Long-Term Care Insurance: A Priceless Equation

CNBC allows you to vote on “Would You Buy Long-Term Care Insurance” at this story: http://www.cnbc.com/id/47703131

This article says the premiums are expensive.  I hear that all the time.  Are they expensive? I have to expand the question to 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 three year plan will cost $47,730 over 30 years and the premium for the five 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 4-5% 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 St. 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.1 At age 95, the three 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 4-5% mistake…but was it a mistake? Your 4-5% mistake bought peace of mind for you and your family for 30-45 years. To me, that’s a priceless equation.

Phyllis Shelton is the President of LTC Consultants, a 21 year old Nashville-based consulting company specializing in long-term care insurance consumer education and agent training. Her firm conducts the employee education for the State of Tennessee’s group LTCI plan.

1Greene, Kelly.  “Don’t Join the Ostrich Generation”, Wall St. Journal, September 17, 2011


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    • Sal on July 22, 2016 at 6:53 am
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    The article mentions that one could potentially receive $900K+ to $1.5MM+ of benefits over 30 years.
    That would be true if the policies did not have a maximum lifetime benefit. Some of the policies I’m looking at have a maximum benefit of about $250K (for 4 years).
    I think it is important to mention this since that makes a big difference when making a decision to purchase or not.

    1. You must be looking at a policy that has either a daily benefit of $170 or monthly benefit of about $5200 for a four year benefit period, as both work out to about $250,000. A 5% compound inflation factor doubles the benefit every 15 years so it would be $500,000 in 15 years and $1,000,000 in 30 years. 4% compound doubles every 18 years and would be $810,850 in 30 years. 3% doubles every 24 years and would be $606,815 in 30 years. I am and have always been rabid about inflation coverage on LTC insurance. Who would buy a health insurance policy that only pays hospital room rates at what they cost today? I use 5% compound to project future costs for assisted living facilities. If 5% compound is unaffordable to buy on a policy, ask the agent to calculate premium for a plan that gets to the same place with 3% compound. For example, $4500 monthly benefit will grow to $18,000 in 30 years at 5% compound. $7500 at 3% compound gets to the same benefit and may have a lower premium. Inflation coverage is also required to have a Partnership policy in the 42 states that offer them for anyone under 76 years old. The most important benefit for LTC insurance in my opinion is not the big pool of dollars – it’s how much it pays out on a daily or monthly basis at claim time. You have to be sure you can make up the difference out of your own savings. Otherwise, you can run out of money making up the difference and have to turn to Medicaid before using up the big benefit pool Hope this makes sense and thanks for your comment.

    • Jay on February 7, 2013 at 12:21 pm
    • Reply

    The article missed the huge increases that the companies require almost every 5-7 years so straight multiplier to the today’s cost is somewhat misleading.

    By the same token the LTC cost has been increases rapidly as well and the coverage may not be enough. It also varies state by state.

    Addressing these two realities will make the this article more valuable and realistic.



    1. Thank you for reading this post Jay. Believe it or not, there are long-term care insurance companies that have never had a rate increase or have had only one. The company that has the State of Tennessee plan as I pointed out toward the end of the article has had one rate increase since 1987. It will its second rate increase ever this year (on another product, not on the State of TN plan). I think that’s an excellent track record over 25 years. Other insurance products like Medicare supplements, homeowners, car insurance and certainly health insurance usually go up once a year. There have been a few companies that have had the multiple rate increases as you mention, but has not been the norm with most companies selling LTCI. It has changed in the last few years due to the low interest rates insurance companies are earning on reserves, long life spans, and a very low lapse rate, all of which combine to make for greater claim payouts than anticipated. The 5% compound inflation factor for life will likely not be around much longer in an affordable fashion so I am encouraging consumers who want that to get it now while it is reasonably available. Suze Orman has people estimate a 50% rate increase over a lifetime but looking at the numbers in this article, it would still be a terrific deal in my opinion!

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