Long Term Care Plan Design for High Net Worth Families
Long term care insurance, as a product, is not for everyone. On one hand you have people who are below the level where paying a high annual premium makes sense. These people may be forced one day to cancel a policy they’ve paid on for years, perhaps decades, losing everything they’ve paid in. For people with net worth somewhere around $100,000 or less, long term care insurance may just be too risky to consider. A bad year can mean all of your planning goes down the tubes. There are good viable alternatives for people at these levels, including:
- Medicaid – the state program for the financially indigent. As a society, this is our safety net to keep seniors from dying in the streets. There are requirements for both income and assets, so qualifying may be tougher than expected.
- Family members – children and nearby relatives may be called on to come and assist a sick parent, aunt, or uncle. While there is no requirement per se, most customs mean that family takes care of family.
The Upper End Of the Spectrum
So for those with over $100,000, some long term care plan may make sense. But at what level should one say “I’m going to roll the dice” and not buy one of these policies? The question is harder to answer than on the lower end, because even the wealthiest, financially savvy investors with ample income and assets consider LTC policies in many cases. The rule of thumb is that with over $2M of liquid assets, you may be safe to rely on your own bank account rather than benefits payable by the insurance company. For those in the $1MM to $5MM range of assets, we’ve put together a few plan ideas to consider versus just rolling the proverbial dice:
- Long and Thin Plans
– several top-tier companies sell plans that pay extended periods of time, so the risk of a longer claim is mitigated. This is considered one of the best “bang for your buck” plan designs – if you use the benefits later in the policy. The cost to go from a three year benefit to a six year benefit, for example, is about 30% higher with MassMutual. So you get double the potential coverage for just 30% more premium. That the Long part, what about the Thin part? Well, by going with a lower benefit payout, say $100/day instead of $200, you get exactly half the premium. If you’re willing to cover the other $100/day out of pocket, for example, you’ll save 50%. After all, this is one you may buy and never use. (Stats here)
- Shared Plans – while we generally suggest shopping without a “shared” rider on your plan, this design may make sense for some high net worth families. For example, Thrivent offers up to 16 years of benefits (8+8 Shared) for married couples to share. The cost of going from a simple set of two individual policies to a shared policy is generally only about 15% to 25% depending on the carrier. Use this with caution, each shared policy has terms that vary slightly from one to the next. A good advisor will be able to quickly cut through the noise and explain the nuances in these options.
- Hybrid Policies & Single Premium Options – these are options for those who are comfortable writing a check for as much as $200,000 to an insurance company. Often called “hybrid” policies they can combine life and annuity policies with long term care insurance. Beware of any “hybrid” that is less than about $75,000 per person… those tend to really skimp on important benefits like inflation protection or waiver of premium. More on hybrids here.
To insure or not to insure, that is the question… that no one knows the answer to. After all, insurance is risk transfer and mitigation at best, and at worst an unneeded expense in retirement. For many, having something is better than nothing even if the full (and crazy expensive) cost of Long Term Care isn’t covered to the last penny.
The Risk: according to LongTermCare.gov, about 70% of adults end up needing some long term care services. (source : Who Needs Care? – Long-Term Care Information)
Shopping around is easy. Our service is designed specifically for those in the $100k – $5M asset range. We respect your time and space, our process starts online and is convenient and fast. No sales meeting, virtual or otherwise, ever. We’ll mail you comparison rates side-by-side so you can take your time and shop the market on your own time.