How Much Long-Term Care Insurance Coverage Is Needed?

You've examined the options and decided to purchase a long-term care insurance policy. Simple enough, right? Well, not really. Depending on your age, long-term care insurance can be expensive. You don't want to purchase more than you need, but you don't want to be stingy either. To decide how much long-term care insurance you need, you should consider the cost of care, your current and projected savings, your income at retirement and what you can afford now.
  1. Costs of Care

    • The high cost of nursing home care is the primary reason most of us purchase a long-term care policy. According to a 2010 survey by Genworth Financial, the national median rate for a semi-private room in a nursing home was $185, and the cost of care is rising at an average of 4.6 percent per year. The National Care Council has the average length of stay at just shy of two years. Costs vary depending on what part of the country you live in, but you'll want to keep the averages in mind when you decide your policy's daily benefit (how much it pays per day) and benefit period (the minimum length of time the policy will last).

    Savings

    • You can offset how much insurance you need with your savings and income. For example, if you have $50,000 set aside for long-term care costs, and you estimate the total cost of care to be $135,050 (the daily benefit of $185 multiplied by the benefit period of 730 days), you can get a policy that covers the difference ($85,050), which will significantly lower your premium.

    Policy Options

    • There is no way to know exactly how much long-term care insurance you'll need. You may want to get more than the average to be on the safe side, or less and hedge your bets. You can adjust by increasing or decreasing the daily benefit or benefit period. Some policies even have an unlimited benefit period, but this option is often costly. You can also lower the cost of your policy by increasing the elimination period. The elimination period is, essentially, your deductible. It's the amount of time you are required to cover your costs of care before the policy kicks in. Elimination periods range from zero days (more expensive) to 180 days (less expensive). You also have the option to include inflation protection, which will automatically increase your benefit each year, but will also increase your premium. (reference 1, pages 18, 20, 22)

    Other Options

    • If you find the amount of long-term care insurance you need a bit daunting, there are other options available. If you have a significant amount of savings, you may want to consider a long-term care annuity, which provides the option of using the funds for long-term care or passing the money to your heirs. There are also continuing care communities, where you pay a large down payment, but are cared for at whatever level you need for life. You may also want to consider a Partnership long-term care policy. These are available in several states. They require you to purchase a policy with set minimums, including inflation protection, but if you purchase the policy and then exhaust the benefits, you are guaranteed coverage for the rest of your care by Medicaid, without having to spend down your assets. Medicaid usually requires a low income and very limited assets to qualify. This is a way to get the long-term care insurance you need without worrying about whether you've purchased enough.

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