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How to Self Insure for Long Term Care (Part 2)

            Last week I was telling you about using your own money, what we call legacy assets, to self-insure for long term care.  This week I’ll walk you through an example of how that can work.

            Mary is 73 years old.  She has high blood pressure, for which she takes medication but otherwise is in relatively good health for her age.  She does not have long term care insurance, having considered and then passed it up 10 years ago.  Now she feels it is too expensive, if she can even find a company to offer it.  She also hears her friends complain about the rate increases they receive annually.  If she must keep the policy in place for 10 or 20 years before ever needing care what would she end up paying in premiums?

            For Mary, self-insuring using a life insurance policy with riders for long term care makes a lot of sense.  Mary has $400,000 in CDs and money market accounts.  She owns her home worth $450,000 and she has IRAs totaling another $600,000.  Mary’s income from Social Security and a small pension comes to $3000 per month.

            By repositioning $200,000 to this life insurance policy, Mary will receive a base policy benefit of $285,000.  If she needs care the insurance company will allow her to take from that policy as much as $8500 per month to cover home, assisted living or nursing home care.  If she needs nursing home care and takes the maximum amount each month, the policy will last 33 months.  If she needs less care it will last longer.  If she needs no care or only uses some of the amount before she dies, the rest will be passed on to her heirs.  Unlike traditional long term care insurance, she doesn’t lose the benefit if it goes unused.

            And what happens if she needs more care than that?  She can purchase the continuation of benefits option which will continue her long term coverage at $8545, even after the $285,000 is used up.  Mary can get that continuation for her lifetime, if she wishes, for an annual premium of $3500.

The long term care benefits are guaranteed, meaning the insurance company can’t change the terms.  Mary need not worry.  She will not receive a letter each year announcing a rate increase.  Finally, there is a full refund of premium.  If she changes her mind or we find an even better strategy to solve her long term care problems then she can get 100% of her lump sum premium back (provided of course she hasn’t used it for long term care yet) and we can apply it to a better solution.  The only amount the insurance company won’t refund is the annual premium for the continuation rider.

            Mary can use either non retirement or retirement account assets to purchase this product.  If Mary is married, she and her husband can buy a joint policy that will cover both of them.  Finally, the policy can be purchased until age 80, a great option for many who can no longer get traditional long term care insurance.

      If you’d like more information, email me at