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Merritt Personal Lines Manual: How Much LTC Insurance Do I Deed?

Your client will need to consider the amount of personal assets she has to determine whether she needs LTC insurance -- and, if so, how much.

As we've noted before, if you have a very limited amount of assets, you probably are already at the Medicaid level and may not need LTC insurance. If you're very wealthy, you probably don't need LTC insurance, either, because you can afford to pay your own way -- or, essentially, self-insure. If you're somewhere between these two extremes -- with personal assets ranging from about $25,000 to $250,000 -- you are the most likely candidate for long-term care insurance.

Consumer advocates suggest that you should not spend more than five to 10 percent of your income on such coverage.

Generally, the amount of assets you have also will determine the type of coverage you choose. As a general rule, the most comprehensive policy will be selected by people who have assets of $100,000 to $150,000 or more.

A more comprehensive policy is characterized by higher daily benefits ($100 to $200 per day), relatively short elimination periods, plus one or more optional benefits. All of these benefits will result in a higher premium.

If you have substantial assets, you certainly can afford to pay a higher premium. But you also may choose to self-insure -- or purchase a limited-benefit policy. If you purchase a limited-benefit policy, you pay less for premiums and you have coverage only when you really need it -- which would be the equivalent of purchasing a high-deductible, catastrophic health insurance policy. This may be a wise choice if you have enough liquid assets to cover the cost of a six-month nursing home stay, for example, but prefer not to have to sell your home if you need to be confined to a nursing home for a longer time period.

If funds are tight, you have other options. For example, Margaret, age 66, has limited assets and a small retirement income. She would like to purchase an LTC policy with a $100-per-day benefit, a 10-day elimination period and a five-year benefit period. However, she cannot afford the premium. What can she do to reduce her premium costs?

  1. She can reduce the daily benefit to a lesser amount -- for example, $50.
  2. She can increase the elimination period to 60 days, 90 days or longer.
  3. She can reduce the benefit period to two or three years.

These are the primary factors that you can control, when it comes to the price of LTC insurance.

The other primary factor -- which you cannot control -- is your age. While you are most likely to need long-term care in later years, it is in your best interest to consider purchasing LTC insurance when you are 50 to 60. This is because you are more easily insurable at this age -- and your premiums will be much lower.

Most insurance companies offer policies beginning at age 50, though a few offer them to people as young as age 40. As loss experience and underwriting data are accumulated, this minimum age may be reduced to a much lower entry level and, consequently, lower premiums.

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