Insurance Library

Long Term Care > How Much Coverage

When deciding how much insurance to buy, you need to look ahead and predict how much you will need, and how much you can afford to pay for premiums. You should keep in mind that most retirement income is fixed and will not increase to keep up with inflation. Buying too much insurance now may make you unable to afford the increasing premiums later.

There are four main components in calculating how much insurance to buy:

Benefit amount

This is the maximum amount your policy will pay for each day of care. This determines the total value of your long-term care policy. If you buy a policy that pays $150 per day for five years, then your policy value is $273,750 ($150 x 365 days x 5 years).

To figure out how high of a benefit amount you will need, call a reputable facility in your area and find out what they charge their residents per day. Then decide how much of your income you can afford to pay to stay there. The benefit amount you should consider is the difference between the two.

Inflation Adjustment

Inflation will increase living expenses and long-term care costs through time. The inflation adjustment of a policy attempts to alleviate the impact of inflation on your insurance policy. But beware, even the best policy will usually allow a 5% increase annually, and this is rarely enough to keep up with your increased medical expenses.

Benefit Period

This is the length of time you will be receiving payments from your policy. The average stay in a nursing home is 2½ years, according to the Health Insurance Association of America (HIAA), so most people choose a two or three year benefit period. The longer your benefit premium, the higher your premiums will be.

Deductible (elimination period)

This is the number of days that you’ll have to pay for care yourself before your policy begins issuing payments. The usual deductible period is somewhere between 20 and 100 days. The shorter your deductible period, the more you’ll pay for premiums.