Self-Insuring: Some Warnings

Self-insuring for long term care—planning to cover costs through savings or investments—is generally not wise for a number of reasons:

Asset liquidation.
Even if you have sufficient assets, needing to liquidate those assets to cover long term care costs could represent lost income. A reduced asset pool would likely impact you and your family.

Increased taxation.
Liquidating assets such as IRAs, 401Ks, stocks, and mutual funds all trigger income taxes, which must be added to the overall cost of care.

Lost appreciation.
By self-funding, you would forfeit the potential for future appreciation on the liquidated assets.

Shifting the Risk.
The example below shows why Long Term Care Insurance is a wiser alternative to self-insuring—and this holds true for high-net-worth individuals as well.

 

Self-Insuring costs you more — here’s why:

Transferring the Risk to LTC Insurance
The LTC Insurance Plan
$250/day, 100% comprehensive care, 90-day elimination period, 0-day home care, 3-year benefit period, 3% compound inflation protection

The Premium
$3,674(1)

The Benefit (Pool of Money) at age 80
$487,651

Total Premiums
$73,480 ($3,674 x 20 years)

The Cost per $ of Care
15 cents ($73,480 ÷ $487,651)

(1)Mutual of Omaha, Standard, Age 60, Married, Female, 3% compound, 40% cash, NYS

 

Let’s Compare: Transferring the Risk vs. Self-Insuring

The Cost per $ of Care
Transfer Risk
$0.15
vs
Self-Insure
$1.54

 

The cost to transfer the risk does not even include tax credits and deductions. The net effective cost will be even lower.

Which is the wiser choice to protect against the risk?

What can you do with $204 per month?
Long Term Care Insurance vs. Investing

LTC_BarGraph

*Age 55 preferred, Genworth
$250/day 3 years; 3% compound
As the above example shows, shifting the risk to LTC Insurance gives you an immediate $270K. In 20 years, that money will have grown to $473K. Banking the money with a 3% return produces only $72K in 20 years.


Do YOU have a long term care plan?
To learn about the options that are best for you, your loved ones, or your employees, contact us at 516.801.1419 or info@KarpLoshak.com.