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Saving Money on Long Term Care Insurance - Consider the Odds

The cost of the premium for a Long Term Care insurance policy is a primary concern to most people. This raises the question: “How can you save money on LTC insurance?” There are several answers to this question.

Obviously, one way to save money on the cost of coverage is to simply not buy a LTC policy. However, this approach is usually misplaced because it fails to account for the risk of not having coverage to pay for expenses that are likely to occur. People rationalize not getting LTC coverage on the belief that they may never use it. But consider the odds. The chance of needing between 2 to 5 years of long term care is about 70%, particularly among women who statistically have a longer life expectancy than men. Compare this to the probability of using a homeowner’s insurance policy to pay for the replacement value of a home. There is a less than a 1% chance that such a policy will be used to pay for the replacement value of a home. Yet the average cost of long term care is likely to be more than double the value of a home, depending on where you live. So why have homeowner’s insurance if you may never use it, compared to the high probability of needing long term care? Consider the odds.

Another line of thinking is that deferring obtaining coverage until later in life saves money. This thinking is misplaced because the longer you wait, the more expensive coverage becomes, and the less likely it is that qualification can be obtained for health reasons. Simply stated, the younger a person is the more affordable the premium is and the more likely it is that coverage can be obtained because people are generally healthier in their younger years. Youth increases the odds of obtaining coverage, since a person’s health condition is a qualification to obtaining a policy. Also, the better a person’s health, the more likely they will receive a good health discount. As two financial gurus stated it: ”No well-planned retirement should be without long term care insurance. It's the cornerstone of retirement security.” Suze Orman, quoted from her book You've Earned It, Don't Lose It: Mistakes You Can't Afford When You Retire; and "You wouldn't go without homeowner’s insurance, so why not insure against the greater risk with long term care insurance?” Terry Savage, quoted from his book The Savage Truth On Money. In short, consider the odds.

Obviously, the best reason for obtaining LTC insurance coverage, is that if your policy is in place, you are covered. With insurance you have piece of mind by knowing you are covered, as well as the financial benefits of not having to pay for LTC out of your own assets, or having to sell your assets to pay for your care. In fact, the financial benefits include tax benefits. This is because the federal government knows Medicare does not pay for Long Term Care beyond 100 days, that the qualifications and limitations for even that short duration of care are stringent, it requires a co-pay, and that the federal government does not have the money to pay for the LTC people will need. This is why LTC is not part of the Affordable Care Act (aka Obama Care). To encourage people to have the funds to pay for their LTC needs through insurance coverage, the tax code provides for the non-taxability of benefits paid under a LTC policy, as well as for the deductibility of premiums, as seen in the recent increase in the deduction limits based on the taxpayer’s age. In light of this, the IRS recently increased the deduction for LTC insurance premiums for the 2014 tax year. The deduction limits can be found in IRS Bulletin 2013-47, Section 3.24 Adjusted Items, Eligible Long-Term Care Premiums (November 18, 2013).

Saving money on LTC insurance premiums also involves taking into consideration the available policy options. These include a cash benefit option rather than reimbursement for the actual cost of care, buying based on the price of the policy alone without considering the quality of service. Other policy choices involve having shared benefits for couples, how much inflation protection is appropriate, and the elimination period based on the length of time you can pay for care out of your assets before you want the insurance to begin paying for your care. Simply put, consider the odds.