Would You Skip Homeowner’s Insurance to Save a Few Thousand Dollars?

We were discussing our VA plan and how we have clients place assets into a trust, then qualify for VA benefits and guide families on how to spend the money in the trust so we can keep eligibility for New Jersey Medicaid should it be necessary.  “But, my brothers and I can hold onto the money in our names”, Jim replied.  “Why do we need the trust?”

Jim’s response is not uncommon.  If he can save the cost of our legal services with a “do it yourself” approach, why not?  Was he missing something?  The answer is “he’s missing a lot”.

Jim told me his brothers would simply spend the money they are holding for Dad’s care.  Then when it’s gone they’ll apply for Medicaid.  Sounds simple but it rarely is.  Medicaid rules are quite complex and it is easy to make a mistake.  I explained to Jim that if he does not spend that money in the right way and be able to provide proper documentation to the New Jersey Medicaid office – at the time of the application – he could wind up with a Medicaid penalty.

That penalty equates to a number of months of nursing home care that the state would not pick up.  He and his brothers must then pay for the care and they don’t get to pay the same rate as New Jersey pays.   They’ll have to pay somewhere between $10,000 and $12,000 a month.  And it will have to come out of their pocket, not Dad’s, since they will already have spent his money.

Whether Jim successfully navigates through the system and avoids a penalty will have more to do with luck than any skill on his part.  If Dad dies before he runs out of money then Jim won’t need to file for Medicaid.  If he applies and avoids a penalty it won’t be because he understood and applied the Medicaid rules correctly.  It was clear from my conversation with him that he’s never looked at the New Jersey’s Medicaid regulations.   What he knows – or thinks he knows – about Medicaid is based on conversations with friends and acquaintances and much of what he told me was flat out wrong.

I told him that hiring us to help him is like insurance.  You can decide not to buy homeowner’s insurance and keep the few thousand dollars it costs, in your bank account.  If your house doesn’t burn down then you’ve saved yourself that money.  On the other hand, if you lose that gamble, it will likely cost you a lot more money to repair your home than a few thousand dollars – and you won’t be able to go back and buy the insurance after you guessed wrong..

It’s that way with long term care.  Gamble and lose and it costs you multiples of what you would pay for the right advice to start.  Plus, the biggest benefit just may be the peace of mind you get from knowing you’ve got a safety net.  That’s what insurance is really all about.