Even though I practice “elder law”, not all of my clients are elderly… yet. In counseling younger clients, I am often asked about long-term care insurance (LTCI) and its benefits and down sides. While some consider the cost of LTCI premiums high, the cost of care is astronomical in comparison, making LTCI a hot topic.
When I began my career, I had the same questions as my clients. Who should buy LTCI? Is there an amount of wealth at which we can deem LTCI totally unnecessary or at least superfluous? If so, is that at $2 million? $10 million? I have been asking every insurance advisor I meet ever since.
My favorite answer so far – in terms of how wealthy one must be to make LTCI a ‘bad’ purchase – was that it depends on the client. (Let’s be honest – I’m a lawyer. I always think that “it depends” is the best answer!).
Here was the example: an individual with $2 million in assets may be able to generate enough investment income, along with his Social Security Retirement Benefits and pension/IRA/401K distributions, to pay the $3,500+ per month that Assisted Living or Nursing Care might cost without ever having to touch principal. Of course, an individual with $10 million could do the same. But as one advisor pointed out, the guy with $10 million could also buy a new home if his burned to the ground, but he still has homeowners insurance. And Warren Buffet apparently has long-term care insurance. This is presumably because Mr. Buffet, along with the wealthy homeowner, made an economic decision that he would rather pay insurance premiums now (risking he’ll never need to use the benefit) than risk having to pay the cost of a disaster (whether that be a home burnt down, or years of nursing home care at $80,000+ per year).
For some, LTCI may be necessary to preserve their estate. For others, estate preservation may not be important. In addition, government programs such as Medicaid and Veterans Administration benefits are available as back ups for those that need financial assistance for long-term care and have [mostly] run out of funds.
For the wealthier folks, the decision whether or not to buy LTCI is more about risk management, taking into account variables such as the risk of long-term care and the cost if one actually needs it, versus the cost of LTCI premiums. Of course, this is how Warren must have thought of it.
As for me? Although I definitely could not fund my potential long term care costs with any $10 million estate, I am probably not eligible for LTCI because I have insulin dependent diabetes. Which brings up another important point – if you ARE in the market and are healthy, it may be a good idea to start shopping while premiums are lower and before potential health issues arise.
If you need any more guidance on this topic, feel free to contact me as I would be happy to point you in the right direction!
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