January '99
In recent months I have received many phone calls from clients asking about insurance for nursing home/home health care expenses. This is called long term care insurance. These inquires are not only for themselves, but relatives as well. (such as parents)
As this type of insurance is so individual, based on a persons specific financial position, the following information is somewhat general in nature. Also this in not my area of expertise, however, I have an associate who is independent and has specialized in this type of insurance for over 20 years.
For the client to determine if long term care insurance is something they should consider, I recommend a simple 3 step approach:
1. Is it needed?
2. If needed, how much insurance?
3. Which company?
1. Is it needed? This is usually determined by the size of your estate, marital status and your income. Example: A married couple with an estate of $500,000 and an income of approximately $30-$50,000 per year, may be interested in long term care insurance simply because if one of them were to need a nursing home or home health care, it could take all the income, as well as, the savings. That could leave the surviving spouse in poverty. On the other hand, a couple with less than $75,000 in cash, one home, one car and an income of approximately $1,400 per month may not need long term care Insurance because of Federal and State benefits addressing this topic. This area is very important because if you do not need the insurance do not buy it. The rules are different for married couples vs. single persons.
2. If needed, how much? Only if we have determined that insurance is needed, do we go to Step 2. When determining how much insurance is needed, you need to know the approximate cost of care. A nursing home costs approximately $40,000 per year, depending on your individual taste and geographic location. I only recommend a person purchase as much insurance as needed to pay the cost of a nursing home, minus the amount you could pay yourselves, being careful not to spend principal in the estate. Depending on your objective, the more money you have the less insurance of this type you need. The smaller the policy, the less the premium.
3. Which company? Which company to purchase from is best decided after combining the information from Step 1 and 2, along with a persons age and health. Recently Consumer Reports Magazine issued a report on companies issuing this type of coverage. We usually recommend a company that covers not only skilled services at home, but companion and homemaker as well.
With all of the ways to lose our accumulated funds, poor health could be our single largest liability.
520.884.7550
jpw@financial-architects.com
2311 E. Broadway
Tucson, AZ 85719
United States