Frequently clients will ask us how much they need to have in savings in order to “self-insure” or “self-fund” their long-term care expenses—meaning that they would just pay for any care privately out of pocket instead of purchasing some form of long-term care insurance.
Here’s the potential problem with this thought process:
- Long-term care costs can vary significantly from one household to the next.
- Relying on “averages” can be incredibly misleading. Some studies report that the “average” length of care is 2.5-3 years. However, usually these studies are only looking at institutional care or paid care and are overlooking that family members often provide free care before paid care is sought.
- The average person with Alzheimer’s disease needs caregiving assistance for 8 years.
- 20% of individuals age 65 or older are expected to need long-term care for 5 years or longer.
Long-Term Care Planning Is About Leveraging Your Assets & Mitigating Risk
If I told you that there was a 50/50 likelihood of your house burning down, would you purchase homeowner’s insurance? Of course! In fact, the odds are quite lower than that and yet most of us still buy homeowner’s insurance to protect our homes. Yet, the potential likelihood of needing long-term care is significantly higher and the costs are arguably comparable to or exceed having your house burn down—yet we see the individuals that want to “self-insure” for long-term care. Why take such a risk?
The common argument that people make in favor of self-insuring is that long-term care insurance is “too expensive,” but usually when we dig a bit deeper, we find that the only tool they are familiar with is traditional long-term care insurance. We’ve previously written about traditional long-term care insurance and some of the common frustrations—including the “use it or lose it” nature of traditional long-term care insurance.
However, today’s asset-based long-term care options such as life insurance with a long-term care rider or annuities with long-term care riders give individuals a powerful opportunity to leverage their assets in order to mitigate their risk.
Think about it. You place a portion of your savings into an asset-based long-term care product that has cash value. If you end up not needing care or only a little bit of care, then cash value is still part of your estate. The only thing you’ve potentially lost is maybe a lower rate of return on the money. I say maybe because the interest rates on these products are usually guaranteed but your investment portfolio typically is not guaranteed and could go down in value.
However, if you do need long-term care, these products generally provide long-term care coverage that is 2-3 times (or more) the funds that you originally invested in the product, thereby significantly mitigating your risk. Further, if you know that you have long-term care coverage in place, that may free you to be a little more aggressive with the investment portfolio so depending on the market, you could potentially end up with better overall portfolio performance in the long-run.
We Can Help You Develop a Long-Term Care Plan
Having assisted many Wake County clients with long-term care planning, our team at Carolina Family Estate Planning understands that developing a long-term care plan is about not just protecting your own independence and dignity, but also protecting those you love from the physical, emotional, and financial toll that caring for a loved one can take.
We’ve helped many clients take an interdisciplinary approach to their long-term care planning by exploring both legal and financial options. Usually, a well-rounded long-term care plan will involve a combination of legal, health care, and financial tools to meet your goals and maximize your protection. To get started, register an upcoming seminar to learn more or call our office at 919-443-3035.
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