The Risk in Self Insuring Your Long Term Care Needs

 I was speaking with a man this morning in Dallas, Texas who had contacted us on learning more about long term care insurance.  His main concern like most, is what if I never use the insurance?  He said, I'll be better off just self-insuring myself.  I've gotten that risky idea ever since I started LTCtree back in 1998 and all I had to mention to him was point to in the current financial mess.  If you self-insure you better guarantee that you won't need long term care in a down market, because the people who choose to self insure back in the 1990's and are paying for their current long term care bills out of their depleted investments now are literally calling us everyday from all corners of the country.  We have to sadly tell them sorry you are now not insurable.  Thankfully more and more people are realizing that buying long term care insurance in your 40's and 50's is the right thing to do and most of those people have seen their parents blow through hundreds of thousands of dollars because of the devastating cost of long term care.  The average purchase age for LTC insurance is 59, according to the American Association for Long-Term Care Insurance (AALTCI).

I really encourage people who are beginning to think about long term care insurance to learn from history and realize that unless you have 2-million plus in cash you cannot self insure properly in even an upmarket much less a down market like we're currently experiencing.  Another thing to think about is when you pull money out in the future from say an IRA you will have to pay taxes on that money.  Long term care insurance money is not taxed and a common plan I help design for our clients is set-aside say 100k and put it in a guaranteed CD or annuity.  Say you get 5% on that money, simply take that 5k in interest you receive each year and pay your long term care insurance.  Your principle is still there safe.  95% of all LTC plan are below 5k/couple so you probably won't even have to use the full 5K in interest.  Simple put, take a portion of the interest on just one part of your portfolio and use the interest to fund your long term care insurance "check-book".  If you ever need LTC in the future the money won't come out of your nest egg, but the insurance companies pocket.  It just makes sense to take a portion of interest that you're probably not even using to fund your LTC plan and that in-turn will protect your retirement. 

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