Let's say you are a financial advisor in Anchorage, Alaska.  Your good friends and clients, the Kringle's, come in to discuss planning for healthcare in retirement.  They are 60 years old and in good health.

You recommend that they consider LTC insurance.  However, you are not sure what type of benefit to propose.  Luckily, you recently read an announcement from an insurance carrier that their latest "cost of care survey" was available.  You click on the website and pull up Alaska, and here is what you see:

You know your clients would want to live in a private room in a nursing facility.  Based on the information above, you would probably need to quote a generous benefit along with a 5% compound inflation rider.  So, you quote a $12,000 monthly benefit shared care with a three year benefit period.  You use an online quote tool and this is the  annual premium that pops up:

Now what?  What is the likelihood the 60 year old Kringle's plop down $15,000 per year for this coverage?

No doubt, Alaska is a high cost state for LTC coverage.  But what about clients in California or New York?  They would also face extremely high annual premium levels (and probably wouldn't buy coverage) if they use the cost of care survey to determine benefit amounts.

Another problem with cost of care surveys is that they look at current area care costs, which may be completely different in 30 years.  Not to mention the fact the policyholders may be living in a completely different part of the country!

Instead of  focusing on local care costs, perhaps a better method is to start with nationwide average home care costs and then adjust up and down based on currently client lifestyle and premium tolerence.  Do they drive a Mercedes and stay at the Four Seasons?  Or do they drive a Buick and stay Marriott's?  These might be better facts to find out.

What do you think about the cost of care surveys available today?  How can they be effective?