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Is LTCI Worth It? Get Real

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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)

But we’re not done.

The benefits will continue to grow each year at 5% compound for the rest of your life as long as you haven’t used them all up! At 5% compound, the benefits DOUBLE every 15 years.

I’ve told you what the benefits will be at age 80 for the 50-year-old. Could today’s 50-year-old live to be age 95? According to the Wall Street Journal, one in 10 people who turned age 65 in 2011 will see age 95, so it’s logical to think those odds will be even higher for someone 15 years younger.

At age 95, the 3-year plan will have grown to almost $2 million and the 5-year plan will be sitting at $3 million.

$1,591 x 45 years = $71,595 premium vs. $1.8 million in potential benefits
$2,242 x 45 years = $100,890 in premium vs. $3.1 million in potential benefits

Oh, and let’s see, should we mention that the premium STOPS once you start using the benefits?

But wait – I’m not saying that the premiums can increase on a class basis? Yes, they certainly can.

The company that insures the state of Tennessee has had one rate increase since 1987 and it happened in 2011. Can it have more? Of course. But look closely at the numbers above. Even if the premium doubled or tripled, is it still a great deal? I think so. Would I rather pay a million or $1.5 million out of my pocket or would I rather pay less than 10% of that amount?

What if you never use it? Then you’ve made a 4% to 5% mistake… But was it a mistake? Your 4% to 5% mistake bought peace of mind for you and your family for 30 to 45 years. To me, that’s priceless.


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