Advanced Markets Minute – December 2022

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LTC Self-Insurance or Self-Delusion?

Welcome to the Advanced Markets Minute in both print and audio form. Today’s article is called “LTC Self-Insurance or Self-Delusion?”

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When it comes to planning for long-term care expenses some clients say they would rather self-insure, or in other words, pay the cost of care themselves. They probably don’t self-insure against auto accidents, home fires, or medical costs, but somehow self-insuring against the risk of needing long term care makes sense to them. Many who say that may not understand what the actual cost of long-term care will be and, in reality, cannot self-insure. But some clients have enough assets that they could. For those clients, you could say, “Sure, you could, but why on earth would you?” Aside from the obvious financial leverage of insurance, and the illogic of spending 100 cents on the dollar when you have a lower cost alternative, there are some things they may not have considered:

  1. First, maybe they have carefully planned for retirement. But if they spend down their assets to pay for care, will there be enough left for a spouse’s retirement, or that spouse’s long-term care?
  2. If they sell assets, they will have to sell them when they need money for care, not when it is a good time to sell. Could they wind up selling them at fire-sale discounts? Or even if it is a good time to sell, is such a sale going to trigger capital gains or ordinary income taxes that would force the client to sell more to get the same dollar amount for care?
  3. Finally, what if they need care tomorrow, or next year, or at any time before they’ve saved enough?

Self-insuring may sound good, but long-term care insurance could be the money-saving choice. Here are a couple of ways that it might be even better.

First, Mutual of Omaha not only offers one of the few standalone long-term care policies in the industry, but we also offer a true long-term care rider on life insurance policies. Using this rider ensures someone will get the benefit of the premium: it will either pay for care, pay cash via a loan, a withdrawal, or the GRO rider, or pay the beneficiaries via the death benefit. Of course, we continue to offer our included chronic illness rider for those who don’t choose or don’t qualify for the long-term care rider.

Second, there is a strategy using the traditional LTC policy that may help save premium dollars while still providing the necessary care. Let’s say your clients are 55 years old and want to be protected against likely long term care costs. Aren’t they more likely to need the care in 10 years, or in 20+ years rather than now? For a 55-year-old, it is probably fair to say 20+ years. In that case, show them a lower daily benefit with a higher inflation rider. Going out 20 years with a higher inflation factor may take that lower daily benefit up to where they need the coverage to be but could cost them less each year than full benefits from the start. This will vary with each client but may work to give your client the right coverage at a lower cost.

If you have clients who can benefit from this information, call us in Advanced Markets.

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This is for informational purposes only. Recommendations for financial product or financial strategies must be suitable for the individual based on their circumstances. Mutual of Omaha and its representatives do not provide tax or legal advice.