Planning on self-insurance for long term care? What that means for you and your family


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The Federal Interagency Task Force on Long-Term Care Insurance recently found that only 10% of people who could purchase some form of long term care insurance actually hold a policy.

That leaves 90% of people self-insured against long term care, meaning they are going to cover the cost of care on their own. Almost all people who are self-insured are there by default, not by design.

For the 90% self-insured, they are basically betting that they are not going to need long term care during their lifetime. If they thought they were going to need these services, they would purchase some kind of policy to pay for care, as it would give them the most value for their money.

The reality is that most people are going to need long term care – more than half of the people turning 65 today are going to need some form of long term care.

At Cardinal, we do not consider clients actually self-insured for long term care until they have a written plan in place, shared with family and loved ones, that outlines exactly where they want care and where the money is going to come from to pay for care.

For those that truly have a plan for self-insurance, it usually means that they have money sitting aside that is designated only for long term care costs. There is almost always a better place to put this money.

We want to give you an example of one place you could put this money that would net you some extra benefits, even if you did not end up needing care.

Long Term Care: Self Insurance

Self insured for long term care is rarely insurance by design and most often self insurance default.

One product to self-insure against long term care insurance

This product we are going over is hybrid long term care insurance in its simplest form. You are going to transfer money to an insurance company, and in return either get long term care benefits, a life insurance benefit paid out to your family, or a combination of both.

For this example, say you take $100,000 that you had earmarked for long term care and put it into this policy.

The main appeal of this policy is the long term care benefit. For the $100,000 you put into the policy, you are going to get $300,000 of long term care benefits.  You are basically tripling your money.

This policy can be purchased for either a single person or for a couple. If you are single, and you need long term care, you will receive $4,166 monthly for 72 months.

If you are splitting the policy between two people, you will receive $3,333 monthly for 90 months. 

This money can pay for care in whatever form you choose, from home health care to nursing home care. Once you need care, there is not a waiting period, meaning it will start paying on the first day you qualify for benefits.

If you do not end up needing the long term care benefits at all, when you pass away, your beneficiaries will receive your initial $100,000, plus some interest, paid out to them in the form of life insurance.

If you end up only needing a small amount of long term care, meaning you do not use up the initial $100,000 deposit, your beneficiaries will receive the remainder paid out to them in life insurance.

Listen to learn more about self-insurance for long term care:

If you think the above amounts are not enough to cover the long term care bill, you can increase the initial deposit to create more of a benefit. You can actually put a substantial amount of money in this policy.

The initial deposit amount can also be decreased from $100,000, with the monthly benefits decreasing accordingly.

You do have to use non-qualified money to fund this policy, though the benefit will be paid out tax-free, as the money will either be used for long term care or paid out as life insurance.

This policy also has relatively easy health qualifications. While you cannot qualify for this policy if you have a serious debilitating illness, such as dementia, parkinsons, or cancer, many people who would be rejected for traditional long term care insurance can buy this product.

Most clients that come into us have a significant amount of money sitting in an IRA, a CD, or a savings account. This money is considered safe, due to sitting in low risk accounts, and this is the money that they will initially pull from to pay the long term care bill.

Putting this money into a hybrid policy, like the one above, keeps your money safe as well as gives you a tremendous benefit. Instead of earning a very low interest rate sitting in safe accounts, you can potentially triple your money if you need long term care benefits.

It keeps your money safe while also protecting you and your family against an enormous long term care bill. 

While this is obviously not going to be the solution for everyone, there is a solution for everyone. Do not let yourself be thrown into the self-insurance category by default, make sure if you are there, you are there by design.

Even if the ultimate plan is to go on Medicaid if long term care services are needed, this involves some planning to make sure you still have some control over your finances and healthcare decisions.

Cardinal can help you look over your long term care plan and find a solution that will work best for you and your family.

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