Ambra is age 50 and single. She is concerned about funding long-term care insurance costs in the future. Based on family history, she has determined the following:
• She will likely need long-term care coverage beginning at age 78;
• She will need coverage for six years;
• Long-term care costs in her area are currently $72,000 per year;
• Long-term care costs are increasing by 5% annually;
• She can earn 7% on her savings and assets;
• She currently earns $98,000 per year; and
• She has saved $75,000 that she is willing to earmark for long-term care costs.
Use this information to answer the following questions:
a. What is the future value cost of long-term care coverage when Ambra enters a nursing facility?
b. What is the total cost of coverage for six years when Ambra enters a nursing facility (present value of cost determined at age 78)?
c. How long will Ambra’s long-term care savings last when she enters a nursing facility?
d. Assume that Ambra has other property valued at $250,000. If she is willing to use this asset to help pay for long-term care costs, does she need long-term care insurance at this time?