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Long Term Care Insurance [LTCI]
Some retired people live on a fixed income and many of them live right on the edge of their financial capability. At some time in their life, they may have to make a choice regarding many purchases.
In this case, we will illustrate “choice” using a couple’s purchase of Long-Term-Care Insurance [LTCI]. Of course, economics is the study of choice; wants, needs and scarcity, etc. In our case, if they decide to make the purchase they commit to a lifetime of premium payments. The financial tradeoff is this; if they make the commitment to purchase LTCI, they must give up something else.
EXAMPLE: In order to maintain a monthly premium of $100 ($1,200per year), an elderly patient, retired layman or couple must essentially relegate about $30,000 of financial assets to generate the $100 necessary to make an average premium payment (assumes a 7% rate of return with 4% withdrawal rate) or [4% X $30,000 = $1,200 year]. Thus, if the monthly premium cost is $500 per month, the elder must give up the use of $150,000 of retirement asset just to generate enough cash flow to pay for the LTC insurance.
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The married elder couple has to make the Hobson’s Choice decision among lifestyle (dinners, vacations, gifts to children, prescription drugs, medical care or food and shelter) versus paying an insurance premium to provide for nursing home coverage for a need, which may be very real, but will not occur until sometime in the ambiguous future.
And so, when faced with such a tough economics Hobson’s Medicine Choice, neither of which delivers peace of mind or a respectable solution; many will simply decide that, in either case, they may already end up impoverished. Thus, many will often opt for the better lifestyle now … while they can enjoy it … together.
Cite: Anonymous Health Insurance Agent, Norcross, Georgia
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Filed under: "Ask-an-Advisor", Alternative Investments, Career Development, CMP Program, Drugs and Pharma, Ethics, Financial Planning, Glossary Terms, Health Economics, Health Insurance, Retirement and Benefits | Tagged: CMP, decision, Ethics, health, Health Insurance, healthcare, Hobson's choice, Hobson's Choice in Medicine, insurance, long term care, long term care insurance, LTCI, medicare | Leave a comment »
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