WHAT PARAMETERS SHOULD I USE TO DETERMINE IF I SHOULD BUY LONG-TERM CARE INSURANCE OR PAY FOR SERVICES WITH MY ACCUMULATED ASSETS?

When I began this project in the spring of 2008, who could have imagined that the economy would see such a drastic decline? Many people who were comfortable paying long-term healthcare costs out of pocket have seen their portfolios shrink by 40% or more.  Most believe the country will hit the elusive bottom and then begin its climb, thus regaining some of its losses. But what if you had decided to ‘self-insure’ and needed to pay long term health care cost now? Selling stocks to fund your long term health care needs would further devastate your financial picture that had taken years to create.  The benefits provided by long-term care insurance are not subject to market swings, so owning long-term care insurance should serve as the risk management component of a well-designed portfolio, preventing you from being forced to sell stocks and assets when it is not to your advantage.

So ask yourself, “Can I comfortably assume the financial risk of long-term health care now or at the time I am most likely to need long term care?” According to a recent statistic, 69% of those over 65 will need long term healthcare at some point in their lives.  Prudence dictates that you should consider yourself in that 69% group. Assume that you will need to pay for long term health care services at some time, and decide what source of funds you will use to pay for those services.  Do you have stocks you could liquidate?  Do you have other assets that you are willing to liquidate and use?

The need for long-term healthcare is a matter of significant financial risk. Long-term care planning should be a part of a well-designed financial plan a matter of significant financial risk.  Long term care planning should be a part of a well designed financial plan that assesses your current situation and future assets and income.  Be certain that you have considered that cost of services today are expected to rise dramatically within the next 20 years and perhaps even triple what they are today.  Be prepared to either pay for the services of long-term healthcare out of pocket or to transfer that risk to the insurance company, provided you qualify for coverage.

Stewart Welch III, founder of the Welch Group, a wealth management firm in Birmingham, Alabama, and author of several books including The Idiot’s Guide to Getting Rich said, “I used to advise our clients who had a net worth exceeding $2 million to ‘self insure’.  But what I have found is that people, particularly people of wealth, are adamant that they remain in their homes rather than enter a nursing home facility.  The result is often twenty-four hour nursing care, seven days a week and the resulting costs are astronomical.  In one recent case, both the husband and wife required round-the-clock professional care by two separate teams costing over $200,000 a year!”   That is in today’s dollars.  Remember due to inflation, those costs will be significantly higher 20 years from now.

I have many clients who are wealthy and yet have purchased long term care insurance.  Premiums are insignificant when measured against the true cost of long term healthcare, which is a combination of the actual cost of long-term care services and the opportunity cost of that expenditure.  Dismantling a financial portfolio is stressful and a quick sale of assets is usually to the buyer’s advantage, not the seller’s. Wealthy individuals calculate the loss of investment earnings and carefully consider that being forced to sell stocks at inopportune times may be costly for them.  The premium is tax deductible in many instances, giving another incentive to add this layer of protection to one’s assets.

n the other end of the spectrum ask yourself, “If I have limited assets, should I buy long-term care insurance?”  If you can pay the premiums on a minimum plan without placing a burden on your lifestyle, consider an assisted-living and facility plan with a two or three-year benefit. Plans of this type don’t cover home care, but they do cover assisted- living facility.

We are fortunate to have a government program to serve those in the community who cannot afford to pay for nursing home services; however, by qualifying for Medicaid, you give up choices on where you want to receive care. If you are married, you put your spouse at risk of having inadequate financial resources for his or her life and lifestyle.