When it comes to long-term care (LTC), affluent individuals often feel they can afford to self-insure their LTC risk. But is self-insuring the most efficient use of one’s assets? After all, one important goal in estate planning is preserving wealth – and creating equality among family members. LTC expenses can put a large dent in an investment portfolio or estate when not properly anticipated.
For one to self-insure, it helps to have assets available that are liquid and accessible inside their portfolio in the event they encounter a triggering LTC event. Assume $600,000 is set aside for LTC expenses. If a triggering LTC event occurs and most or all of the $600,000 is spent then self-insuring the risk worked.
But, there is $600,000 less that would be passed to children, grandchildren or charity. Today, the average annual cost in a long-term care facility in Pennsylvania is $100,000+. Current statistics indicate that the average stay in a long-term care facility is two and half years. My experience working with clients is that the period exceeds two and half years.
A suggested alternative is re-position fixed assets into a Guaranteed Hybrid Long-term Care insurance contract with annual benefit increases for inflation. Example: A 60-year-old applies and is approved for a Guaranteed Hybrid Long-term care policy with a highly rated insurance company. The premium is a one-time single payment of $100,000 (The $100,000 may be spread over 10 years). Day 1, there is $313,945 of long-term care benefits available. By age 80, the amount of long term care benefits available has grown to $599,350. That equates to an 8.28% IRR at age 80 on the $100,000 one-time premium.
If death occurs before LTC benefits are needed a death benefit is paid of $117,000. A way to view this is that money is returned to your investment portfolio or estate if no LTC is needed.
Every situation is different, and must be evaluated, a person may want to consider the effective use of a Hybrid LTC policy with inflation protection to enhance the amount of wealth they could leave their heirs or charity.
For a customized plan or additional information on the Hybrid LTC benefit please contact LC Advisor firstname.lastname@example.org