Template:Long-Term Care Calculator Exercise Answer Key
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Question One:
Jesse Jones wants to purchase long-term care insurance to fund home care expenses and facility care expenses from his age 75 and 85 respectively. However, he is electing to insure 70% as opposed to complete self-insurance or full 100% insurance. Jesse’s detailed information is below:
- Current Age: 55
- Retire By: 55
- Mortality: 90
- Inflation: 3.0%
- Rate of Return: 9.0%
- Marginal Tax Rate: 20%
- Cost of Home Care/Month: {{{Cost of Home Care}}}
- Cost of Facility Care/Month: {{{Cost of Facility Care}}}
- How much is the present value of the cost to self-insure these expenses? $_____
- How much is the present value of insuring 70% of these expenses? $______
- How much is the present value of insuring 100% of these expenses? $_____
Answer:
Select Long-Term Care Calculator from the calculator drop-down menu on Home page.
1. Enter age 55 into the Current Age field
2. In the Retire By field enter age 55
3. In the Mortality field enter age 90
4. Leave the Inflation assumption at the default of 3% if this is not the default then change it.
5. Change the Return assumption to 9.0%
6. Set the Marginal Tax Rate to 20%
7. Change the Percentage to Insure option to 70%
Note: This percentage does not affect the calculations, but will allow you to see the results listed below if he chose to purchase insurance to cover 70% of the costs, and self-insure the remaining 30%.
8. Under Home Care Coverage, set the Estimated Costs/Month to {{{Cost of Home Care}}}
9. Under Facility Care Coverage, set the Estimated Costs/Month to {{{Cost of Facility Care}}}
10. Click the 
button underneath the results section.
11. Identify and record the Present Value of Capital for the options of Self-Insured, 70% Insured and 100% Insured
Question Two:
Charlie wants to have an Emergency Fund for the event that he has to fund long-term care expenses himself. He does not currently have any money in this Emergency Fund, but plans to save an indexed amount of {{{Savings}}} annually. Given that Charlie wants to self-insure as much as possible, within his savings limits, what percentage of the expenses would you elect him to insure – 0%, 50% or 100%?
- Current Age: 40
- Retire By: 55
- Mortality: 90
- Inflation: 3.0%
- Rate of Return: 9.0%
- Marginal Tax Rate: 35%
- Home Care Expenses/Month: {{{Cost of Home Care}}}
- Home Care Starting Age: 80
- Facility Care Expenses/Month: {{{Cost of Facility Care}}}
- Facility Care Starting Age: 85
Answer:
Select Long-Term Care Calculator from the calculator drop-down menu on Home page.
1. Enter age 40 into the Current Age field
2. In the Retire By field enter age 55
3. In the Mortality field enter age 90
4. Leave the Inflation assumption at the default of 3% if this is not the default change it to 3%.
5. Change the Return assumption to 9%
6. Set the Marginal Tax Rate to 35%
7. Change the Percentage to Insure option to 50%
8. Under Home Care Coverage, set the Estimated Costs/Month to {{{Cost of Home Care}}} and the starting age to 80.
9. Under Facility Care Coverage, set the Estimated Costs/Month to {{{Cost of Facility Care}}} and the starting age to 85.
10. Click the button underneath the results section.
11. Identify and record the Indexed Savings to Fund Difference for the options of Self- Insured, 50% Insured and 100% Insured
The results should be {{{Result1}}}, {{{Result2}}} and 0 respectively.
12. Identify which option is under the {{{Savings}}} savings amount your client can afford. Answer: the 50% insured option {{{Result2}}} is under the {{{Savings}}} savings amount your client can afford.
Thus, he should purchase a long-term care policy to cover 50% of the long-term care expenses.
