Long-Term Care Insurance: Benefits, Costs, and Computer Models

Everett, Michael D.; Anthony, Murray S.; Burkette, Gary
February 2005
Journal of Financial Planning;Feb2005, Vol. 18 Issue 2, p56
Academic Journal
• Financial planners routinely must answer the question of whether a particular client should buy long-term care insurance. This article provides a retirement-income projector model that incorporates the impact of possible long-term care costs on specific clients' retirement assets in order to assess the need for LTC coverage. • Long-term care costs can easily run into the hundreds of thousands of dollars for long-term stays at full-service nursing homes, and costs typically have risen at a rare faster than the general U.S. inflation rate. Assisted living is a less expensive, though still costly, alternative for some people. • The government does not pay for long-term nursing home stays except through Medicaid, which may face tighter funding limitations in the future. And It usually does not pay for assisted-living stays. • While private long-term care insurance is an option, premiums are high. A healthy couple in their mid-sixties can easily pay $3,000 a year or more for a "major" LTC policy. LTC insurance also faces more risk than other types of catastrophic insurance because one must usually make a long-term commitment to one company. • To assess the value of buying LTC insurance, the authors use a spreadsheet computer model to assess the risk of exhausting a client's accumulated retirement assets due to a nursing home stay. The model runs two examples of a risk-averse upper-income/wealth husband and wife, each with their own substantial assets. Despite their wealth and income to self-insure for a while, LTC coverage appears manageable and worth the cost. INSET: Executive Summary.


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