Many people think they’ll self-fund for long term care. But here are factors they typically fail to consider:
- Their spouse. Self-funding long term care expenses for one spouse has the potential to deplete assets for the other spouse. If a husband or wife passes away after using a significant amount of joint assets for care, it leaves the remaining spouse with far less money than anticipated. This could impact the remaining spouse’s lifestyle as well as their ability to pay for his or her care in the future.
- The tax implications. Liquidating assets to pay for long term care services may trigger capital gains tax, income tax and surrender charges.
- The possibility of invading a plan. No one wants to use assets they’ve set aside for retirement or for a child’s inheritance to pay for long term care services.
- The cost of lost opportunity. Investing conservatively to ensure access to the funds they need or liquidating assets to pay for care may mean the potential for lost income.
- The possibility of not getting care. People who self-fund may be less likely to seek care because they know they’re paying for it themselves.
Why some form of long term care insurance is a better option:
- It helps ensure that one spouse won’t deplete assets the other spouse needs
- It alleviates the tax implications associated with liquidating assets
- It prevents people from having to cash in assets they’ve earmarked for other uses, allowing them to keep their plan intact
- It allows people to continue to invest their assets to earn maximum gains
- It allows people to get the long term care services they need
Points for Financial Advisors to Consider:
- How much of my client’s portfolio has been allocated for an extended care event? Is that an adequate amount?
- How do my clients feel about a bear market? When the market has been down 10 or 20%, when do they begin to become anxious? If the market is down at the time that my clients need funds to pay for long term care services, that can create a crisis. They may not be able to recover from the double whammy of a bear market and a long term care event. To avoid “selling low”, it’s better to transfer the risk to the insurance company.
- When my client makes a claim for their long term care insurance policy, there’s no thought about what they paid for it. They’re only thinking about how much benefit they have. The Financial Advisor is the hero when a significant pool of tax free dollars is provided for the client’s care.
- When speaking about an extended care need with clients, remember that it’s not about their “needs” as much as it is about their “wants”. Where would my client want to receive care? What role would they want their spouse or children to play? Long term care insurance provides fast and easy answers since there is an instant pool of money that doesn’t come from their portfolio that can address these desires.