Recently, in a Northeast newspaper, a reader posed an interesting question:
Question: I have $150,000 in assets that I want to pass on to my children. I don’t want to lose it paying for a nursing home or other facility. Should I take out long-term care insurance?
Answer: “Consumer Reports” made an excellent summary statement of the issue: “Unfortunately, those who need long-term care insurance to protect their assets often can’t afford it, and those who can afford it don’t need it because they have the funds to pay for their own care.” They do offer guidelines, one of which may apply to your case: “Skip a plan if: Your net worth is less than $200,000. Medicaid will pick up the bills after you exhaust your funds.” Long-term care insurance is expensive, and you have to be prepared to pay big premiums and big increases in those premiums as the years go by. The long-term care issue is similar to the bank loan issue. Banks, it seems, want to loan money only to those who don’t need the loan. By like token, insurance companies market long-term care insurance so those that need it can’t afford it, and those who can afford it don’t need it.
One of the questions I ask my clients when they are considering long term care insurance is this: ”Is it very important for you to protect your assets for your heirs and/or charity?” The majority of them say, “No… I’m primarily concerned about maintaining my own financial independence and the financial independence of my spouse.”
But, about 1 in 5 of my clients says that it is very important for them to protect their assets for heirs and/or charity.That is exactly what this person is asking here. Unfortunately, the answer seems to be, “$150,000 isn’t worth protecting and passing onto your heirs. Just spend it all on your care, then go on Medicaid (because that’s what the consumer magazine says to do.)”
I rarely discuss ‘net worth’ with my clients when determining if long term care insurance is right for them. It’s much more important to discuss ‘household income’, especially for married couples. If one spouse needs care, and you apply for state-funded care, the healthy spouse may have to try to live within the confines of a significantly decreased household income. (I’ll share a real-life example of that in a future blog entry.)
I’m not suggesting that it’s easy to decide if long term care insurance is right for you. There can be a lot of issues to consider including: income, age, state of residence, net worth (including home equity), health history, marital status, and familial matters.
Is this person’s discretionary income too low to continue to pay LTCi premiums for the foreseeable future? If so, then LTCi is definitely not a good idea (unless the adult children would be interested in helping to pay for the policy.)
Is this person young enough for the premiums to be affordable?
Does this person live in a state where an affordable, Long Term Care Partnership policy can be purchased, which could still protect assets should the LTCi policy’s benefits be exhausted?
How much equity is in the house? Is this person’s net worth $150,000 PLUS the value of the home? If so, then there’s even more to protect and even more justification for an LTCi premium.
Is this person healthy enough to qualify for a LTCi policy and healthy enough to get a low enough premium?
Is this person in a second marriage (with a prenuptial agreement)? In many states, if the second spouse needs long term care, the assets you want to leave your heirs are not always protected, even if you have a prenuptial agreement.
Does this person have a disabled child living with them or a healthy child who would want to move in with them and help care for them? If so, then an LTCi policy may not be necessary.
I’m not trying to complicate long term care insurance, but this is a very important issue which affects hundreds of thousands of families every year! Important questions need sound, thought-out answers.
© 2006 – Scott A. Olson, CLTC
All rights reserved.
