Should you self-insure for long term care insurance? Should you consider buying LTC insurance or roll the dice. These are the types of long-term care insurance questions I often get when helping clients.
Long Term Care insurance, like any other type of insurance, may be an important part of your personal financial plan. Without a solid foundation that protects your wealth, you can easily lose all that you have worked and saved for. By allocating nothing for long term care, you may be allocating everything.
So, should you pay for Long Term Care insurance or self-insure?
The answer is deceptively simple:
Someone can self-insure the cost of long term care if they have enough unearned income – and/or assets they can sell and are willing to sell – to cover the cost of a multi-year need for long term care at the time that care is needed.
According to the US Department of Health and Human Services, the average costs for long-term care in the US as of 2010 were:
- $205 per day or $6,235 per month for a semi-private room in a nursing home
- $229 per day or $6,965 per month for a private room in a nursing home
- $3,293 per month for care in an assisted living facility (for a one-bedroom unit)
- $21 per hour for a home health aide
- $19 per hour for homemaker services
- $67 per day for services in an adult day health care center
Prices in the Greater Boston area are higher than the average and can easily reach $8,000 to $10,000 per month.
Here are some important considerations:
- First, determine the cost of long term care desired by the (presumably well-off) client. These are normally not the people who purchase inexpensive care. It’s not unusual for this type of care to run into 6 figures. Ask a tax preparer or tax lawyer who prepares taxes for wealthy individuals to tell you the amount of unreimbursed care costs they have been able to deduct from taxes to get a heads up as to costs in your area.
- Assets that may be possibly available to be liquidated for a care cost may also be earmarked by your client for other uses. Typical uses include passing along to heirs or donating to favorite causes. More often than not, for my clients, these are assets that clients plan on using for their own lifestyle choices in retirement.
- These same ‘assets available for care costs’ may be expensive to get at. Early surrender or tax penalties can make this type of (lack of) long term care planning expensive indeed. In addition, if the assets are real estate, buyers who know they are being sold to pay for care costs may demand a discount price – especially if real estate happens to be depressed when cash is needed. Stock asset value can be up or down, depending on the company, the industry, and the market.
Finally, in considering whether or not to self-insure for long term care costs, it makes sense to examine the you overall risk tolerance. It’s often said that rich people get rich by risking other people’s money.
Are you the type of person who insists on insuring every piece of jewelry or art that you own? Do you still carry collision on a late-model year car – even though the value of the asset could be easily replaced if needed? How about the house? Are you insuring the pennies and letting the pounds remain foolishly uninsured?
This might be a great time for a comprehensive review of all your insurance, from life and disability to homeowner’s and all liability. With a thorough review you may find those pennies adding up to dollars that can save your wealth from a long-term care health crisis.
The goal? To ensure that your insurance premium dollars are being spent wisely, and that truly understand which (if any) risks are uninsured. Only then will you be informed enough to decide which risks to outsource and which to self-insure.