 7, 8, 10 years, lifetime. The benefit period is not actually based on time, but on a pool of money. For example, assume we are looking at $5,000 a month of coverage for 4 years (48 months). $5,000×48 months = $240,000. This is your pool of money. Once you’ve met your elimination period, you can reach into your pool of money and pull out up to $5,000 a month for your care. If you use the entire $5,000 each month, you will go through your pool in exactly 4 years. For this example, if the care costs exactly $2,500 a month, then your pool will last 8 years. Also, it does not matter if you use your entire pool for in-home care, split it between in-home and nursing home care, or use the entire pool for nursing home care.


While the above simplifies the process of designing a Long Term Care policy, the next step is to sit down with one of our agents, who specialize in Long Term Care Insurance, and can help you sort through the options, and give you pricing.