Can You “Self Insure” For Your Long-Term Care Needs?

In helping families throughout New York plan for potential care needs down the road, we frequently explain that the ideal solution is long-term care insurance (LTCI). As the name implies, these policies require community members to pay premiums now with assurances that certain financial support will be available if you need care down the road. One key benefit of long-term care insurance is that it often allows for more flexibility in caregiving options, like paying for at-home caregiver to avoid the need to move into a new location.

But is this insurance good for everyone?

A recent story from Financial Planning suggests that, in some cases it may be worthwhile for retired individuals to “self insure” for long-term care. The basic idea is that it could be more prudent to not pay high premiums for care that may not be needed and instead invest the money that would have been spent on premiums. You may have heard something similar and are wondering if self insurance is the right fit for you.

Only For Certain Families
As the author concedes from the beginning, considering self-insurance is only truly feasible for those with a certain level of assets. The authors set the bar at $2.5 million in investable assets (including the value of a downsized home). If your nest egg is not that high, then planning for self insurance does not make sense.

But is does not end there. The cost of long-term care in your area must be factored. The rough $2.5 million benchmark applies only to areas where these costs are relatively low–North Carolina is used in the story as an example. For more expensive locations–like New York–the care costs can double, making self insurance only feasible for those with considerably more assets, perhaps $4 million or $5 million.

Many Options
Importantly, hybrid approaches can also work. An individual may create a plan in which some insurance is purchased, at a lower premium, with self insurance for the gap. For others, traditional long-term care insurance may still be the best bet. And for families who are unable to pay the necessary premiums for LTCI, Medicaid acts as a stopgap. For those families, it is still critical to conduct early planning to take advantage of tools like the Medicaid Asset Protection Trust (MAPT) which protects assets from being spent down to qualify for Medicaid.

For help understanding which option is right for you throughout New York, please contact our elder law attorneys today.