Long-term Care Options II: How to Self-insure

MARCH 26, 2015
Shirley Mueller, MD
Read this if you are in the middle to upper class. It could save you headaches and money.
 
There is no guarantee that those who pay for long-term insurance will receive a benefit. Self-insuring is a better option for many.
 
Reasons to Self-Insure for Long-term Care Insurance (LTCI)

1. Statistics suggest that 1 in 10 claims are denied. If you self-insure, you happily will not deny your own claim. You have control; not someone else.
 
2. The odds that a 65-year-old will not need any care at all before death are about 33%. Even if a nursing home is required, most often the first 90 days are not covered by LTCI and 66% of those that require it stay in for less than 60 days. Thereby, LTCI isn’t beneficial much of the time and the money placed into it could be used for another purpose.
 
How to Self-Insure

If you are 65 years old or older and have sufficient funds set aside for your core needs, you can comfortably self-insure if you have several hundred thousand dollars extra. It can be invested in a portfolio of 60% safe assets and 40% stocks and provide the same benefit if needed as LTCI. If it is not enough, you will be little different from those that purchased LTCI. On the other hand, if it is not needed, you can use it for any other purpose that you wish.

For the younger crowd, more self-discipline is needed. A special fund would have to be created for long-term care. This requires action and willpower and as long-term care specialists point out, most people simply do not have this restraint. But, if you are one that does, here are the numbers to set up your own fund to self insure.

If $90 were invested each month in a fund that is relatively conservative, such as 60% stocks and 40% safe assets, you would have 35 years of compounding returns at age 65. Figuring a conservative 6% return, you would have $128,262 not taking into account inflation and taxes. This could fund your own private LTCI. If the return were higher, say 8%, you would have more, $202,321 (also not figuring inflation and taxes).  Then, almost certainly, you could fund your own long-term care and if it wasn’t needed, chose any alternative use you prefer.

Catastrophic Long-term Care Insurance

This option would mean that the participant would self-insure for the shorter term, but if the care lasted a certain duration, the Catastrophic Long-term Care Insurance would pick up all or part of the bill. The premiums would be less expensive for the buyer because the risk of long-term care is less than short-term. This line of thinking is consistent with the adage, “Pay as little as you can to cover a maximum risk.”

Now, for the clincher. In my research on the subject, there does not seem to be any Catastrophic Long-term Care Insurance to buy. It simply is not offered as nearly as I can tell. I did see it discussed but there is no cigar, so to speak. So paying less for a lot is still in the future as far as I can see—something to look forward to.

A Reason to Buy LTCI

Though it is true that up to 1 in 5 will need true long-term care (2 years and longer), these odds are not high. Fifty percent or more is high, not 20%. Of course, if you are in the 20% that requires it, the odds are 100% for you. Therefore, if you do not want to take this risk even though the odds are relatively modest, long-term care insurance may be a better choice for you.
 
For More:
One Option for Stock Market Profits: Long-term Care Insurance?



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