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...........Long Term Facts
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Client purchases $150 per day, lifetime coverage and pays premiums to his life expectancy 22.3 years.
He/She pays $3, 159.00 x 22.3 = $47,385.00
Along life's way, she/he collects for one year of benefits.
This amount equals more than $36,500 because her/his benefits amount goes up automatically by compound/simple increase (depending on age at purchase) each year.
Client at age 75 develops Alzheimer or has an accident that qualifies her/his for benefits and she/he lives to life expectancy (11.6 years).
She/He will collect more than $846,000 as again the amount of daily benefit compounds each year and by 75 will have reached a benefit level of $200 per day.
Paying the annual premium is like prepaying for one year of long term care in today's dollars. If you collect one year of benefits, your premium is returned. If you have the policy in force for 15 years and collect six months of benefits, your premiums are returned.
If you only pay premiums and never collect on your policy you have truly "won". Truly winning includes having had the peace of mind along life's way that if you needed long term care, you had financial assistance from insurance benefits to meet the need.
The entire food for thought scenario works equally as well at the higher benefit level or for client at his/her older age. There are two reasons not to purchase some level of Long Term Care Insurance.
- You have no assets.
- You have sufficient assets to cover the costs.
For persons judging whether they have sufficient assets, take into consideration how these assets would have to be repositioned in order to provide the income necessary to pay for long term care, e.g., real estate or low basis stocks. Also, assuming a 6% net after tax return, consider that a couple would have to earmark about $800,000 for one or $1,600,000 for two that is available to generate $130 per day in today's dollars, the income necessary for care. To pay for the annual premium at age 60 of $2,062, only $34,366.67 of assets need be identified.
An important statistic for couples to remember regarding the need for long term care is that seven out of ten couples can expect at least one spouse to need a nursing home at some time during their marriage.
Don't over insure yourself. Consider income and assets that could be directed to paying long term care costs, if necessary.
Consider your ability to pay premiums without compromising your lifestyle. Be honest with yourself on this consideration.
Husbands and wives do not have to purchase the same benefit levels. If cash flow dictates compromises, it is normally appropriate to purchase the "better coverage" on the wife, as she will probably live longer:
- Provide long term care services to some extent for her husband, if necessary.
- Will live several years alone as a window.
Simple interest is recommended for ages 70 and over, thus compound interest is recommended for younger clients.
Social security income is the first factor used in self insuring determination.
Pension income if person is single should be added to above noted factor 25% of the monthly should be self insured.
Long term care is used to conserve assets.
One of every two people will require long term care.