Most would agree that long term care insurance planning should
be an integral component of a comprehensive financial plan. Given the increasing cost of long term care
insurance, we have developed a list of alternatives that may help reduce your
cost of coverage. Please note that
there are a number of risks involved in employing these strategies and they
should only be considered in the context of your overall financial plan:
Lower the monthly benefit level
While nursing home costs on a
nationwide level are exceeding or quickly approaching the $200/day mark, it may
not be necessary for your long term care policy to cover a $6,000 per month
benefit. Depending on your personal
financial situation, it may make sense to partially insure the cost of long
term care. That is, instead of buying a
policy with a $6,000 per month benefit it may be best to reduce the amount of
long term care insurance to a $3,000 per month benefit. The idea is that in the event you do require
long term care assistance that your LTC insurance can cover part of the cost
and you can pay the overage out-of-pocket.
Increase the elimination period
The elimination or wait period is
the amount of time you must qualify for long-term care insurance prior to
receiving a benefit. While receiving
care during the time of the elimination period, you will pay for the care out-of-pocket. The elimination period is the equivalent of a
deductible with health insurance. The
longer the elimination period the lower your premiums will be.
With some long term care insurance
policies, one day of home health care assistance can satisfy an entire week of
the policy’s elimination period. Since
home health care services are generally cheaper than ongoing assisted living
care and people often utilize home health care services prior to entering a
facility, it may make sense to have an elimination period of six months or more
on your policy.
Reduce the benefit period
Reducing the benefit period can be
an effective way to control the cost of LTC insurance premiums. Instead of buying a policy that offers a five
year long term care benefit, reduce the benefit to two years, with the idea of
paying for any additional long term care coverage with your assets.
Consider policies that allow spouses to "pool” LTC insurance benefits
Some LTC insurance policies allow
spouses to pool their LTC insurance benefits.
That is, if each spouse were to purchase a LTC policy with a 2 year
benefit the total benefit period is 4 years.
If only one spouse were to require LTC assistance, he could utilize the
entire 4 year benefit period (leaving the second spouse with no coverage or
partial coverage). Pooling LTC benefits
is an effective rider to utilize in conjunction with reducing the benefit
period.
For more information, please contact Chip
Hymiller, CFP® or Erin Campbell,
CPA/PFS, CFP® with Beacon Financial Strategies
at (919) 321-8625.
Beacon
Financial Strategies is an independent financial
planning, tax and investment advisory firm located in Raleigh, NC. Beacon
works with clients on a consultative and objective basis to help them achieve
their personal financial goals. Beacon professionals specialize in the
following areas of financial planning: retirement feasibility planning, estate
planning and coordination, tax minimization strategies, and wealth management
services.