One of the most frequent questions financial advisors receive from high-income clients is whether or not they should self-insure their long-term care (LTC). With a robust portfolio, self-insurance might seem feasible, but is this approach the right choice?
For high-net-worth individuals, the answer typically requires a closer look at financial impacts and, equally importantly, the values that shape family dynamics and legacy intentions.
This blog will explore the financial and personal considerations that help affluent clients make informed LTC decisions.
Market Timing and Financial Impact of Self-Insuring During Adverse Conditions
Market conditions can profoundly impact affluent clients considering self-insurance for LTC needs. While their portfolios may sustain large withdrawals in favorable markets, the situation can change if LTC costs arise during a downturn. Accessing investment assets during a bear market, when prices are down, can quickly deplete even an extensive portfolio, affecting clients’ financial flexibility in retirement.
Owning an LTC insurance policy can provide liquidity without disturbing investment holdings. For affluent clients, it’s essential to preserve portfolio growth during market corrections, which an LTC policy allows by covering monthly care costs. A comprehensive LTC plan can stabilize and maintain a client’s financial standing, even in a turbulent market.
Personal Values and Family Dynamics in Long-Term Care Decisions
The financial side of LTC is only one piece of the puzzle; family values also shape these decisions. In many families, caring for an elderly loved one is a profoundly personal responsibility. However, providing that care can take a toll on family members, particularly spouses or adult children, who may feel compelled to take on caregiving duties. This can strain physically and emotionally, especially if family members juggle work and personal obligations.
An LTC insurance policy can relieve family members of the responsibility for day-to-day care, preserving family relationships and allowing loved ones to focus on quality time rather than caregiving tasks. By removing these burdens, LTC insurance empowers families to maintain their values of closeness and mutual support without compromising the health and well-being of caregivers.
Protecting Legacy and Assets from Care-Related Depletion
Many individuals prioritize leaving a legacy, whether in the form of financial assets, heirlooms, properties, etc. However, self-insuring for LTC can put inheritance goals at risk. With out-of-pocket costs for extended care running into six figures annually, the impact on legacy assets could be substantial if multiple years of care are needed. For clients who view wealth as a means to support future generations, LTC insurance can be critical in preserving these assets.
An LTC policy creates a dedicated pool of funds that won’t need to be drawn from investments or other earmarked legacy assets. This can offer clients peace of mind and allow them to pursue their wealth-transfer objectives without fear of depletion.
Leveraging Specialized Care Coordination Programs
LTC policies often include access to concierge-level coordination, which can help families organize care with minimal stress. From setting up home health aides to navigating LTC facility options, these services ease the logistical and emotional burdens that typically fall on family members.
Care coordination can be constructive in families with multiple children or blended families, where assigning caregiving roles may create tension. With insurance taking care of the administrative side, adult children and other family members can focus on being supportive rather than navigating complex care options. This added benefit underscores how LTC insurance can support family harmony and relieve loved ones of decision-making stress.
Addressing Privacy, Dignity, and Independence in Care Decisions
High-income individuals often value privacy, especially when it comes to personal care. Without LTC insurance, family members may feel compelled to step into caregiving roles, leading to privacy challenges and potential strain on familial bonds. For clients who want to maintain their dignity and personal boundaries, the LTC policy ensures that professional care can be accessed without imposing on family members.
Additionally, research shows that family caregivers face higher rates of stress and health issues, which can impact their quality of life. LTC insurance allows family members to remain supportive without compromising their well-being, ensuring a balance between care and independence.
Increasing Life Expectancy and Long-Term Care Needs
Affluent individuals tend to have longer life expectancies, leading to a greater likelihood of needing long-term care. This extended longevity brings its financial demands. With age, the probability of requiring long-term or specialized care rises, and affluent clients are likelier to choose high-quality care that can come at a premium.
For high-net-worth individuals, who often expect a comfortable standard of care, self-insuring may mean depleting significant resources as the years progress. LTC insurance offers an alternative by providing a flexible, reliable means of covering costs as clients age, ensuring that their retirement and quality of life goals are met without jeopardizing their financial security.
Enhancing Return on Investment Through LTC Insurance Leverage
Beyond traditional uses, LTC insurance also serves as a financial tool with potential returns. For clients who view LTC coverage as an investment, specific hybrid policies offer premium returns, death benefits, and inflation protection that align with long-term financial strategies. The internal rate of return on LTC benefits often exceeds that of other portfolio investments, particularly in the event of a claim.
For example, specific hybrid policies can yield tax-free LTC benefits that outpace conventional investments. This financial advantage makes LTC insurance a compelling addition to a well-rounded, wealth-preservation strategy, allowing individuals to view it not as a sunk cost but as a protective asset.
Managing Risk Through Investment Transfer
One of the core purposes of insurance is to transfer risk. In the case of LTC, self-insuring may appear statistically feasible; however, LTC risks are probable and potentially catastrophic. If an LTC event occurs, the resulting costs could undermine even the most well-constructed financial plans.
High-income individuals can protect their wealth from potentially significant expenses by transferring this risk to an insurance provider. This safety net approach ensures that one LTC event won’t destabilize decades of careful financial planning, providing clients greater financial security.
Aligning LTC Planning with Your Overall Financial Plan and Values
For high-net-worth individuals, LTC decisions should align with their financial and personal goals. Advisors are crucial in helping clients map their values onto their financial strategy, ensuring that LTC decisions support their legacy, family dynamics, and personal preferences. Creating a values-driven plan that includes LTC insurance options can give clients peace of mind that they’re protecting not only their assets but also their family and the principles they hold dear.
Long-term care is a personal decision in the complex wealth and legacy planning world. While self-insurance may appear feasible, LTC insurance offers significant financial and emotional benefits that often align with affluent clients’ goals. By supporting portfolio longevity, protecting family relationships, and ensuring high-quality care, LTC insurance provides a well-rounded strategy for navigating the challenges of later life. Affluent clients should weigh financial and family-centered considerations and consult with advisors to make the best choice for their future.
If you have questions about Long-Term Care, or LTC self-insurance, please contact our team at Mission Street Wealth Planning. We look forward to the opportunity to help you and your family plan for the future.
