Several of our clients have recently seen significant increases in the costs of their long term care (LTC) insurance policies. Usually, the sequence of events goes something like this: You get a letter from your insurance company. You want to throw it away, because you hate dealing with insurance companies, but you reluctantly open the letter. It says you can keep the same amount of LTC coverage, but it is going to cost you 40% more than it did last year. Wait a minute, 40% more! That couldn’t be right. You reread the letter. Yep, 40%! You get mad and start pacing and talking loudly to whomever will listen, “This is a racket. What kind of business can do that to their long-time customers and get away with it? I never have liked LTC insurance. Can I afford to cancel the policy? I need to ask someone about this. I’ll call Foster & Motley and see if I can ditch this thing.”
When you call us, the first question we try to answer is, “Do you still need LTC insurance to meet your goals?” For our example, let’s assume we are talking about a married couple in which one spouse needs nursing care and one stays at home. First, we quantify the costs of care at a good quality nursing home in your area. A good resource for this is Genworth’s annual Cost of Care Survey, which details the cost of care for different areas of the country and breaks down costs by type of care such as Home Health Care, Assisted Living, and Nursing Home Care (private and semi-private rooms). Nursing Home Care is usually the most expensive and in the Cincinnati area, costs about $267 per day ($97,455 per year) for a private room or $230 per day ($83,950 per year) for a semi-private room.
Next, we quantify expenses for the spouse that stays at home. If the cost of both spouses at home was $8,000 per month, let’s assume the cost for one spouse to stay at home declines by 20% to $6,400 per month ($76,800 per year). If the person requiring LTC services prefers a private room, that puts the total family cost at about $174,255 per year.
Our next step is to re-evaluate your resources and compare those to the total expected cost of $174,000. We make the following assumptions for our case:
We think a well-invested, diversified portfolio should be able to sustain withdrawals of approximately 1%-2% of the principal and still maintain its principal value. In this example, the need from the principal of the portfolio is 1.24%, comfortably within the 1%-2% range. So, this client doesn’t “need” LTC insurance to meet their long term financial goals, but may still “want” to keep the coverage to provide “peace of mind” or as a part of their legacy plans. If the goal is to maintain the principal value of the portfolio, our experience indicates there is usually a need for LTC insurance for clients with portfolios valued at $250,000-$3.5 million.
Each family circumstance is unique. The decision to maintain LTC coverage is often both a financial and emotional decision. Please give us a call and let us help you determine what level of LTC coverage is appropriate to meet your financial goals.