Is LTCI Worth It? Get Real

CNBC lets you vote on the question “Would You Buy Long-Term Care Insurance?” here.

This article says the premiums are expensive. I hear that all the time.

Are they expensive?

I have to expand the question for those who make that statement.

Long-term care insurance premiums are expensive compared to … what? Compared to the cost of long-term care? NO. Long-term care insurance premiums are a drop in the bucket compared to the cost of the type of care this valuable insurance pays for.

Take the group plan for state of Tennessee employees, for example.

A 50-year-old can get a $200 daily benefit to cover today’s cost of care with either a 3-year benefit period or a 5-year benefit period for only $159.14 a month or $224.26 a month respectively. If a spouse is also issued, the premium is reduced 10% for both the employee and the spouse and paying annually instead of monthly will reduce it an additional 8%. So now we’re at $1,591 for the 3-year benefit period and $2,242 for the 5-year benefit period.

Sound like a lot? Here’s the value proposition: The premium for the 3-year plan will cost $47,730 over 30 years and the premium for the 5-year plan will cost $67,260. At 5% compound, the daily benefit will be $823.23 in 30 years, which means the benefit pool for the 3-year plan will be $901,433 and the benefit pool for the 5-year plan will be $1,577,508.

Let me restate this information to be crystal clear:

Buying long-term care insurance at the above premium means you would spend 4% to 5% of the potential benefits in 30 years. ($47,730 is 5% of $901,433 and $67,260 is 4% of $1.5 million)