The Cost of Long Term Care Insurance

Written by: Jim Kantowski, CFP®, CPA

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Buying insurance is not a fun way to spend your money and no one enjoys making this purchase. It is often sold for the wrong reasons by “financial advisors” that are looking to make a sale. For these reasons, you should be cautious when taking advice.

Even still, it will likely play a very important role in your financial plan and waiting until it's too late may be a costly mistake.

One of the most important insurances you can buy to protect you in retirement is Long Term Care insurance. It provides a benefit to individuals who are unable to perform 2 out of 5 of the dialing living activities:

  1. Personal hygiene - bathing, grooming and oral care
  2. Dressing - the ability to make appropriate clothing decisions and physically dress oneself
  3. Eating - the ability to feed oneself though not necessarily to prepare food
  4. Maintaining continence - both the mental and physical ability to use a restroom
  5. Transferring - moving oneself from seated to standing and get in and out of bed

It is likely that if you have lost 2 out of the 5 activities you will need a significant amount of help, which can be very costly if you receive this help from an outside source such as a nursing home, and it can be costly in other ways if your significant other provides the care. 

You are probably wondering how the cost of care compares to the cost of long term care insurance. Depending on where you live, the cost of care care may range from $35,000-$100,000 a year depending on the care you need. You can view an estimate of care in your area here.

If you must pay out of your own assets, two things can happen. First, you can deplete the assets that would have otherwise been available to provide for a spouse or secondly, you could deplete the assets that would have been passed on to your heirs. The cost of long term care insurance varies, but a typical policy may cost between $2-5,000 a year.

Let’s say you are 65 and your assets are projected to last until age 100. What if you decided to purchase a LTC policy that cost $4,000 per year? If everything goes as planned and you never use the plan your assets may only last to last to 97 or 98. While putting a policy in place may cause a decline in your overall investments, it can be minimal compared to multiple years where you are spending $70,000/year plus on long term care costs.

There are emotional factors to consider too. Do you want your significant other or Children to have the burden of caring for you? Do you have a significant other or children in the area to care for you? Do you want to make the decision easier for your heirs? If there is no insurance they may skimp on care or try to do it themselves, whereas when there is insurance they feel more comfortable hiring someone and having professional care. 

This insurance has become very popular and the costs have continued to rise. According to the U.S. Department of Health and Human Services (HHS), about 70% of people turning age 65 will need long term care services at some point in their lives. We recommend having a policy in place, and the right time to consider making this purchase is when you are insurable! Insurability declines as you age and accumulate health issues.

If you'd like to determine whether the long term care insurance cost is worth it for you, please contact us for a free consultation.

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