Should I invest the amount I would pay in premiums instead of buying long-term care insurance?

If youre under 55, you might think that, since the likelihood of long-term care outlays is many years in the future, you could invest the money you might otherwise spend for long-term care insurance premiums. That way, if you do need long-term care, you could just draw upon that investment, and if not, youd have money for your heirs, for a charitable donation, or for your own needs.

But this strategy leaves you vulnerable if you need long-term care services in your late 50s, 60s, or early 70s. And it might also leave you vulnerable if you need these services for a long time, even if you dont need assistance until youre in your 80s. Heres why:

Assume youre 55 and wont need long-term care for 30 years, when youre 85.

Assume you save $2,000 per year (1), that you invest the savings, and that your investment grows at 5 percent per year, net after taxes.

After 30 years, your savings will have grown to $139,500.

Assume todays monthly cost of nursing home care grows, due to inflation, by 5 percent per year, from $7,000 per month now to $28,800 per month in the future.

At that timethat is, when youre 85if all these assumptions come true, your savings would be able to pay for less than three months of nursing home care; if you need more moneysay, because the cost of services for long-term care grew faster than 5 percent per year or your investments earned less than 5 percent net after taxesyoud have to liquidate other assets that you hadnt planned to liquidate, if you have them.

Its possible that youll save more than $1,000 per year, or earn more than 5 percent net after taxes, or that the cost of long-term-care services will rise more slowly than 5 percent per year, or that two or more of these things will happen. In that case, if you need long-term care services for the first time after age 85, you would be able to pay for more than the example above shows. Here are some indications of what results alternate assumptions would produce:

Nursing home costs inflate at 3 percent per year for 30 years: monthly cost of $16,500

Earn 6 percent per year net after taxes on saving $1,000 per year: accumulate $83,800

Save $1,200 per year at 5 percent net after taxes: accumulate $83,700

Of course, its possible that youll never need long-term care services, or that if you do need them, youll need them only for a month or two. In that case, a long-term care policy wont help. For most other scenarios, its probably a smart buy. An agent that specializes in this type of insurance will be able to give you a variety of options to best fit your needs. Contact Hoffman & Associates Insurance at 321-751-2511 in Melbourne Florida for more information.

NOTE: The answers to coverage questions are primarily based on ISO forms generally used in Florida by most companies. However, please keep in mind that all companies forms are NOT necessarily the same. Some companies may provide broader coverage and some may be more restrictive. IN ALL CASES, THE CONSUMER MUST REFER TO HIS OR HER OWN POLICY FOR SPECIFIC COVERAGE INFORMATION.

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