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Do I Need Long-term Care Insurance?

Daan Stevens

Is it time for you to buy long-term care insurance?

I think the first question anyone needs to ask when considering the purchase of any kind of insurance is, “What am I trying to protect myself against?”

Let me see if I can give you a few parameters to get your thinking started. But before the process is over, you’ll need to find an experienced, qualified insurance agent that can guide you through your choices.

1. What is your best-case scenario? Of course, best case is that you never need long-term care and never spend a dime on long-term care insurance.  You live a long happy life and slip comfortably into the night. As an example, let’s say you live to age 90 and die with a $1,000,000 net worth.

2. What is your worst-case scenario? Worst case is your needing long-term care for a long period of time, not having any insurance, and costing you a significant portion of your wealth. If someone is determined to avoid a nursing home, it is possible to receive long-term care services in one’s home. It’s a shock to most to learn that this is not the least expensive way to receive care but is actually the most expensive way. It would be a little like trying to staff a nursing home for one person. The biggest cost is personnel. If you have to hire someone to “be there” 24 hours a day, seven days a week, you’re looking at spending around $100,000 per year!

3. What is the next best scenario? Again, this would be you never needing a nursing home, but incurring the cost of long-term care insurance all along the way. No doubt the cost of long-term care insurance would reduce your ultimate wealth. But by how much? What if it cost you $100,000, such that your lifetime net worth reduced from $1,000,000 to $900,000? Would you take that deal?

4. What is your next worst scenario? Wouldn’t this be your needing long-term care, but then having the long-term care insurance to cover it? You should expect that long-term care insurance would not cover every dime you would spend one long-term care, so there would be some erosion of your estate. Maybe even up to a fourth. Let’s suppose your lifetime outcome is $700,000 in this scenario.

It is important that you work with a professional to calculate your four scenarios – the ones I have described are only for illustrative purposes, not as representative of anyone’s situation, certainly not yours.

My point is that most people, once they have estimated these four situations, can make smart choices about their own long-term care.

As one wag has written, if you have not allocated any money to long-term care, you have essentially allocated all your money to long-term care.

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