Archive for September, 2017

Good, Better, Best

September 26, 2017

At my first meeting with someone I usually bring a spreadsheet showing three possible long term care insurance policy designs (three from an infinite number of possible plans).

Why do I do this?  Mostly to educate people as to what long term care insurance actually does, and to put to bed the notion that long term care insurance has to be expensive.  Our in-person discussion at the initial meeting allows me to illustrate the various policy design elements & their impact on policy cost.  By means of the pre-initial-meeting telephone interview, we have already established whether or not:

  1. Long term care insurance can solve this person’s (or family’s) needs.
  2. The person likely can qualify for long term care insurance and, if so, at what rate class.
  3. Long term care insurance is affordable in this situation.

Let’s now look at the three examples tailored to the individual’s particular age, gender,  probable rate class, needs, and resources.

Good: Least expensive of the three.  Typically a $3,000 per month maximum benefit, about a $108,000 total benefit pool, and no inflation protection.

Better: Typically a $4,500 per month maximum monthly benefit, about a $216,000 total benefit pool, and 3% annually compounded inflation protection (3% compound applies to both the maximum monthly benefit and the total benefit pool).

Best: Typically a $6,000 per month maximum monthly benefit, about a $360,000 total benefit pool, and 3% annually compounded inflation protection.  Of course “Best” can be made even better if it is appropriate to do so.

So knowing that the average cost for a Denver-area nursing home private room is about $8,500 per month, why do I show the Good plan with only a $3,000 monthly benefit?  First, if you wind up in a nursing home would you rather write a check for $5,500 per month ($8,500 – $3,000 = $5,500) or $8,500 per month?  The answer is obvious.  Second, most people needing long term care services are not in a nursing home.  At an average metro-Denver cost of about $22 per hour for a home care aide from an established agency, $3,000 per month benefit equates to 4.5 hours of home care per day, seven days per week.

A number of years ago, I was quoted in the Wall Street Journal as saying “Almost any long term care insurance is better than no long term care insurance.” (also discussed in the April, 2017 eNewsletter).  This is as true today as it was when I was first quoted.¹  Think about it: Would even $1,500 per month ($50 per day) help a family taking care of a loved one at home?  That is more than two hours of professional home care each and every day…or 4+ hours every other day.  What could Momma do with those two hours if she was not effectively handcuffed to Dad?  As a side note, when I did a presentation about long term care planning to a caregiver support group, I asked the following: “What did you have to give up when you became a caregiver?”  I will never forget the answer that boomed from the rear of the room.  A harried middle-aged woman shouted “Everything!”  Would two hours per day to do chores, have lunch with a friend, watch a movie, or just relax over a cup of tea have made a difference in her life?

Returning to Good, Better, and Best:  Many of the people I meet with chose the Better plan or some variation.  Some select the Good plan, some the Best plan, and some decide to do nothing (at best, all I have done for this last group is made them aware of the harsh reality of depending upon Medicaid for care).

One more question and then I will stop:  From where do I (Ray Smith) get the numbers for my Good, Better, Best spreadsheets?  I subscribe to an online service that let’s me dial in the prospective client’s demographic information for virtually every insurance company offering long term care insurance.  Then I season the cost data with company financial strength, extra policy benefits, and reputation for quickly paying claims.  From all this, I select the insurance company offering the best value for my particular client.  Sometimes it is the same insurance company for Good, Better, and Best.  Sometimes it is more than one company.


Note ¹: The Wall Street Journal, 9/24/2012.  I will gladly send you a copy of the reprint if you merely ask for it.


Disclaimer: Actual policy language, rather than the contents of this eNewsletter, always takes precedence.  Long term care insurance policies vary widely from insurance company to insurance company and within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor for these matters.

© Raymond Smith, The Long Term Care Specialist, 2017