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what factors should I consider in weighing whether to buy long term care insurance? [savings, annuity, cashflow, etc] ?

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  Answers  |  1

July 21, 2014

The miracles of modern medicine have greatly increased the likelihood that more and more of us will need custodial care, especially in our later years. At its simplest, long term care insurance provides a pool of money for the payment of premiums. There are several factors that can enter into the purchase decision. Here are a few to get the discussion rolling:

1. Budget -- since you're likely going to be paying the premiums for many years to come, you need to make sure they're affordable both today & in the future. Many people make the mistake of assuming that if they can't fund a substantial pool of money, they can't afford to do it at all. Better to have some coverage that's affordable than not to have any in most cases.

2. Ability to self-fund. Custodial care does not come cheaply. Depending on the area of the country, in-home care can run $20-$25 per hour or more. Assisted living facilities can run $4,000 to $6,000 per month and skilled nursing facilities can run up to twice that, especially in the major metropolitan areas on both coasts. While the average stay in these more expensive facilities is typically around 2 years, there is no "typical" when it comes to any one person's situation.

3. Impact on retirement income. If your savings and investments are significant, you may be in a position to self-fund. Before you go this route, make sure that there is still enough money left for the healthy spouse or partner to live on as the costs of long term care can decimate a retirement nest egg. If you have the good fortune of having significant savings & investments, and retirement income that is not wholly dependent on those assets, you may be well positioned to fund the costs of long term custodial care.

Whichever path you choose to take, it's important to review your plan with the loved ones around you likely to be involved in arranging for your care in the future. While many people intend to have this conversation "when the time comes", they fail to realize that this isn't always in our hands.

Walking through your financial situation with a professional well-versed in long term care planning can further refine this and help you determine what makes the most sense for you.

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