A Case Study in Long-Term Care Coverage Options

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A New York-based Registered Investment Advisor who specializes in financial planning and investment management, and manages $180 million in assets, asked us to review and evaluate a long-term care (LTC) policy that a client had purchased.

The client, a 65-year-old man, had purchased the policy in 2012.

  • The basic benefits of the plan were $6,000 a month for long-term care expenses for up to 3 years ;
  • The policy began with yearly premiums of $2,800, but these premiums go up every year , in exchange for annual cost of living increases of 3% added to the basic monthly benefits;
  • Due to the these scheduled premium increases, the client would eventually be paying over $16,000 a year in premiums by the time he was 84.

    • We used financial modeling to analyze the policy within his financial plan and found several warning signs. We evaluated the client’s assets under three assumptions: 1) no LTC claim, 2) a permanent claim in 10 years and 3) a permanent claim in 20 years. Without LTC insurance, the clients assets depleted before age 100 under a claim scenario. However, the existing policy’s premium increases became a financial burden over time to maintain the benefit. The client had enough assets to assume some risk associated with a claim and needed insurance to balance the risk.

    We looked to see if we could find a long-term care plan that made more financial sense for this particular client . We were able to provide him a plan that offered the following:

  • $3,500 a month benefits for 10 years
  • A built-in inflation rider to cover cost of living increases without premium adjustments
  • Level premium costs of $4000 a year

    • The new policy cost over 22 years is $88,000 versus $178,282...a $90,282 savings.

    The financial modeling on this plan put the client on very sound footing going forward and ensured that his financial plan will succeed, whether or not he suffers a long-term care situation. This case study just shows how having experts evaluate your clients’ long-term care options can save them a great deal of money, while also ensuring that they are getting a plan that will provide them with the type of solid coverage they may need one day.