Legal/Financial Article

It wasn't that long ago that, when the topic of long-term care (LTC) insurance was brought up to a wealthy person, they would brush off the idea, saying "I can self-insure."  But the drop in the Dow has shown many investors that they and their retirement plans are no longer invincible.  If they weren't worried before about outliving their money, they may now be worried.  Burden their financial picture with the cost of possible long-term care, and the worry escalates.

The S&P 500 is down 41% in the last year.  This is as good a number as any to estimate the losses that stock market investors have sustained.  Using this index, the stock portfolio worth a million a year ago is now worth less than $600,000.  What was two million is now less than a million two.  Ten million is now less than six.  Those are some scary numbers!

What's an investor to do?

One smart strategy may be to leverage the dollars that are left by purchasing long term care insurance.  Instead of burdening a portfolio with having to be both big enough and liquid enough to self-insure a long term care need, a policy can be purchased.  Once a new policy is in place, the newly-insured investor has now dramatically shored up his or her financial situation if care were to be needed.    Though he or she may no longer be in a position to write large personal checks for long-term care, he has bought a LTC insurance policy that will write the checks for covered care on his behalf.  Investors can find some consolation when they realize that, once the financial risk of needing long-term care is shifted to an insurance company, the need to recoup recent stock market losses is mitigated.

The LTC insurance solution may be superior to self-insuring in several ways.  The policy can be written to include a guaranteed inflation benefit (such as 5% compound) that is independent of market forces.  The insurance policy premium can sometimes be tax-deductible and the proceeds are almost always tax-free.  Compare this to the cost of tapping into a qualified retirement plan to pay for long-term care, or the market risk inherent if the self-insurer had to sell either real property or stocks.

The losses that investors have sustained in the stock market should serve as a wake-up call.  Even wealthy individuals can be vulnerable if they are dependent on stock market values to pay for their long-term care.  Now more than ever, it makes sense for even wealthy people to purchase long-term care insurance.

Karen Simmons is an insurance agent in Sonoma, CA who specializes in long-term care insurance and represents several leading long-term care companies.  Karen is authorized to offer AARP-endorsed products and the CA Partnership for Long Term Care.  She can be reached at 707-996-7886.