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Assumptions:

  • LTC policy is purchased at age 55

  • Care is needed at age 75 for five years for a total claim of $764,473 - using a 5% compound cost projection

  • Benefits purchased: $150 daily benefit, 30 day elimination period, lifetime benefit period

  • Premiums: no inflation: $1,035, Simple inflation: $1,602, 5% compound inflation: $1,984

  • Total charge for five year period: $764,473, using a 5% compound cost projection

Totals

No Inflation

5% simple

5% compound

Premium:

$19,664

$30,438

$37,696

Insurance Benefits

$269,250

$552,413

$753,102

Out-of-pocket *

$514,888

$242,499

$49,067

* out-of-pocket = insurance premium + difference in benefits vs. charges

To summarize this example, investing the premium difference of $949 between 5% compound vs. no inflation for the 20 year period before claim at 10% return yields $59,789 before taxes and investment fees, which barely makes a dent in the $495,223 difference between the $764,473 charge and the $269,250 insurance benefits without inflation coverage. (For that matter, saving the entire premium of $1,984 for the 5% compound benefit at 10% for 20 years only results in $124,997 before taxes and investment fees.)

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