Save money on long term care insurance by designing a plan that doesn’t overbuy coverage.
In the early days of long term care insurance, many were advised to purchase a long term care insurace benefit that equaled the average cost of care in their area for an unlimited or lifetime benefit period. The reasoning was simple – since you don’t know how long you’ll really need long term care, you might as well buy enough to coverage to last a lifetime just to be safe, right?
While an unlimited lifetime long term care benefit sounds good, the stark reality is this kind of Cadillac coverage is simply unaffordable for most people. In fact, it’s unaffordable for most insurers as well; most long term care insurance companies don’t even offer a lifetime benefit any longer. Since lifetime coverage is not a viable option for most, many today recommend a short and fat policy design to get the most bang for your long term care insurance buck.
A short and fat long term care insurance plan provides coverage for a “short” duration (or at least shorter than a lifetime) with a “fat” (or large) daily benefit. The reasoning behind this plan design is also quite simple: Half of all long term care needs last three years or less and 80% of long term care needs last four years or less. Therefore why over insure with lifetime coverage when you will probably never need it? This is a simple way to save on long term care insurance premiums by purchasing only the coverage you are likely to need in retirement.
Lifetime benefits are nice if you can afford them, but most will be better financially served with a short and fat plan design that will cover most or all of their long term care costs in the early years of a claim when they are most likely to need care.
