Is the strategy of self-insuring Long-term care the best option?
Long-term Care Insurance-Longevity Planning
Protecting a Double Loss Hit!
We have experienced a severe economic downturn in the stock market and interest rates are near zero. It is anticipated that the volatility in the financial markets will continue for the foreseeable future.
Individual investors and their advisors should rethink their strategy of self-insuring for the financial costs associated with a long-term care triggering event.
Is self-insuring the optimal financial planning decision to self-insure?
The decline of a future retiree’s or current retiree’s investment portfolio may create a double loss. A double loss would be selling investment assets to pay for long-term care services in a down market as well as scaling back the choices for long-term care services.
Traditionally an investor’s portfolio of assets is allocated among cash, bonds and stocks. The percentage of ownership of these three different asset classes are based on the investor’s ability to tolerate investment risk and their investment time horizon.
Several of today’s asset based long-term care insurance contracts may be positioned as a conservative non-correlated asset in an investor’s portfolio. It can help the portfolio in uncertain financial markets. If long-term care is required these contracts provide a dedicated stream of guaranteed funds for long-term care. These funds are separate from the portfolio and not tied to the market. Tax-free funds from the contract are available to pay for qualifying long-term care costs whether at home or a facility.
These contracts include guaranteed cash surrender values and death benefits. If a policy owner decides to cancel the contract there are cash values available that will be paid to the policy owner. Also, if a policy owner dies without receiving any long-term care benefits a death benefit is paid to the policy owner’s beneficiary. Generally, the death benefit equals the premium contributions plus a small return for the use of the funds. These policies do not operate like automobile insurance or homeowners’ policies where one must suffer a loss to collect the benefits. These policies pay benefits during lifetime and at death.
Long-term care policies are either structured as indemnity or reimbursement plans. Indemnity plans do not require the submission of long-term care expense bills. Benefits are paid when the policy owner qualifies for needing long-term care. Reimbursement plans require the submission of bills. Assuming the bills qualify then cash benefits are released to the policy owner.
The risk of needing long-term care during one’s lifetime is greater than 50%. If you’re over age 50 you should consider developing a plan for long-term care. Long-term care planning options may range from: “I want to age in place or I want to live in retirement community or my spouse or partner will take care of me”. It may or may not involve asset-based insurance solutions.
LC Advisor works with people that are concerned about the economic and lifetime decisions needed for developing a plan for care. If insurance is involved, we can help navigate the different options and weigh the positives and negatives. Begin a planning discussion while you have your health and resources today.
