Archive for December, 2011

How Much Is Enough…

December 26, 2011

…to self-insure against the risk of needing long term care services?  While having lunch the other day with a friend (and professional wealth manager) this question came up:   How much reasonably accessible net worth is required before a person should not buy long term care insurance?  I responded with my usual “If Bill Gates walked into this restaurant right now, I would advise him to apply for long term care insurance.”  When pressed for a justification, I said “Bill and Melinda provide funding for a huge number of good works through their foundation.  If either (or both) needed long term care, their charitable contributions would ultimately be reduced by several millions of dollars.”  Note that Bill and Melinda are not going to settle for “average” care when they need it.

My friend then said, “But what if it was a different billionaire?  One who had no desire to leave anything behind for anyone?  Someone whose goal was to have spent his last dollar just as he drew his last breath.”  He had me.  I had to agree.  There is an exception.

We are are really dealing with two questions:  1. How much is needed before someone COULD self-insure?  2. How much is needed before someone SHOULD self-insure? 

A single person with $1.5 million, or a couple with $3.0 million in net worth probably COULD self-insure.  It is not likely that the cost of long term care would exceed these amounts.

On the other hand, if this high net worth individual or couple wanted to leave a financial legacy, then it would not make good business sense to self-insure regardless of the amount of assets up to and including that of Bill and Melinda Gates.  Here is the key:  If a person with wealth cares enough about someone or something to want to leave assets to, then there is no net worth upper limit (for buying long term care insurance).  What are some of the indicators for “caring enough?” 

1. Estate planning either has been or will be done in the future:  People don’t do estate planning to minimize estate taxes…taxes are but a piece of the puzzle.  They do it to maximize what gets passed on, and to pre-determine who gets what. 

2. Owns a home with no mortgage, yet continues to pay for homeowners (fire) insurance.  Has enough assets to replace a destroyed house.

3. Has life insurance although none is contractually required.

4. Has consistently supported a charity or other non-profit organization and, by all indications, wants to continue doing so.

5. Has grandchildren.

Bottom line.  With one exception, I stand by my assertion that there is no upper net worth limit on the advisability (actually, good business judgement) of buying long term care insurance.  The exception is a person who does not want to leave anything for others.  It sounds like I am saying that everyone should buy long term care insurance.  Not so!  There is an asset and income level below which someone should not buy.  These folks have pressing financial issues of greater urgency.  This will be a topic for a future eNewsletter.  Finally, there is that substantial number of people whose medical histories makes them ineligible to buy long term care insurance at any price…they waited too long and thus can no longer transfer the risk.

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term insurance policies vary from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

 © Raymond Smith, The Long Term Care Specialist, 2011