Long Term Care Insurance – Summer 2004

Hello from Sycamore,

Should you consider long term care insurance?

Almost every time we are completing a financial or investment plan the discussion gets around to long term care insurance. Of course most clients want to know three things…1) Do I need it? 2) How does it work? & 3) How much does it cost?

Do you need it?

Lets look at the needs part of this threesome first. First, you should understand that as we identify who needs this type of insurance we are considering the financial need only. Your personal preferences are not a part of this calculation but of course when you are applying our analysis, your “feelings” are VERY important. The annual cost of staying in a nursing facility for one year in Indiana, is about $50,000 and the average stay is 2.6 years, so who really needs long term care insurance? Well, we can easily eliminate two groups of people, those that are very wealthy & have substantial income and those that have virtually no assets or income except social security.

If you have substantial assets, and a reasonably good income, we feel that you should consider self insuring and do not necessarily need long term care insurance. As an example, let’s assume that you have investment assets of $600,000 and a current income from Social security and pension of $24,000. The income you receive would be used to pay almost one half of the cost of your care. If your $600,000 was invested and earned only 5% per year, it would provide another $30,000 annually. That amount would be enough to pay for the balance of your care. Under this scenario, you could self pay and still maintain your current assets. This example assumes a very simple situation. You, however will likely will need to consider other variables such as a spouse, dependent or other financial obligations.

For individuals that have very limited assets, we feel that insurance is not needed because Medicaid will very soon be paying for the care. Additionally, long term care insurance is an additional expense and if you have limited resources you may find it unpleasant to pay the premiums.

We generally recommend that the clients with assets between 100,000 and $600,000 and the desire or need to protect those assets for their survivors should consider long term care insurance.

How does it work?

The are several different kinds of policies and a variety of coverage’s available. One that we feel should be given serious consideration is the Indiana Long Term Care Insurance Program. The following is a very brief discussion of how this program works.

Administered by the Office of Medicaid Policy and planning, these policies are a partnership of sorts between Indiana and certain insurance companies who have agreed to offer long term care policies that meet the standards set by the state. The goal of these policies is to allow you as an insured the option of protecting a part or all of your assets if you need to go to a long term care facility. There are variations on the theme but the general drift is that a holder who has purchased a policy with a minimum benefit that will cover the full cost of an average stay in a facility (about $187,613 currently), will qualify for Medicaid without spending down their assets. This does not protect your income, only your assets.

How much does it cost?

The premiums vary depending on the amount of coverage you select and your current age and health. We have listed a few samples below but your best path is to get a personal quote if you feel that you need or would like the coverage.

These selected premiums are for policies that will give you asset protection under the Indiana Plan. They are general estimates only.

  Aproximate Annual Premium

If you have specific questions or would like more information, feel free to send an e-mail or call.

Thanks for your business and trust,

Sycamore Financial Group


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