To determine the level of long term care coverage you may need, figure out how much income you have coming in on a daily basis, and how much of it would be available to meet long term care costs. Below is an example.
Example: How To Determine The Right Amount Of Long Term Care Insurance
- Assume you have $60,000 coming in from Social Security and investment income. That's about $164 a day.
- Estimate hourly long term care costs in your area. In my area, Phoenix, in-home care runs about $22 an hour.
- If all of your income was available for care, that would provide about 7.5 hours a day of care – enough for someone to come in and help with major tasks each day.
- However, all the income is not available, as you still need income for living expenses in addition to your long term care costs.
- Also, if you are married, your spouse may need a significant portion of that income to continue their own lifestyle.
- You may decide of that $164 a day, $40 of it would be available for long term care costs. That would cover less than two hours a day.
- For the sake of the example, assume that costs in your area run about $220 a day (about average); that leaves you with a gap of $180 a day.
- If you decide to protect against an average stay of about 2 ½ years, then you would buy a policy that had a $180 per day benefit that would provide coverage for 2-4 years.
- You would also want an inflation rider, so if and when you needed care (likely 10-20 years after purchase of the policy) that $180 per day would have increased.
You can get a free quote for long term care insurance online from the American Association of Long Term Care Insurance. Keep in mind any online system will have to pass your information along to an insurance agent who is licensed in your state. It will be the insurance agent who will contact you with a quote.
Compare the Costs to the Benefits of Long Term Care Insurance
Once you have a quote for the cost of long term care insurance, compare your potential out-of-pocket costs with the cost of the insurance. Do you want to take your chances and figure out your own way to pay for long term care if it is needed? Or would you rather forego some of your annual income now to shift the risk and potential cost to the insurance company? The ultimate question becomes "Is paying a premium worth the additional freedom of choice that the long term care insurance would provide to you?" Only you can answer that.
