Protecting your assets

Should You Self-Fund Your Long-Term Care?

9 Minute Read

Renewed interest in long-term care planning has increased as more consumers realize how a prolonged illness or injury can potentially impact their loved ones, retirement goals and investment portfolio. Part of this planning includes long-term care insurance. And while those with substantial assets have the finances to cover their future long-term care costs out of pocket, is doing so the best option?

The numbers don’t lie

According to the Genworth 2019 Cost of Care Survey, the national median annual cost for long-term care ranges from $48,612 to $102,200, depending on the type of care needed. Given the average stay in a nursing home is three years, costs can easily surpass $300,000.

Self-funding your future care

Many high-net-worth individuals generally have the resources to self-fund their long-term care needs without insurance. However, this option can leave them financially vulnerable for potentially large, open-ended costs they may not be aware of or didn’t expect. According to conventional financial planning, the suggested amount needed for high-net-worth individuals to self-insure for long-term care expenses ranges from as low as $1 million to $5 million or more. If you have the resources and plan on self funding your future long-term care, it’s important to consider the potential impact this option may have on your retirement savings, estate, assets, level of care and legacy.

Retirement assets

Even when affordability isn’t an issue, funding a major long-term care event could have far-reaching consequences on your retirement portfolio, reducing the amount you can safely withdraw in retirement. In addition to leaving you with less to live on in retirement, having to reallocate liquid assets from brokerage and retirement accounts can result in potential tax ramifications and penalties. If you were to run through your hard-earned retirement savings to cover your long-term care costs, would you have enough to fund a retirement that could last for several decades?

Estate preservation for loved ones

Self-insuring for long-term care expenses can quickly deplete a large portion of your savings that you may have wanted to preserve as part of your estate to pass on to your children, grandchildren or other loved ones after your death. Covering costs may require liquidating personal property, real estate or even family heirlooms. What will you have left for your heirs if you exhaust your assets to cover your long-term care expenses?

Liquidity of assets

A prolonged illness, injury or disability typically comes without warning. In some instances, those with considerable assets can have a significant amount of their assets tied up, making it difficult to immediately liquidate funds (e.g., real estate, personal property) to quickly cover long-term costs. Moreover, having to quickly liquidate nonliquid assets may result in having to accept a substantial loss on a sale or potential tax consequences. If you were suddenly faced with long-term care expenses, how quickly could you liquidate your assets to pay for your care?

According to the American Association for Long-Term Care Insurance, 13.9% of all LTC insurance claims are expected to last more than five years. In general, financial professionals suggest planning on at least eight to 10 years of full-time, long-term care costs.

Source: Long-Term Care News

Ensuring a higher level of care

Higher-end nursing homes, care facilities and in-home services come with a higher price tag compared with mainstream facilities. A person with substantial assets may be accustomed to a particular level of care and accommodations. In a long-term care event, will you have the necessary funds to fund a higher quality of care without depleting your assets?

Preserving a legacy

Leaving a financial gift is a great way to support the organizations that have had meaning in your life. But having to self-fund your long-term care expenses can quickly deplete assets that you have designated to a specific charity, organization or cause. How can you preserve your legacy to ensure that the cause you have supported in life will continue their good works after you’re gone?

Why you shouldn’t rely on major medical, Medicare, Medicaid and disability insurance to cover long-term care costs

An argument against insurance is that you can always rely on your major medical health plan, Medicare/Medicaid and disability insurance to help cover long-term care expenses. The truth is, if you have a need for long-term care, most health insurance plans generally cover only about 30 days of recuperative time. After that, costs for your care must come out of your own pocket.

If you qualify for short-term coverage in a skilled nursing facility, Medicare pays 100% of the cost—meals, nursing care, room, etc.—but only for the first 20 days. For days 21 through 100, you bear the cost of a daily copay. If you remain in the skilled nursing facility longer than 100 days, you’re responsible for the full cost of your care.

Medicaid is designed specifically for those with limited assets and requires individuals to meet strict income eligibility requirements to qualify for coverage. Disability insurance also won’t provide coverage, as it is meant to replace your salary if you suffer a prolonged illness or injury and can’t work—not your cost of care.

Conclusion

From protecting retirement funds to safeguarding bequests to heirs, having long-term care insurance can be a sensible option for high-net-worth individuals in these and many other situations. The most important thing is to consider your individual situation and establish a long-term care plan.

Long-term care planning is the process of arranging your assets in a way that protects some or all of your assets from the devastating cost of long-term or nursing home care. Because every individual is unique, planning requires a customized analysis to meet your specific objectives and values. In many cases, the discussion around long-term care planning will also involve a deeper discussion of your estate planning goals, as they are generally intertwined. By positioning your assets in advance of your potential need for long-term care, you can better ensure that you will receive the care you need when you need it while better protecting your assets.

Sound financial planning for life

When it comes to long-term care planning, you have options. Whether you decide to self-insure or choose a traditional or hybrid long-term care insurance policy, our advisors are here to help you navigate the intricacies of long-term care planning. We’ll review your financial portfolio and provide choices to protect your assets, ensuring you have the resources to support your lifestyle and financial planning goals to keep your retirement plans on track.

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Clients requiring insurance services will work directly with advisors from UnionBanc Insurance Services, a division of MUFG Union Bank, N.A., with a California domicile and principal place of business at 1201 Camino Del Mar, Suite 208, Del Mar, CA 92014.  California State Insurance License No. 0817733.  Non-deposit investment and insurance products: • Are NOT deposits or other obligations of, or guaranteed by, the Bank or any Bank affiliate • Are NOT insured by the FDIC or by any other federal government agency • Are subject to investment risks, including possible loss of the principal amount invested • Insurance and annuities are products of the insurance carriers.