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Financial and consumer publications will often assess the cost of long-term care in terms of nursing homes. By doing so, the math becomes simple: the average stay in a facility is 2.5 years, which is then multiplied by an average cost of $67,000 per year, resulting in $167,500. This would seem well within the ability of a person with $2.5 million to pay. This fails to take into consideration two critical issues. Long-term care is not about nursing homes and that income pays for care.
Every carrier in the long-term care insurance industry reports that the overwhelming percentage of claims submitted is for care at home and in the community. The cost of that care easily exceed a nursing home stay (which may never be necessary) and therefore must be factored into the overall cost of assistance over a period of years.
Assuming a 5% rate of return and that 100% of the portfolio is in income producing investments, $2.5 million would generate approximately $125,000 each year. As previously stated, it is likely that income is fully committed to support lifestyle. Question: Where''s the money going to come from to pay for care?
What about the client with $20 million in assets? The first question to ask is, "What is the nature of his or her assets?" Many small business owners have the majority of their wealth tied up in their company. Paying for care can pose a liquidity problem. Have you considered the tax consequences of liquidating assets in order to pay for care? What of the portfolio has to be sold in a bear market? There is also the issue of legacy assets and which of them would have to be sold to fund care over a period of years.
SUMMARY: Clients nearing retirement focus not on assets, but how much income they will need to support their lifestyles and keep financial commitments. $2.5 million is therefore reduced to the income it generates. Since that income is already committed, it presents the client with very difficult choices, should care ever be needed in the future.
If you are considering the self-insure approach, let me show you a way to use an existing asset to leverage the potential risk. If you don't use it for long-term care you still hold the asset.
Call me at 239-280-3246 today or eMail me by clicking here
George Leamon is originally from Binghamton, New York. He began his insurance career in 1976, and opened his own agency in Naples in 1984. George has been very active in Rotary International for 28 years and is a past president. It is my goal to give you the latest and most accurate information in regards to long term healthcare for you or any members of your family.
