How Affordable is Long-Term Care Insurance?
Long-term care insurance (LTCI) premiums are determined based on your client’s age, health, and benefit preferences. As an example, policies with a higher monthly benefit or a longer benefit duration will have a higher premium. The most cost-effective way for your clients to plan for a long-term care crisis is finding the balance between how much exposure they are willing to self-insure, versus how much money they have to purchase LTCI and transfer that risk to an insurance company. Fortunately, you can tailor your client’s LTCI policy with their premium tolerance in mind.
Read More: Who Is a Good Candidate for Long-Term Care Insurance?
LTCI: Not One-Size-Fits-All
Based on the 2023 Millman report, the average LTCI premium is $3,600/year. However, not all long-term care insurance policies are created equal. Planning for extended care is unique to each client. For instance, it’s vital to establish a budget with your client, verify their care preferences, and outline the types of informal support they are planning on using. This will help you determine how much of an LTCI benefit best suits your client. Depending on their assets at risk, your client may also want to consider a state partnership LTCI policy if it’s available in their state.
Avoiding LTCI Sticker Shock
As a financial professional, it’s important that you portray a realistic approach when quoting long-term care insurance. Many of your clients assume LTCI is not affordable, which can dissuade them from creating a plan to fund their long-term care expenses, thereby leaving them exposed to this risk later in life. When running LTCI quotes, some advisors make the mistake of pricing for the average cost of a private room in nursing home, which can be exorbitant. In reality, most LTCI claims (nearly 70%) are for home health care rather than private nursing home rooms. Make sure you’re having an in-depth conversation to determine your client’s budget and needs prior to running LTCI quotes.
Read More: Aging in Place: Home Is Where the Heart Is
LTCI Benefits to Supplement Informal Caregivers
Below are some sample premiums both with and without inflation protection. Some may argue that a $3,000/month benefit will not go very far when it comes to paying for long-term care. However, this will provide your client with $36,000/year in benefits that can be used to supplement informal care provided by family members or other loved ones. Even a smaller benefit can provide substantial assistance during a long-term care event.
Sample Premiums without Inflation:
| Female Age 55 | Male Age 55 | Female Age 55 | Male Age 55 | |
|---|---|---|---|---|
| Monthly Benefit | $6,000 | $6,000 | $3,000 | $3,000 |
| Maximum Benefit | $220,000 | $220,000 | $220,000 | $220,000 |
| Inflation | No | No | No | No |
| Monthly Benefit at Age 80 | $6,000 | $6,000 | $3,000 | $3,000 |
| Total Benefit at Age 80 | $220,000 | $220,000 | $220,000 | $220,000 |
| Monthly Premium | $152.75 | $96.87 | $117.45 | $67.61 |
Sample Premiums with Inflation:
| Female Age 55 | Male Age 55 | Female Age 55 | Male Age 55 | |
|---|---|---|---|---|
| Monthly Benefit | $6,000 | $6,000 | $3,000 | $3,000 |
| Maximum Benefit | $220,000 | $220,000 | $220,000 | $220,000 |
| Inflation | 3% Compound | 3% Compound | 3% Compound | 3% Compound |
| Monthly Benefit at Age 80 | $12,563 | $12,563 | $6,281 | $6,281 |
| Total Benefit at Age 80 | $460,631 | $460,631 | $460,631 | $460,631 |
| Monthly Premium | $376.97 | $225.22 | $289.87 | $157.18 |
If you are interested in learning more about designing affordable long-term care insurance policies for your clients, we invite you to schedule a call with our team!