Why Long Term Care Insurance is Important - Aaron Skloff, AIF, CFA, MBA - CEO Skloff Financial Group
May 11, 2012By Larry SwedroeWhy Long-Term Care Insurance is Important Long-term care insurance can be a valuable tool for making sure you dont deplete your assets in retirement.Even a well-developed investment plan can fail for reasons that have nothing to do withinvestments. It could fail because the family breadwinner dies prematurely and doesnt have enoughlife insurance to cover her loved ones. Or it could fail because of an auto accident that results in alarge judgment, and theres insufficient liability insurance in the form of an umbrella policy.This is why its critical to integrate an investment plan into an overall estate, tax, and riskmanagement (insurance) plan. One area of concern that is all-too-often overlooked in the need forlong-term care insurance (LTCI).According to a survey by Sun Life Financial (SLF), theres a major disconnect between peoplesneed for LTCI and the preparation for that need.First, contrary to what many people believe, Medicare and private health insurance programs dontpay for the majority of long-term care services that most people eventually need, such as help withpersonal care such as dressing or using the bathroom independently. Second, when asked toestimate how much costs would increase by 2030, the average estimate put the figure at 56 percent.Based on historical data, by contrast, the costs are estimated to rise 123 percent.Comments May 11, 2012Long Term Care Insurance and Its BenefitsAlthough long term care insurance cannot relieve the emotional toll of seeing a loved one in needof long term care, it can relieve the financial toll. Around the clock care in your own home, anassisted living facility or a nursing facility can cost $200-$400 per day, per person or $73,000-$146,000 per year, per person.
If the cost of long term care services continues to rise at 5% per year, costs will double every 14.2years. Fortunately, the cost of long term care insurance is a fraction of the actual cost for long termcare services.Qualifying for a Long Term Care Insurance PolicyAlthough most applicants are approved for long term care insurance there are a number of healthconditions that can disqualify applicants. Insurance companies ask you to not apply if you haveAlzheimers disease, dementia or frequent forgetfulness or memory loss. Based on your age, mostcompanies conduct their due diligence by assessing your cognitive skills through a short interviewand short memory test. The process is designed to weed out those exhibiting cognitive impairment.Fortunately for policyholders, and unfortunately for insurance companies, most polices are issuedas guaranteed renewable. Guaranteed renewable means you cannot be dropped you as long as youpay your premium - even if you are you are diagnosed with a condition that may takes years tofully develop, such as dementia.Designing Long Term Care Insurance Policy BenefitsThe younger you are the less expensive a well designed long term care insurance policy will be.The three most important components of a policy are:1. Daily BenefitSince approximately 80% of care takes place outside of a costly nursing facility, choose a dailybenefit that will cover your cost of care in less costly locations like your home or an assisted livingfacility.2. Benefit PeriodSelect a three to five years benefit period, sufficient for most people, and save 40-50% incomparison to an unlimited benefit period.3. Inflation ProtectionAlthough 3% compound inflation protection will meet most states Partnership Program assetprotection criteria, long term care costs over the last 20 years have grown at a 5% compoundgrowth rate. Your benefits double every 23.5 years with 3% compound inflation protection. Yourbenefits double every 14.2 years with 5% compound inflation protection.Aaron Skloff, AIF, CFA, MBACEO - Skloff Financial Groupwww.skloff.com/services-ltci.htmAaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Masterof Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a NJbased Registered Investment Advisory firm. The firm specializes in financial planning andinvestment management services for high net worth individuals and benefits for small to middlesized companies. He can be contacted at www.skloff.com or 908-464-3060.