How to Self-Insure for Long Term Care (Part 1)

            It seems that every year we receive more calls from our clients who have long term care insurance but are struggling with the decision about whether to keep it in the face of rising premiums.  The story I wrote about the past two weeks is an example of someone who reduced his coverage with some severe consequences.

            There are, however, other alternatives.  I wrote about some of those options last year, what are called asset based long term care insurance products.  It is, in essence, self-insuring using what we call “legacy assets”.  These are assets in retirees’ portfolios that do not support their lifestyle, but are available in case of some serious emergency (rainy day money!).  These assets if (hopefully) never needed, will pass to the clients’ children or charity after they die.  The one most significant risk to those assets is the need to pay for long term care.

            The ideal planning approach  would be to “invest” some of these legacy assets in such a way that the assets can be worth as much as possible whenever they may be needed to pay for care . . . in the home, assisted living facility or nursing home.  If not needed, the money would then pass to the intended heirs, with no “use it, or lose it” issues as with conventional long term care insurance.

            There are a number of products on the market that enable this type of strategy.  One way is to transfer money from its current location (bank account, money market, fixed annuity, etc.) into a specially designed life insurance policy with riders that prepay the death benefit, and additionally reimburse the insured for the incurred costs of long term care.

      Next week I’ll share with you the details of how one couple used this strategy to solve their long term care concerns.