Eight years ago, Debbie of Liberty Township, OH bought a $500,000 life insurance policy that can be tapped early to pay for long-term care, should she ever need it.
Her husband, Mark, declined to buy equivalent insurance for himself. Instead, he set aside $250,000 in investments to cover long-term care.
There was some heated discussion before the couple made their decisions, says Steve, now 61 years old. “Usually, we’re on the same page about things,” he says. “This was something where we couldn’t get on the same page.”
A lot of seniors disagree when it comes to long-term care insurance versus asset management. Half will need such care at some point in their lives and yet only a fraction carry insurance to cover the costs. This is why I stress asset management and planning. This is difficult for many seniors because of the unknown however they do know what their investments include and the probability of their investments generating income or a source of funding if need be.
Many people with assets, usually about $1 million to $3 million in assets usually can afford to pay for long term care out of their own pockets. Medicaid pays for some long-term care for lower-income individuals without other means. Understand that according to the insurance industry most people require 28 months of care once in long term.
The dilemma comes for those in between—neither poor nor wealthy. The potentially staggering costs of long-term care—the average lifetime cost is $172,000; this type of expense could upend their retirement budget or eat through money they hoped to leave to their children.
Are millions of Americans making a huge mistake by not buying insurance to cover these costs?
Not necessarily. Long-term care insurance isn’t like a lot of other insurance. For one, premiums are high because insurers know there is a decent chance that the policyholder will use it. What’s more, insurers usually cap what they will pay out.
Instead of buying traditional long-term insurance, more Americans are buying other insurance products for long-term care. Some are buying life insurance that allows them to accelerate the death benefit if care is needed. Others are buying hybrid long-term care policies that include a death benefit if the money isn’t spent on long-term care.
Such policies are attractive to people who want to build a legacy for their heirs in addition to defraying the expenses of care. A life insurance policy with a long-term care rider can make particular sense for people with health issues because underwriting tends to be more streamlined than for traditional long-term care insurance. Insurance and other assets can be ear marked for care, i.e.: annuities, real estate, other material assets.
A hybrid life insurance policy is a more expensive way of paying for the care itself than traditional long-term care insurance. A cheaper alternative for people intent on steering money to their heirs is buying traditional long-term care insurance and a separate life insurance policy.
Many financial planners stress long-term care costs every time they prepare a plan for a client. Some use $400,000 from a couple’s assets as an amount they feel is adequate to cover most people’s needs. This is my experience. This amount is often recommended to see if this amount is attainable. If it’s not, there are other ways to prepare for this potential expense, such as downsizing your home or cutting spending. This type of planning could be referred to as self-insuring.
The nice thing about self-insuring is if you don’t need care, you don’t spend 30 years paying for it. Some people, prefer to use assets that are earmarked like this. They self-insure for a long period of time. Some will purchase long-term care insurance because it gives them peace of mind.
There are situations where a client has so much money relative to what they can spend that they can easily self-insure. But this is usually not the case. The majority of people are more like garden-variety millionaires with $1 million or $2 million, and something can come along and drain their assets. Be that as it is identifying assets is an alternative to buying long term care insurance. Long term care insurance with generous coverage is rarely sold today. Assets often come into consideration for people that are under insured.
Over the past six years, I have seen their annual premiums almost double to $9,600 or more. So, who was right Debbie or Mark? They both could be right but Mark did not pay thousands in insurance premiums that may or may not be used…If you are an individual with assets and you want to plan ahead for in a residential environment with exceptional care. Please contact me for a one-on-one consultation. We offer a limited residential environment for your personal care. Steve Brock 513-870-9228
- 513-870-9228