Long Term Care Insurance vs. Investing

 

Will an investment side-fund beat long term care insurance in the long run?

Not exactly. First off, insurance is never an "investment". Long term care insurance is protection for your investment. Insurance provides protected growth for your investment portfolio. Understand, pure insurance is not intended to appreciate or provide a "return on investment".

Insurance is always an "expense" which you assume in order to protect financially against a possible negative situation. It cannot beat an investment, but without long term care insurance, your investment strategy may be for naught.

Again, insurance is properly viewed as an expense. Like an airbag, first-aid kit or safety belt, it is there in the event you are unfortunate enough to need it. At that point it kicks in to save the day. In the case of long term care insurance, what you protect is your other investments and family assets, as well as the safety, security and peace of mind of the entire family unit. You fund it, and naturally, you hope that you will never need it! As a wise man once said to me, "I HOPE that it's money down the drain, because I never want to use this insurance!"

For some time I worked as a securities representative, so I have a sensitivity to investment issues. Here is what you need to consider in your investment strategy - click below.

You dedicate funds to investment vehicles targeting growth and income. You weigh the risk of a catastrophic market correction or total meltdown, and act you accordingly.This is smart investing. But have your considered this ? You risk for ong term care is about 50%, so your market risk is really quite slight compared with your risk of future long term care need.

In order to protect your nest egg of investments, you are wise to look into long term care insurance early on, as your expense is locked in at a lower rate.

Example: An age 65 person with a $300K portfolio could pay a hypothetical $2K - $4K in annual long term care insurance premium (only 60 - 120 basis points or 0.6% - 1.2%), thereby protecting the overall portfolio from the ravages of future long term care costs.

By 2015, when that care is more likely to occur, individual long term care costs are expected to top $100K per year, so for the average 2.8 years of care (a $280K hit), the portfolio could be severely damaged without long term care insurance in place. By 2025, the cost are projected to rise to over $180,000 per year.

A large portfolio (say $1 Million) can benefit as well, as the same amount of money is still at risk. Yet the premium expense is much less relatively (only 20 - 40 basis points or 0.2% - 0.4% of the portfolio). Professional financial planners know this and the resounding consensus is, "Why WOULDN'T you own long term care insurance to protect your investment portfolio?" It makes financial sense.

People like you build their portfolios by prudent planning, and they KEEP those portfolios by prudent planning. Long term care insurance is the embodyment of prudent planning.

There is nearly a 50% chance that, due to medical conditions, an individual will eventually end up requiring 24-hour skilled nursing care in a facility. Here are the statistics:

Leading Causes:
 Length of Care:
Alzheimer's
 96 months
Cancer
 36 months
Cardiac
 16 months
Diabetes
48
months
Pulmonary
36
months
Stroke
21
months

 

Nursing facility costs vary by state, but let's just say the cost could be anywhere from $60,000 to $200,000 per year. These figures inflate at least 5% annually. For the past few years the CPI for the entire care sector has been 6% and ore for the nursing home facilities.

So, 10 years from now, the average Alzheimer's private room stay could cost the family $1,600,000.

That's a chunk of change.

Even knowing this, there is still a lingering temptation to compare the numbers of a side-fund investment against a long term care insurance policy, isn't there? Yet, I ran the numbers over & over when I was a securities rep and, when applied to long term care costs, no matter what your age, investing never works as well as insurance.

It is in the best interest of your investment broker to suggest investing the $2,000 - 4,000 yearly that you might spend on LTC insurance, but if you ever were to need care, that choice may cost you most of your portfolio. Plus, in today's economic and market climate, investing is not quite what it used to be.

One last thought:

No one wants to go to a nursing home. Smart people want affordable alternatives.

Most people prefer to receive care at-home as long as it's affordable and appropriate. After that, most people prefer to reside in an assisted living arrangement rather than in a nursing home. But it all takes money, a LOT of money. It helps to have insurance to pay for this non-institutional care.

Be smart. Protect your investments. Plan for your future.