Archive for June, 2010

Who Should Not Buy Long Term Care Insurance

June 15, 2010

People with low income and net worth should not buy long term care insurance.  They have other, more immediate, priorities (food, shelter, etc.) and will likely soon qualify for Medicaid.  While the long term care services provided by Medicaid are not nearly of the high quality (fewer choices and fewer available resources) as private pay, Medicaid does provide a safety net.

What minimums do I use to financially qualify someone for long term care insurance?  As a general rule, a couple should have a combined annual income of at least$50,000 and a net worth of at least $150,000 before considering long term care insurance.  For a single person, the minimums are about$40,000 annual income and $50,000 net worth.

An exception would be a situation in which adult children can afford and are willing to pay the insurance premiums.  that can be a good way for adult children to remove the financial risk to themselves of ultimately paying for their parents long term care services.  One way or another, the children always pay the cost of their parents’ care…either as a result of a reduced inheritance because the parents did not have long term care insurance, or a reduced inheritance because of insurance premiums paid by someone.

In short, someone without much income or assets should not consider long term care insurance.

© Raymond Smith, The Long Term Care Specialist, 2010.

High Net Worth and Long Term Care Insurance

June 11, 2010

Should a person with $2.0 million net worth consider long term care insurance?  What about $10M?  $50M?  Bill and Melinda Gates?  I am often asked how much net worth a person needs to be able to self-insure against the risk of needing long term care services.  With at least $1.5M in assets, an individual ($3.0M for a couple) probably could self-insure.  There is no question that someone with $10 million of net worth could self-insure, but does it make good business sense to do so?

Successful people don’t acquire a high net worth by carrying significant risks on their own shoulders.  They have liability insurance.  They hedge business deals against bad outcomes.  They engage attorneys, CPAs, insurance agents and financial planners to provide good advice.  All of this to minimize risk.

Estate Planning: Why do high net worth people go through the time and expense of estate planning?  They don’t do it to reduce estate taxes (especially for calendar year 2010).  Taxes are merely a single piece of the puzzle.  The primary reason people do estate planning is to maximize what gets passed to who they want to receive their assets.  Yes, estate planning is done to keep financial affairs private and also to ensure that specific assets go to particular people, but mostly to maximize the amount of wealth that is transferred.

Family Relationships: Even with wealth, there is often the at least perceived obligation to provide hands-on care for parents.  This burde45ish mom and her 2 daughtersn usually falls disproportionately upon the adult daughter or daughter-in-law.  Providing hands-on care has a negative impact on careers, educational pursuits and personal relationships (more about this in a future posting).  Long term care insurance provides cash that can only be used for one thing…payment for professional long term care services*.  This changes the dynamic from daughter providing hands-on care to daughter (or other family member) being the manager of care.  “Manager of care” is far less a burden and thus results in far less intra-family stress.

Finally: If Bill and Melinda Gates were to respond to this article, I would advise them to at least consider long term care insurance.  Why?  So they could maximize the amount that will be left to their many good works.

*Cash benefit  or indemnity policies are exceptions.

© Raymond Smith, The Long Term Care Specialist, 2010.