Updated Thursday, July 24, 2014 as of 7:02 PM ET
Self-Insuring for Long-Term Care
by: Samantha Allen and Elliot M. Kass
Monday, September 23, 2013

For retired clients looking to conserve their assets while still protecting themselves against the costs of a medical crisis, long-term care insurance isn’t always the best option. A significant swath of these clients may be better off self-insuring.

Though every situation is different, “Our basic rule of thumb has been that clients with more than $2.5 million in investable assets, including the value of a downsized home, may want to self-insure rather than buy long-term care insurance,” says Dennis Stearns, a Greensboro, N.C.-based financial planner, in the September issue of On Wall Street.

This rule of thumb works in areas with lower long-term care costs like North Carolina, he notes, but not in more expensive cities like New York or Los Angeles, where the cost of care may be double.

Michele Clark, a fee-only financial planner based in Chesterfield, Mo., a suburb of St. Louis, tends to agree. She says clients with around than $2 million in assets and a modest lifestyle may be better off investing their premium dollars and self-insuring. This lets them save on the premium and avoid over-spending on a long-term care policy that they may make only limited use of or possibly never need at all.

The cost of private care in Missouri is about $56,000 a year, Clark says. That compares with around $75,000 in North Carolina and $120,000 in New York.

For retirees with smaller savings who can’t afford to self-insure, but who still want to avoid Medicaid to protect the assets that they do have, Clark suggests a hybrid strategy: Don’t insure for the full cost of care, which may be very expensive and provide more coverage than is necessary. Instead, purchase enough coverage to defray the cost and self-insure for the rest. The majority of her clients take this approach, she says.

To protect her clients against rate hikes, Clark factors a 6% annual inflation rate for the long-term care policy premium into the client’s plan. In reality, increases don’t occur that often, she says, but when they do they can be severe.

Another advantage to purchasing even a minimal amount of long-term care coverage, even for as little as $50 or $100 a day, Clark says, is that “it sends a signal to your family that you were preparing for this and are okay with someone else caring for you.” That’s important, she says, because it eases the family’s emotional stress as well as the financial burden.

“You’re insuring to protect your family,” she says. “Financially, but also their peace of mind.”

For more on self-insuring for long-term care, see onwallstreet.com

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(5) Comments
Why would you self insure when the carriers can provide excellent leverage on your assets without a use it or loose it provision of a traditional LTCi product. The new hybrid products are excellent for asset protection against the high price of LTC without many of the downsides of a traditional products.
Posted by Keith F | Monday, September 23 2013 at 1:40PM ET
Long Term Care is expensive pure and simple. The cost of Long Term Care Insurance has steadily increased since my wife and I bought our policy back in 2001. We purchased a ten pay policy and over the ten year period of time we paid $39,000 in premiums. We started with $165.00 per day of coverage with compound inflation protection at 5% with a comprehensive plan with lifetime benefits for both my wife and me. Since that time insurance premiums have increased probably due to utilization of coverage. We currently have approximately $9,000. per month of benefits each and we hope not to ever use it. We felt the cost was worth the protection at the time. I see more and more individuals needing assistance as they go through the golden age of their lives and also see many do not have family members to assist them. I suppose to self insure would be a good idea for those with abundance and the excess would just complicate an estate with additional taxes at death. I expect over time the Long Term Care industry will continue to grow and be prosperous over time.
Posted by Gary R | Monday, September 23 2013 at 1:47PM ET
I agree with Keith. The hybrids give you something LTCi doesn't - cost containment! Plus, a residual value for your heirs or estate.

The problem is there are not enough beds versus the aging baby boomers. A long-term care plan will be your bargaining chip for a bed.

Posted by Robert K | Monday, September 23 2013 at 2:37PM ET
Remember the benefits of Partnership for those states that offer it. Even a small LTCI can assure some assets can be transferred to family members or charity without jeopardizing Medicaid eligiblilty.
Posted by Richard S | Monday, September 23 2013 at 2:39PM ET
Bad planning idea. With that kind of new worth, buy the life insurance with the LTC rider. leave life insurance proceeds as legacy rather than or in addition to other assets.
Posted by Brad R | Monday, September 23 2013 at 3:28PM ET
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