Self Funding

For most people the important long-term care cost to focus on is not what care costs currently, but what will care cost in fifteen years? In thirty years? If we were to assume a 5% annual cost increase, long-term care in metropolitan areas in thirty years could cost $400,000 annually - or more. Now here is the wild card. Currently the "average" length of care in long-term care situations is less than four years. And while this may be an average, certainly some conditions, such as dementia, may require care for ten years, or more. A broken hip may require care for three months, or less. In statistics which can be found on the Alzheimer's Association web site (www.alz.org) it is reported that nearly 50% of people over age 85 have some form of dementia.

Now it might be convenient to think, at age 55, that I do not care what happens to me at age 85. But our reality changes as we age, and so do our perceptions of acceptability. A living situation which intellectually may seem unfathomable today could be quite acceptable tomorrow. Most of us, when the chips are down, have a tenacious ability to hang on. The point is that even if you do not care, your family will. Care giving for Alzheimer's patients is a 36 hour day.

While it might be prudent to "self fund" a potential $500,000 long-term care liability, do you really need to self fund a $3,000,000 liability? Is this a prudent risk management decision, especially when the cost to insure, or partially insure, can be so inexpensive?

It need not be an all or nothing proposition. Partially insuring this potentially catastrophic liability is akin to hedging a bet. Self fund part of the risk, and transfer some risk to an insurance company.

RetirementGuard associates can share with you techniques to hedge risk and minimize premium exposure. This might include selecting a larger deductible, or elimination period. We might recommend selecting a lower daily benefit; or benefit duration. You might be surprised how relatively inexpensive this might be.

For retirees, premiums could be expensive, but losing the bet could be considerably more expensive. We often quote premium cost for retirees as a loss of yield on investable assets. For instance, if annual premium expense for a couple is $10,000, and they have $2,000,000 of liquid assets, premium expense is 50 basis points. Our point is if you were willing to 'sacrifice' 50 basis points in yield, your premium is paid for. Another way of explaining this might be that currently, without insurance, $2,000,000 is at risk. If I had an investment vehicle that would yield 50 basis points less than your current yield, but would protect the $2,000,000 from long-term care exposure, would you be interested?