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Question for the Money Doctors

Question submitted on Sep 1, 2011.

Question

My husband and I are 48. We are contemplating purchasing LTC insurance. Would you recommend this? A book by Dave Ramsey stated ..."if you are 60 or over, try to purchase LTC insurance." Thanks, Stephanie Livengood

Answer

The answer to this question depends upon many facts such as longevity in your family, familial health history, your net worth, spending habits, etc.  However, I can give you some general rules of thumb.  First, if you have under 500k in assets, you may find that you cannot afford long term care insurance.  If you have over 3M in assets, you may find that you can and want to self insure.  It is the person/couple with between 500k and 3M that I find most often purchase long term care.  That doesn't make it right, that has just been my experience.  The break-even for a 50 year old couple in good health is typically under 2 years, with the following assumptions; a 50 year old couple in good health purchase a long term care policy and pays on it for 35 years at which time they need long term care at age 85.  Average inflation rate of healthcare is assumed to be 5%.  My general analysis typically shows that if the couple on a combined basis would need nursing home care for a combined 2 years that the cost of this care would be greater than all of the premiums paid for long-term care plus lost earnings on those premiums.  So, in my opinion a break-even of 2 years or less is very attractive.  Keep in mind that today's long-term care policies typically cover everything from home health care to assisted living care to nursing home care.  So, yes I think it should be considered and you should do your own break even analysis to see if the cost benefit is there for your specific circumstances.  It should be considered by anyone that can afford it, if for no other reason than to preserve your estate for your heirs.  Also, considering your age, be sure to consider getting a compound inflation rider attached to the policy to cover the ever increasing healthcare costs.


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