Sit down with a cup of coffee and learn.
At LTC Tree, one of our signature tools for learning about how Long Term Care Insurance policies work is the Green Binder we send you with customized quotes. While we try to make it easy, you may feel a bit overwhelmed with the wealth of information you now have in your fingertips. We know that many well intentioned clients end up putting LTC planning on the back burner because of the “weight” of the topic. Rather than a complete outline, here are a five key points to look for in your binder when you begin your Long Term Care Insurance learning process.
1. There’s no right or wrong policy design.
While we can certainly buy too much or too little insurance, there’s no way to know exactly how much coverage you’ll need absent a crystal ball. Given this reality, many skip buying ANY coverage simply because they could not decide what to buy. Start with the averages and statistics and take it from there. We’ve included three quotes in your binder.
Start with the summary page and think about other income sources you may have from a pension or Social Security. Ask yourself, how much of the monthly LTC risk if any, would you feel comfortable using your own income to pay for any care you might need? Some want the policy to pick up the entire risk, and others will use their own income in combination with the LTC insurance to protect themselves. Remember, the less daily or monthly dollar benefits you buy, the lower your premium will be.
2. If you’re under 70, inflation protection is important.
With the average claim age at mid 80s and rising, you need to plan for the very real possibility of Long Term Care prices rising over time. We have included a page in your binder that shows you inflation growth of your benefits over time. We have written before about the types of inflation protection and what you should buy, and this page will show you 3% vs 5% inflation increases which are both very popular options.
The old adages are so often true: higher is better, and you get what you pay for. A 5% compound rider pretty much doubles the cost of these policies, but for many the benefits are more than double when you’ll actually use the policy. If you have the budget, consider 5% compound. If not, fall back to the very practical 3% compound rider. If you’re over 70, consider 5% Simple increases.
3. Cost of Care data in your state
Back to designing your policy, it’s important to look at the map we include with your state’s cost of care data. Remember that this averages both metro and rural areas in your state, so if you live in a city the rates may very well be higher, especially on the coast.
For a wide margin of buyers, something in the $100-$200 per day range is common. You may want to underpin costs a bit if you’re okay self insuring part of the risk. For example, a $100/day policy is going to take a bite out of even a $200/day bill, and costs half as much to insure vs a $200/day policy.
4. Financial strength ratings of the companies
We included in one of the first pages in the binder the current financial strength ratings of the companies we sent you. There you will find the major ratings agencies such as AM Best, Standard & Poor’s and their current financial strength ratings. You can also drill down in the numbers to where each company invests their money which will help paint a picture for you on the health of the company you choose.
5. Optional riders you may want to add
As a rule, the inflation rider is the only rider that we usually recommend. The inflation rider as mentioned above, is the “engine of the car” and is the key feature that will determine how much money you have to spend when you go to use your policy years down the road. Listed in each company’s brochure is a list of other riders along with a brief description that some of our clients want to add. Once you narrow you company selection down to one or two companies, take few minutes and find the rider page in their brochure and see if any of the riders make sense for you.